1) How will Ben let the market down softly?

How will Bernanke let this market down softly with the end of QE2? Mr. Bernanke has done something that Alan Greenspan always attempted, but never made so explicit – he has kept asset prices “higher than they otherwise would be”. It’s a dangerous precedent to set. It’s a lot like giving your children a treat every time they start to cry. After awhile they become conditioned to believe they will always get their treat so long as they cry long enough. The result is a child who never actually earns the treat and instead becomes spoiled rotten. Similarly, market prices no longer have to rise on fundamentals alone. So long as the Fed is there with their safety net speculators can feel confident that they will be rewarded with a treat every time the market declines and they begin to cry.

The result has been obvious – equity investors are eager to take excessive risk by buying every dip in the market with the knowledge that the market can no longer decline. It’s a lot like walking a tightrope knowing that there is a cushion just 5 feet beneath you. There is no need to be overly careful. The problem arises when too many people start jumping on the tightrope with you and create a disequilibrium in the system. At some point the rope becomes unstable and possibly snaps. Except this time your cushion isn’t a soft padding, but someone else’s head. People get hurt. You get the picture. What Bernanke has created is not all that different. It’s an environment of spoiled tightrope walkers who are conditioned to take risk and believe they will always receive their treat when they begin to cry. It might be “working” for speculators, but is it good for the US economy?

The problem for Mr. Bernanke is that he must take the pacifier out of the baby’s mouth without causing a temper tantrum. And yes, Wall Street will throw a temper tantrum when the pacifier is removed. If I had to venture a guess I’d guess that Mr. Bernanke will end QE2, continue reinvesting interest payments, thus slowly removing the pacifier. But that’s just a guess. Either way, he will tread carefully and likely remain close at hand with the pacifier at the ready just in case the baby begins to throw a temper tantrum.

In a similar note to thought #1 – there is the potential for a very frightening market development in the coming years (work with me through this hypothetical). Let’s say the Bernanke Put continues to cause asset prices to deviate from their fundamentals – the economy continues to recover (marginally), but the Bernanke Put becomes so ingrained in market perception that the disequilibrium in markets expands. This results in an imbalance so severe that market bubbles appear (could already be occurring in the commodity space). What happens to the market if the disequilibrium Ben Bernanke causes results in some sort of serious market dislocation similar to 2000 or 2008? All it would take is a minor exogenous threat to cause a global panic. It could be surging oil, a slow-down in China, a repeat of the Euro scares….The result would not only be economic slow-down (into an already weak developed market), but potentially crashing asset prices as bubbles have a tendency to overshoot on the downside. But it’s not the recession that would scare the markets. It is the potential backlash against the Fed.

After three bubble implosions in less than 15 years (all somehow directly tied to Fed intervention), I think the public would call on Congress to revisit the Fed’s dual mandate, its impact on markets and whether their actions over the last 20 years have been appropriate. The rational response would be to reduce the Fed’s role in markets. From a societal perspective I think this is an enormous long-term positive. The sooner we get the Fed out of the market manipulation game the sooner this economy can stabilize, definancialize and get back to becoming the economic growth machine that it has been for so long. For the markets, however, this would be a traumatic event. Imagine 20 years of Greenspan/Bernanke Put being sucked out of the market…it might sound far fetched right now, but I have a feeling the Fed will be far less involved in markets at some point in my lifetime. It might be wishful thinking, but I am confident that America will wise up to the destruction this institution causes by constantly distorting our markets and economy.

2) When does the market wake up to the oil problem again?

The seasonal trend in oil and gas prices appear to be moving right on cue. As I type, West Texas Crude is topping $108 and Brent is just shy of $118. While the equity market has powered higher, this headwind only continues to become more problematic. The average national gasoline price is now up to $3.65. UBS says the problems begin to emerge at $110. Merrill Lynch says $120 is the “breaking point”. Deutsche Bank has previously calculated the impact of a 1 penny rise in gas prices as being the equivalent of a $1.4B drag on consumer spending. This means the 65 cent increase since the beginning of 2011 has reallocated $91B in consumer spending. That’s almost the entirety of the positive impact coming from the recent tax cut!

The market has been able to overcome a number of overhyped hurdles in the last few weeks, however, this is one the markets cannot overlook forever. It’s only a matter of time before the market and economy wake up to the reality that higher oil and gas prices are causing severe consumer woes.

3) The plight of the working class

John Mauldin’s latest letter covers a very important question from a reader of his. Mr. Mauldin passes the question along and then dives into the answer:

I get a lot of email from readers. I recently got an impassioned letter from very-long-time reader Bill K., who asks some very pointed questions about austerity and spending cuts. It is a rather lengthy letter, so I will only quote part of it and use it is the launching pad for this week’s letter, where we look at today’s employment report, but from a little different slant. This letter will no doubt anger a few other long-time readers. I argue this week for the middle, but do so as a survivalist.

While Bill starts out by saying some very nice things about me (thanks), let’s jump to the meat of the letter:

“…. I would like to get something off my chest. I would like to know why you seem to side with those analysts who keep telling us that the only way we can sort out Western economies is by making the average guy suffer through austerity programs… You are a very intelligent guy – obviously. You can see how things work and what is broken. You can also see through the greed and excesses of Wall Street, and you can read the economic data which clearly shows that the wealthy continue to get more wealthy in America whilst the average Joe continues to see his standard of living going in the opposite direction. Capitalism today only works for the ‘have gots’. It’s been going in that direction for more than 30 years now. You saw the senseless and stupid greed of the derivative scheme which fueled the housing bubble which led to the meltdown which never melted because Bush/Obama handed out a huge welfare check to financial institutions that should have been allowed to fail.

“In the aftermath of all this, politicians in DC, you, and your guest pundits warn us that the world as we know it will end if we don’t somehow reduce the average Joe’s Social Security, pension, Medicare and Medicaid benefits. Oh and let’s not forget the budget, which is being argued in Washington as I type this. The line is that we have to make drastic reductions to spending on domestic programs, on our schools, on our infrastructure, on unemployment entitlements, on all the things that serve to give working people a chance at a dignified life. You’re a smart guy. You can recognize what is fair and what is greed and excess. When the nation is as troubled as it is today and yet the wealthy are living even better than they did 30 years ago, what does that say about America? I wonder if we really care about our neighbors anymore? I wonder why such a great country with such great natural resources cannot find a way to be just and generous and a beacon to higher ideals? Ike warned us to be wary of the military-industrial complex. Looks like he was right. We’re a nation constantly at war, spending trillions on defense, whilst at home we enrich the already wealthy and tell the average Joe that he has to pay for it. I wonder how you manage to rationalize all this away – if indeed you do?

“Thanks and with respect, Bill”

Mr. Mauldin moves into a very good description of the plight of the working class. But then the wheels come off the analysis as he begins to focus on the debt issue in the USA. I always enjoy Mr. Mauldin’s work, however, his incessant fear mongering over our “Greek moment” has reached a level of absurdity. His reader asks a very astute question and Mr. Mauldin responds with the standard misunderstanding of monetary systems by explaining that we reside in a monetary system similar to the EMU:

“The problem is that the debt is like a cancer. The bigger it grows the more threatening it is. Pretty soon it consumes its host (think interest expense).

Bill, I am worried about the survival of the country economically. Another crisis caused by the bond market driving up interest rates, because they become concerned about the size of the debt and deficits, will seriously reduce the choices we have – with none of them being good. Ask Ireland or Greece how it feels. They are in what can only be called a depression, and likely to stay there for some time. You think we have it bad now? Avoid dealing with the debt and see what happens.

To think it cannot happen here is to simply ignore reality. Yes, the US can go longer than we might think, but there is a limit. I think that limit will come before the middle of this decade. Perhaps as early as 2013, if the new incoming President and Congress do not deal with the deficit in a realistic manner. Then Bang! , we have our own Greek moment. I want to avoid that.”

I’ve said this a million times and I’ll say it again – any time an analyst compares the USA to any EMU nation – RUN. As I’ve previously described, the individual countries in the EMU are not remotely comparable to the Federal government of the USA. If you want to compare Deleware to Greece then be my guest, but when you start spreading debt fears by comparing a currency issuer to a currency user you discredit your work substantially. There are no bond vigilantes to come after the USA for fear of solvency. There is simply no such thing. The only form of insolvency the USA faces is in the form of hyperinflation and that is a very different phenomenon than the one we currently are at risk of.

Comparing an EMU nation to the US Federal government is a terrible flaw that we see day after day. It contributes nothing but fear to the conversation and exposes the fear mongerer as having a severe misunderstanding of the workings of monetary systems. Well over a year ago I warned of this fear mongering. Luckily, we have not succumbed to it (and our economy is recovering – though slowly), but that hasn’t stopped millions from trying to scare the rest of us into believing that our Greek moment is right around the corner….

Of course, Mr. Mauldin isn’t the only person making this crucial mistake day after day. The never ending debate over the debt ceiling, deficit, etc has exposed a nation whose most prominent economists and leaders do not understand this very basic difference between a currency user and a currency issuer. Over the course of the last 30 years the majority of advisors to Congress and the White House have failed to make this crucial distinction and our economy has suffered as a result. The fear mongerers have used this argument to help impose austerity on a struggling working class while giving tax cuts to their wealthy friends and freeing their banker buddies from the chains of regulation. The result? Well, you’re looking at it. In what has to be one of the most embarrassing economic circumstances in modern times we find the world’s wealthiest and most prosperous nation with 9% unemployment in the midst of a “recovery” that feels like anything but. And when your leaders don’t even understand the system in which we reside, how could we have possibly expected anything else?

I’m sorry reader Bill, but our problem is not the Federal debt, your Medicare checks, or the deficit. It is the simple fact that the people running this country (and the majority of its citizenry) have no idea how our monetary system actually functions yet they continually use fear tactics to scare the rest of us into believing that what’s good for them is good for the rest of us….


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • SS

    No one scares people better than Glenn Beck!

  • Anonymous

    I have compiled a list of headwinds that is quite strong, so I am amazed how long this market will ignore it:

    • China tightens and potentially slows down
    • Underperformance of EM equities recently
    • Rich valuations across many asset classes
    • Overbullish sentiment, high complacency
    • Rising bond yields
    • Civil war in Libya
    • Rising oil prices due to MENA turmoil
    • Potential ECB rate hike
    • PIIGS sovereign debt crisis unresolved
    • End of QE 2.0 in June
    . Japan: recession, supply chain disruption, pressure on food and energy

    I am still bullish because of QE2 and the resulting sentiment, and I think QE3 will come when the baby cries. The current valuation bubble still has room to grow. But structurally I am bearish – nominally risk asset may hold, but the real returns will be meager.


  • mojo

    CR, deficit spending may be a good thing, but do it a little too much (a couple of trillion dollars a year) and isn’t that not enough by itself to stifle growth? Lets say I keep making money (by speculation/trade/gov subsidies/whatever) thanks to gov deficits, what motivation do I have to work hard in life?

    My loss of productivity would again be compensated by govt by printing and distributing more money. This can turn into a pretty nasty upward spiral.

    IMHO too much of gov spending can cause the death of capitalism, which by itself has been the engine driving the world economy.

  • Cullen Roche

    Clearly, if the govt just dropped money from helicopters it would be disastrous. But thats not whats happening. In fact, the money supply is advancimg at a historically moderate level.

    Spending must be efficient and well targeted. Ive been a harsh critic of much of the spending, but i also understand that fretting about Greece and attempting a balanced budget is silly. We are in a balance sheet recession and we have a 3.5% CA acct deficit. If we balance the budget this economy will collapse.

    See the free lunch section enclosed:

  • Anonymous


    Only because you do not hear the economists / politicians talk as if they can spend freely, it does not necessarily man they do not (maybe wrongly) think they can spend freely (if only during their term). Maybe this whole debt / deficit talk is intended to slow down the USD reputation damage?

    And I completely disagree that the misunderstanding of monetary system workings has led to the troubled state of economy, i.e. I do not see how an overabuse of the fiscal tool will have better results than the overabuse of the monetary tool. The road to hell is paved with good intentions.


  • Cullen Roche

    Who said anything about overabuse? There are simple accounting identities at work here which you blindly ignore in favor of political jargon. Be my guest. Be an advocate for a small deficit. We’ll know who to blame when the ship sinks.

    Busy morning coming up. I hope to expand on these comments tomorrow afternoon when i have some free time.

  • alex

    That’s a good list, although I would add in the push for global austerity. The UK is already heading sharply in that direction, and the politicians want the USA to follow…

  • Anonymous

    Let me be clear on several points:

    – I think the blind rip-off of the poorer 90% of population is not only disgusting, but a huge systemic risk in itself and needs to be stopped. If deficits are needed for this – ok
    – In the current deflationary pressures environment, a higher deficit is probably needed
    – It is good to have the deficit in the form of tax cuts

    But my point is that the long term result that MMT strives to achieve – i.e. micromanaging the economy via the fiscal too – will backfire in a similar way to the way it backfired on the Fed with its overabuse of the monetary tool. This is where I use the word overabuse. So a high deficit now is ok, but getting addicted – no.

    At some point in time even the reserve currency issuing sovereign will get in trouble, if too much is issued. This is the immortality issue pointed by Captain Jack, I think.

    Every time I point this out is because:
    – MMTers seem to be on average for constant deficits
    – There is always the call for more deficit now without any thoughts on:
    a) the future path of deficits
    b) productivity of the deficit
    c) much thought of how the deficit will be ditributed b/w the top 10% and the bottom 90%



  • Anonymous

    A good one to add thanks.


  • Johnaus

    I see your pain Cullen, over and over ignorant people completely fool others into thinking America is the next Europe. The amount of links on the subject you include to you’re past attempts of showing us ‘the light’ has now increased to about every third word haha.
    Thought i’d just pipe in and thank you after a few years of daily reading your excellent and educational blogs.

    If an 18 year old like myself can fluently understand MMT/reserve accounting (though not comparable to yourself, Warren or the many other excellent posters hear and elsewhere) after reading most of Warren Mosler’s books and a lot of other commentary, then I really find it pitiful and sad how ‘economic experts’ can so blatantly preach their rubbish.

    I hear discussions over the US debt and need for tax increases, austerity etc. at least 3 times a day on the Australian business channel so don’t worry American’s are’nt the only ones who think you’re all bankrupt ;).

  • http://none GLH

    I remember not too long ago Mr. Mauldin crowing over Texas’ ability to withdraw from the Union and that it would do so before Texans would agree to bail out California. That showed Mr. Mauldin’s ignorance of MMT. Not too many days later Robert Reich wrote an article in which he explained that Texas is in as much financial trouble as California. I heard no comment on that from Mr. Mauldin. That coupled with the fact that Mr. Mauldin seems to be ignorant of MMT has led me to quit reading his post. I’m not trying to discredit Mr. Mauldin, but I choose to learn from more informed people.

  • Adam

    Investor X,

    If you could learn only 1 thing from MMT its that the government CAN NOT determine its deficit. Remember, the deficit is set by the actions of the private sector (it’s level of savings and consumption of foreign goods/services)…

    Identity: Net Government Deficit (or Surplus) MUST EQUAL Net Private Sectors Savings (or dis-savings) + Net Savings of Foreigners in US Dollars (inverse of Trade Deficit).

    We would be far better off arguing over how the government should use the nations REAL RESOURCES and not over the size of the deficit. The deficit will be what it is.

    Now, inflation is a potential issue, but it is something that can be managed.

  • Anonymous

    Ok, agree on that. Then let’s focus on the discretionary part of it – this is what I wrote about.


  • Greshams-law

    “It is the potential backlash against the Fed….For the markets, however, this would be a traumatic event.”

    I agree, the potential backlash against the Fed could be very traumatic indeed. My hunch is that – initially – such trauma will be deemed so unbearable that the Fed will be re-embraced for some time. But nevertheless, the greater the tide against the Fed, the more agonising the downward twist might have to be..

  • Derfem

    TPC, disagree….
    In your #1, you make a call against the Bernanke Put and the high level of intervention of the FED in the markets, which push asset prices higher by putting more debt on existing debt.
    In tour #3, you make a call against those who do not share your opinion about MMT, which consist on putting more debt on existing debt….

    Maybe people running USA (or Europe, or Japan) haven’t got any ideas of a modern monetary system. Maybe… But moreover, i really think they haven’t got any idea of how to run a Post-Industrialisation Growth. When the capitalist forces are in action, you have booming wealth effect for everyone by increasing the richness of what is created. But everything comes to and end (Even China will have to manage their Post-Industrialisation period at some time in the future). You can create a wealth effect by putting capitalist, entrepreneurial forces at work, not by adding more debt, in any way.

    But the real problem in our Post-Industrialized society is that demand growth is limited, technological gains and productivity is unlimited, so we just don’t have enough jobs for everybody. Adding to that, we are in a deep de-industrialisation process were the labour-intensives goods are manufactured in EM countries. Ok, we can go up in technology goods, by even in the best case, we will not become a country full of MIT’PhD !

    Our society change and at some point, we must accept that our live in 20 years won’t be the same than now. And the EM world must understand they will never have our standard of living too, because it is unreachable and this standard will decrease all over the time.

    As people aren’t ready to understand that, the governments haven’t got any other possibilities than pushing the MMT to its unsustainable limits. QE is like “Hotel California”: you can check out any time you want, but you can never live…

  • Sormiou

    Very good summary Deferm.

  • Sormiou

    Sorry DeRferm ;)

  • http://GMX JPF

    @ TPC:
    You are certainly right to point out that most leaders don’t understand MMT.

    However in the end Mr. Mauldin is right in one respect,
    one can’t continue with deficit spending without risking that at one point the FED ir required to fund the spending with newly created dollars (let’s call it the Weimar moment).

    Do you have a view at what point the market will loose the confidence in the real purchasing power of the US-$?

    What happens when congress reacts on the next macroeconmic shock by increasing the deficit to 20% of GDP? Will the market than loose its trust in the US-$ and we get a US-$ crisis (as certainly we all agree that the US will not default on its US-$ debt, but the default will happen in purchasing power).

    Finally thanks for your excellent blog.

    Best regards from Hamburg.

  • Nils

    He will probably be done when the economy starts picking up again. His kind of show only works when times are bad.

  • Adam

    “…you make a call against those who do not share your opinion about MMT, which consist on putting more debt on existing debt….”
    I’m assuming you mean more government debt on existing government debt. You do not understand how our monetary system works. You imply that too much government debt will create a burden that causes a fiscal problem for the government and or the nation.
    Households, businesses and state governments can get into debt problems. They are USERS of the currency. They must fund their spending and their debt servicing with income. The US government does not fund its spending with anything. Taxes and Bond sales do not fund government spending. As the ISSUER of the currency the US government just spends.
    “You can create a wealth effect by putting capitalist, entrepreneurial forces at work, not by adding more debt, in any way.”
    Is government spending not putting real resources to work?
    Humor me and lets do a small thought experiment. Let’s pretend that you have discovered a way to print US dollars and never get caught. Let’s also pretend that you love your current job and continue to go to work and collect a paycheck – it also adds cover to your other covert activities. As the issuer of your own US dollars you can spend as many of them as you want – so long as there are products; services; and labor available to spend them on (and if they are not available you could bid up the prices of those resources until you got them – though that would not be good for your friends and neighbors). Now what about that paycheck? Do you need it? Not for spending you don’t. You might as well shred it up when it arrives.
    The federal government just spends. Deficit spending causes excess reserves to build up in the banking system. Bond sales just converts those zero interest financial assets (cash) balances into interest bearing financial assets. They do not fund anything. The government in essence is just “borrowing” back money it spent into existence in the first place.

  • http://n/a Charles S

    Hmmm…seems like everybody now believes the market is going to decline at the end of QE2…

  • Derfem

    Adam, you do not understand how our entrepreneurial world works.
    Debt is not the problem. Lack of entrepreneurial is. I don’t have anything against MMT or austerity, they are just two faces of the same problem. Silly to talk about that.
    Wealth comes from companies, manufacturers, services. Not from government spending, moreover if this spending is targeted to push asset price higher. MMT is not creating wealth, it is just delaying the moment where the system will reckoning, with creative innovation.

  • Adam

    “What happens when congress reacts on the next macroeconmic shock by increasing the deficit to 20% of GDP?”

    What does the size of the deficit tell you about anything meaningful? It doesn’t, its a number. If I was a foreigner investing in the US I would be more worried about the direction and utilization of real resources in the US economy. Would I care if the deficit was 50% of GDP if inflation was low, unemployment was low and productivity was high? Probably not.

    For what its worth too, Scott Fullwiler wrote a great post a week or so ago…

    The FED will never be needed to “fund” the deficit.

  • Derfem


    One can argue that the JPY didn’t lost its purchasing power in the last two decades while Japan is pushing QE higher. But I think that the last events had made a turning point where the market begin to recognize the currency problem. Maybe it is just starting now.

  • Derfem

    Yes… The bear camp see a collapse in July… While the bull camp see an ascent straight to 1500 to year-end. It will be exiting to see what the market will do, which is obviously neither #1 or #2.

  • B Ferro

    Your first question is probably the most important of our times.

    These get rich quick schemes that the Fed engineers to paper over our structural economic problems have proven to breeed massive subcutaneous, systemic imbalances and risk…

    And what amazes me more than anything is that all these clowns at that institution are unelected officials. Really breathtaking when you think about their power!

  • Adam

    “Wealth comes from companies, manufacturers, services.”

    Correct, but the last time I checked output was only generated when someone bought something which means someone spent money.

    Do businesses care if their accounts receivable is full of order from persons or government? I don’t think so.

    “…moreover if this spending is targeted to push asset price higher. MMT is not creating wealth…”

    You mean bad policy is not creating wealth. No serious MMT’er would ever recommend what the FED is doing as a solution to insufficient demand.

  • Cullen Roche

    Yes, when we begin to print in excess of productive capacity we risk inflation, high inflation and possibly hyperinflation. We’re not even close to those levels…

    exogenuos shocks generally are the primary culprit of hyperinflation. See the following:

  • Pete

    I think we will be next Japan whether we like it or not. Bernanke will raise rate a little bit some time in the future, and that will knock down the market quite bit. Then we recover again by lowering the rate. Government cannot afford higher rate, because the interest payment will be higher, and therefore, Bernanke will not raise rate to a level that topple the Government. Inflation will be high, but not out of control. at least not by the CPI index. Middle class and the poor will be further squeezed by higher food and gas price. Corporate cash will be sent somewhere else to get the yield, and stimulate other economies, and create the jobs in other countries.

    Japan is what we will be like in 5-10 years. No one will intentionally create the country that way, but it will become one. It is not what it should be, but it will be, by our leaders creation.

  • pebird

    Right, the interstate highway system enabled no value for the private sector, the public spending on education in the 50s and 60s did not enable the growth of a high tech sector starting in the late 70s, the internet enabled no private sector value creation. All of this was created by a financial system utilizing MMT principles, the same principles that allow this zombie financial system to stagger on.

    MMT is like a gun, you can bag game with it and go home and eat, or you can shoot your neighbor, or yourself in the foot.

  • prescient11


    EXACTLY! Please make this point very strenously to your cult MMT followers, as they seem to miss this point, which underlies the very basis of the system.

    I’m sure you have before. As I said, I have read many, many of your pieces and have bought into your thoughts on MMT. But there is a dark, flip side to the coin.

    I absolutley agree that deficit spending needs to happen now to make up for the severe contraction in private credit and shadow banking and that it should be targeted for “good” programs, such as massive infrastructure deals. Unfortunately, a lot has been wasted on entitlement programs instead (even though I’m ok with some extension of UE).

    I will comment on your thoughts on BB in a separate post, as your growing popularity makes it difficult to highlight something in these comments!

  • flow5

    TRILLION DOLLAR INTEREST PAYMENTS? SEE “QE2″ ends in June. Beginning in July, the Fed’s purchases of Treasury securities in the open market are likely to all but dry up. I’ve read some Lehrman & he is a scholar. Lehrman doesn’t understand money & central banking but he is very influential (Grant’s a big fan of his).

  • Tim Ayles

    Derfem said: “Wealth comes from companies, manufacturers, services. Not from government spending”

    Printed money (government spending) eventually flows into the hands of those who create wealth, but, because of taxes and mis-allocation, it is not very efficient on the journey there. Is it fair and efficient? Absolutely not.

    But to argue that government spending is all a waste and the money spent ends up being vaporized, is wrong. Government spending, even wasteful spending, is someones income. Food stamps become the income of Safeway and Albertson’s. Employees who work there get paychecks, and the shareholders get dividends. That money ends up being spent as well. Again, not fair to some who are productive, but also not a waste. If you run a productive business, chances are you too have received some of this “stimulus” money. If you are that against government spending, go to great lengths to make sure you don’t let any of that money get into your hands, and then watch your business struggle.

    Take a look at any defense contractor. LMT, GD, NOC, LLL.

    They are all cash cows, and most all of them get over 90% of their revenues from government spending.

    They spend money on stuff that kills people and blows things up. Not very “productive”.

    Yet, those businesses are gush cash. Other businesses and investors lent them money, which they use government spending to pay back. So that debt from investors is now those investors’ income, which comes from government spending. Government spending = debt investors income. These defense companies buy technology and metal from somewhere to make their weapons. Therefore, those that sell them technology and metal get paid from revenues that come from government spending. There are 412,000 people who work for these 4 companies. Assuming they average $50,000 per year in income, that is about $20.6 billion in income. Where does that $20.6 billion go? Some goes to taxes, of which some gets wasted. But those taxes pay teachers, build roads in neighborhoods, pay for police etc. It also gets spent at the local grocery store, hardware store, invested in other companies (which produce and employ). Another $2.5 billion gets paid out in dividends. I know some of my clients get that money. Those dividends get spent somewhere in our local community. How about the pay of the 2.3 million soldiers? That is “wasted” government spending. But it is income for those 2.3 million soldiers. That is roughly what, $100 billion? It seems like “spending”, but is in fact income that gets spent at all the places mentioned above. So the spending gets into the hands of businesses.

    So the hard answer, as much as I hate it, is yes, government spending does end up flowing throughout the economy.

    I agree, we need to focus more on getting that money into the hands of the productive citizens, rather than Wall Street, who blow it. There are reforms that need to happen as well. If you read some of my past articles, I am VERY against POMO and the manipulation going on in our markets. I say use that $600 billion and give it to Main Street. Don’t just prop up asset prices “higher than they otherwise would be” (Fed member quote).

    The government should spend more – AND TAX LESS! Build roads with the money. Instead of paying 99 weeks of unemployment insurance for people to sit around and watch TV, pay unemployed workers to go to school so that they can keep their skills up and become productive for society again.

    Find ways to manufacture things HERE, not China. A lot of what happens now is the government spends money here, and then that money flows to people who send it to China by buying Chinese stuff. Now China has the money to buy and build cities made for $1.7 million people in which no one lives there:

    Government spending is not always bad. Unfortunately, with the plutocracy we are heading towards, the spending gets filtered through the Wall Street crooks first, and not Main Street. Spending does not need to stop, per se, but what it gets spent on needs to change.

  • R U Kidding

    The federal govt is spending 40% more than it is taking in. Is it fear mongering to mention that? The crap is hitting the fans in numerous states. One has to be DUMB to not see the coming crisis.

    Nations that print their own currency DO GO BROKE!!

  • George H

    Seems Krugman just came out to praise the stock market wealth effect.

  • LVG

    Actually, it is impossible for the USA to go broke. You might want to keep learning here.

  • Chad S.

    I’ve pointed out elsewhere, the problem with is not with MMT, as Cullen says. MMT is a description of how the system works, not a prescription for how our policies should be implemented. Two separate issues.

  • boatman

    the extreme traumatic event(described in #1)…… that will happen next, WILL show the fed to be what it is.

    for lack of anything else…an ounce of gold will buy the DOW…but not for long.

  • http://deleted Don Levit

    Let us assume that it is impossible for the U.S. to go broke.
    Does that mean the full faith and credit of the U.S. is assured?
    My little understanding of MMT tells me that taxation is a way to increase our credibility, for the government’s ability to tax is coercive and certain.
    For our full faith and credit to be maintained, doesn’t taxation have to be a certain percentage of spending?
    Right now, it is 60%.
    If it falls to 30%, does that impact the strength of the “faith level” according to MMT?
    Isn’t there a certain tipping point, if a minimal percentage of taxation to spending is needed, that the taxation will be so high that productivity is negatively impacted?
    Don Levit

  • El Viejo

    Great article on MMT:

    What does anyone make of Clinton recalling ALL of our foreign ambassadors?
    (First time in our nation’s history this has been done)
    What do they have up their sleeve?

    Or should we take it at face value?

  • El Viejo

    Sorry, old news above for sure, but I never heard any reasonable response. Just a bunch of paranoid conspiracy theorists.

  • JWG

    As TPC says, “MMT IS MERELY A DESCRIPTION OF A MODERN FIAT MONETARY SYSTEM.” We have the world’s reserve currency and the world’s deepest economy, owe our debts in dollars and have no true operational constraints, and so we have a huge amount of policy flexibility. This is what so many seem to misunderstand; once I grasped this the current situation in the US made a lot more sense.

    The risk I see to the US is that MMT appears to be in most respects a “closed system” analysis. Exogenous threats, the psychological effect of the gold standard legal infrastructure in which the dollar functions, and the madness of crowds are major variables that cannot really be accounted for by MMT.

    Who would have thought that millions of Americans would take on mortgages that they could never in the real world afford or that major financial institutions would gladly (and aggressively) promote and issue such mortgages? A behavioralist might attribute such actions to mass hysteria. Once the lemmings start to run towards the cliff there may be no stopping them.

  • mojo

    Thanks Much for those links, CR! You have a much better understanding than I do, but in my perception the govt is already throwing the money from helicopters. Look at the various subsidies govt has thrown to prop up different sectors.

    Govt is the part of problem rather than solution. The politicians don’t know where to spend money – they would spend it on wars, bringing smiles on the faces of their chums and buying votes.

    Govt spending can statistically prop up the economy but the money will almost always flow the wrong way. I may be wrong but I have yet to see good examples of govt spending doing anything substantial (than to create inflation and bubbles).

    It is always the private sector that knows what to do with the money. Govt should have policies that fosters creativity and innovation and thats where the govt role should end.

  • First

    If no one in congress and the Treasury understand Modern Money how in heel are we suppose to expect deficit spending to have any consistency and be beneficial to economic needs?

    Come to think of it, knowing that they are incapable of balancing budgets even if did made any sense. Its probably much better that most do not understand, Imagine if they did find out that deficits are needed and beneficial in the present Fiat sovereign currency system. We would end up with a 50% ratio to GDP in no time.

  • First

    “A behavioralist might attribute such actions to mass hysteria”.

    There is always some one hiding behind the big “we” Had rates reflected risk there would never have been such hysteria.

  • studentee

    there is nothing in mmt that demands the gov’t ‘micromanage’ the economy. mmt is descriptive economics

  • Oroboros


  • Dimm

    I’m sure you are aware of Bill Mitchell, but just in case:

  • Albatross

    I’ve been thinking long and hard about point #1 (letting the market down easy). Specifically, about the role of liquidity providers and arbitragers (HFT guys).

    Over 2009 and 2010, if I ran an HFT bot, I would have tuned it to have a very slight positive bias on equities. Remember, my goal would be to make risk free trades – not to speculate. Any dramatic bias in the long/short direction would introduce a level risk that my hypothetical-HFT-shop would not want to take.

    So – in 2009, 2010, my hypothetical-HFT-bot would be tuned to believe that the market would gently rise. On days of low volume, this bias would show itself as a gentle rise in equity prices (my HFT bot would assume this and trade accordingly). Over time, this becomes a virtuous circle as human participants watch the market monotonically rise and begin to allocate larger and larger sums.

    At the end of QE1 – I would have tuned my HFT bot to be NEUTRAL in bias – my hypothetical HFT bot would churn the market – but actual market direction would come from human participants. After a period of flat returns, the humans would begin to start heading for the exits. With the newsflow in spring 2010 about Europe’s debt problems and concern about a double-dip recession, I would have programmed my HFT bot to be very slightly negative.

    And then a flash crash. Why? Because the rise from the bottom wasn’t built on fundamentals, it was built on momentum price action. Any significant panic on the part of human traders would cause my hypothetical HFT shop to either pull the plug on my HFT bot or attempt to tune my bias to reduce risk. I’d probably just pull the plug.

    So August 2010 rolls around and Fed begins to suggest another round of QE. Once again, I would tune my HFT-bot to be slightly positive biased on equities. This time around, humans anticipate a response similar to QE1 and go very long on equities. My hypothetical HFT shop would just be slightly positive biased – no need to add extra risk – the goal is relatively risk free returns.

    This brings us to today – where we are a few months away from the end of QE2.

    What would my hypothetical HFT shop do now? Well – once again, I would start trimming in my bias from positive to almost neutral on equities. Assuming only this type of HFT bot were in the market, the indices would start to churn around their averages. Over a period of time, humans would start to slowly head for the exits – concerned that the big rises are behind them. Some would even start hedging for tail risk. Are we seeing any of this yet? The VIX is down a lot – the cost of hedging is low (comparatively speaking).

    Does the pattern from last spring/summer repeat itself? Market drops. Flash crash. Another round of QE announced?

    I don’t think so – last spring we were concerned about Europe and a double-dip recession. This spring, the American labor market is improving and concerns about Europe, Japan, and inflation are just not reaching the feverish pitch of last spring.

    So – if the HFT bots indeed go neutral and stop putting in their positive bias to equities, are humans going to start selling their positions? I think the markets really don’t sell off at all. Unless the underlying news flow about labor and corporate profits through margin compression gets really worse, I think the markets churn until the HFT tuners have a sense of whether to reset their biases away from neutral.

    Although I think we left fundamentals far behind – there needs to be a reason for us to question current prices. I don’t see any such reason gaining momentum at the moment. Lets say that the market makes it through June and July without a significant drop – then as an HFT tuner who wants to make money, I would even consider biasing slightly to the positive side.

    Summary: My wild ass guess: unless the news flow changes and gives people reason to worry, Bernanke will not get spooked by the markets this summer.

  • First

    Good Post Tim Ayles.

    “Government spending is not always bad”. Not always…….
    “So the hard answer, as much as I hate it, is yes, government spending does end up flowing throughout the economy”.

    Yes but so does the Drug money and the mafia money. Well… not exactly the same since they do not counterfeit as much.

    Growing the money supply via the treasury of any Government is conflictual and is to often incompatible with its underlying economy causing all kings of market distortions, Malinvestments, inflation,bubbles and financial corruption.

    Just look around its obvious.

  • First

    “EVERY fiat currency since the Romans first began the practice in the first century has ended in devaluation and eventual collapse”

    They did not default there currency did. What is the difference ?
    The difference is that it gives us time to convert.

  • chris

    cullen, this is a thoughtful discussion and i appreciate it. where we disagree is that you seen the fed excess reserves just sitting at the fed and not increasing the money supply, and i think this is going to change soon, that the banks are going to start using their bank reserves to kick start a large ramp up in corporate lending.

    jp morgan recently wrote a commitment for $20B for att to buy tmobile. this is an extraordinary transaction that will be replicated because, first, the fees on this are so lucrative and, second, jpm was able to syndicate it in a snap.

    you are going to see M&A rev up, fueled by huge commitment letters written by banks that are also advising, doubling up fees.

    so i think the dry tinder is about to be lit.

  • Coolidge Low

    Confidence in the PUT! Lose the safety net and a lot of intelligent people will find religion real fast. Somehow I think the sales pitch for QE3.0 is right around the corner.

  • Steve

    In all of the contemplation about the direction of the economy, the suspected headwinds, shocks, who wins and who looses; one thing is for certain: there is no such thing as a free market economy anymore, if there ever was. While there are some remnants of a free market economy, mostly retail businesses, the free market died out 100 years ago in the Progressive era. Which is a shame because it crushed the old feudal system that had kept serfs enslaved in agriculture for centuries and brought them up into the middle class. That being said, in spite of the desires of the Tea Partiers and Austrians, 19th century free market capitalism will never come back. The world become too complicated for that. However to forecast into the future one does need a reference point and free market capitalism serves as a good reference point. The only problem is that free market data to be used as a reference point is becoming harder and harder to find.

  • Hans

    What have I learned so far at PC:

    1) central governments are immune from the laws of economic…
    2) central governments can not become insolvent…
    3) federal debt dues not matter…

    “The fear mongerers have used this argument to help impose austerity on a struggling working class while giving tax cuts to their wealthy friends and freeing their banker buddies from the chains of regulation. ”

    This above statement is classic class envy and of little substance….First rate Bathos…

    Treasury Secretary Roche, what shall be done when interest payment consume 100% of all central government revenues? I ask, what shall be policy?

  • Cullen Roche

    You need to do a lot more research here. I have made none of the above claims.

  • Hans

    I am sorry, Mr Ayles, but I could not get past your third paragraph…

    The government does not produce a thing….If you think it does, then we went to different schools…

    They are only a transfer agent and add nothing of value to any article or service..They are not even proficient at redistribution…

    “But to argue that government spending is all a waste and the money spent ends up being vaporized, is wrong. Government spending, even wasteful spending, is someones income. Food stamps become the income of Safeway and Albertson’s. Employees who work there get paychecks, and the shareholders get dividends. That money ends up being spent as well. Again, not fair to some who are productive, but also not a waste. ”

    Your example would have been better served had you mentioned common welfare, such as defense, the national police, roads and other public infrastructure…And, of course, the welfare of those who through no fault of their own, who are unable to help themselves…

    You seem to negligent that those who provide the monies for food stamps, have only done so at the cost of their own economic sacrifice..

    Of course, it is well known that the majority of recipients of welfare are not deserving and thus a drain on economic resources and efficiencies…

    It is are simply, the larger the government, the smaller free enterprise…

  • Cullen Roche

    Hans, if the pvt sector is unwilling to hire 10% of the American public how can you possibly argue that the US govt is too big?

  • Hans

    Excellent post, Flow….

    This problem is only going to get worse as debt and interest cost rise….

    I guess we will be consigned to the solvency and fear mongering group…..

    Just watch the US Dollar, the impartial arbitrager of a responsible government or the lack of it….

  • Awakened Sheep

    Read and learn first, then ask questions. It’s only logical.

    Thanks for your efforts Cullen, you are a much patient man than I could ever be.

  • Ralph Musgrave

    There is a very good and simple reason for a more or less constant deficit, and as follows. It is generally accepted that a 2% rate of inflation is about optimum (rather than 0%, 6% or any other %). Given that 2%, the monetary base and national debt will decline in real terms at 2% unless both of them are constantly topped up. And they can only be topped by means of a deficit.

    Also, assuming real economic growth (say 2% again), and assuming the debt and base are to keep up as a proportion of GDP, even more “topping up” is needed. All in all, that’s a fair amount of deficit: roughly 2 – 3% of GDP.

  • Ralph Musgrave

    Cullen, Your attacks on the Fed are thoroughly naïve. OF COURSE asset price manipulation is poor economic policy! I know that. You know that. I am sure Bernanke knows it.

    But what else is he supposed to do? Congress is anti stimulus. Had it been left to its own economically illiterate devices, the US would have had 20% unemployment by now, rather than 10%.

    I have no desire to “get the Fed out of the market manipulation game….” (to quote you). Reason is that that would involve leaving all economic power in the hands of Congress. That’s the bunch of people whose only skill is taking bribes off bankers and pandering to populist opinion. The bunch of people who have given the US record breaking levels of deficit and national debt. You really want to put more economic power into the hands of these clowns? The Fed may be bad, but Congress is much worse.

  • rhp

    I’m starting to think there is a danger that the US COULD go broke, because the austerity pushing members of Congress understand so little about MMT that they might voluntarily shut down the printing presses thinking that was a righteous and noble thing to do to “take back the country”.

    I would hope “we” would not be so stupid, but clearly J. Dimon and T. Geithner have their concerns as well as evidenced by recent comments. Considering the Republicans had an economist, a lawyer, and a marketing expert to testify regarding Global Warming, I see no reason, why they couldn’t let Joe the plumber determine whether or not to raise the debt ceiling. Seems to me, the “nuclear option” of default is actually on the table for consideration by certain members of Congress.

    Just because there is absolutely zero reason for the USA to default, doesn’t mean we CAN’T default through sheer ignorance. Unfortunately, Cullen, your past comments about the only reason to default would be if someone on the golf course forgot to push a button, is not the only way for us to default. Strict adherence to ideology driven by lack of understanding has created much misery in the world before. I don’t think the USA is immune………

    just thoughts

  • mojo

    Cullen, I was expecting some kind of input from you, but guess you are busy with other stuff.

    I am not from economics background, so kindly bear with me if my thoughts seem like novice to you. But your site is certainly the one where i am learning a lot.

    I believe that inflation/deficit spending/QE is nothing but a form of wealth transfer – usually from lower sections to upper sections. If the deflation had been allowed to continue, the people with their saved dollars would have been worth much more than they are today. Today, they have to spend much more to buy the items they need, thanks to inflation created by the Fed. Deficit spending has just robbed those people of their spending power! And any guesses who the winners are?

    MMT is great – you never run out of money, you never default on the loans, you can bailout the biggest cheats on the street, you can engage in n number of wars, you can buy any asset (manipulate) in the market, heck you can buy the world with it.

    BUT nothing comes in life for free. There is some price that has to be paid. And as I see it, the price is being paid by the man on the street – in the form of more dollars to be shelled out for lesser and lesser things in return. And the salaries are not able to keep pace with this inflation, which is sucking life out of poor and slowly middle class. Maybe the dollar index trending lower is just another sign of that.

  • Anonymous


    you do the mistake to think the Fed does anything for the good of the economy, but it aint so. They only care for the banksters, and one of the major reasons for economic trouble is the financialization of the economy, enable and enforced by the Fed.


  • Ralph Musgrave

    Cullen, I’m interested in your claim that “If Bernanke knew what he was doing he’d recommend some fiscal policy…” My sense is that he knows that more fiscal policy is needed but cannot say so because he cannot be seen to be telling Congress what to do. Amongst other things that might be seen as straying into political territory. Plus Congress wouldn’t listen to him anyway. All central bank governors face the same problem. The governor of the Bank of England strayed into “fiscal” territory recently, and got criticised for it. See:

    But your grasp of American politics is doubtless better than mine. Do you have evidence to back your point?

  • Hans

    Mr Roche, you are not suggesting that business is responsible for full employment?

    The central government now is 1/4 of the entire economy…

    The entire government complex is 44% to 46% of GNP…

    Where I reside, (pop 48,000) the largest revenue producer is city hall – $32,000,000….

  • Cullen Roche

    Hans, I just don’t see how you can claim that the pvt sector is being crowded out when the pvt sector doesn’t want to hire 10% of the American public.

  • John1025

    Chris: I think if the banks start to withdraw reserves too quickly (in the Fed’s view) they will raise the interest rate from the current 0.25%.

  • Cullen Roche


    I don’t know more about politics than you. I am pretty sure about that! :-)

    But I do know Bernanke pushed for fiscal policy in Q4 2010 and he helped spur Congress towards the tax cuts. Unfortunately, I really don’t think he understands what we need. I really think he believes QE2 is helping and not hurting and that he is the wizard behind the curtain.

  • John1025

    Cullen: You have said many times that if we create money in excess of our productive capacity we risk high inflation. I believe that is true. But how do you define what our productive capacity is? How do you know when we are printing more than our productive capacity?

  • John1025

    But at the end of QE2, Charles, the liquidity will still be there in the form of almost $1.2 trillon in excess reserves.

  • Cullen Roche

    Well, full employment would be the obvious answer, but you could also use the output gap. It’s a rather ambiguous notion, but with 9% unemployment and a 7% output gap I would argue that there is a lot of slack in this economy. I doubt there are too many experts who would disagree.

  • Adam

    Ralph, your anger is misplaced.

    “The bunch of people who have given the US record breaking levels of deficit and national debt.”

    Unfortunately you and most people actually blame Congress for the deficit. Congress in fact has NO control over the deficit. It may set the tax RATE and teh level of spending, but it is the counter action of the private sector that will determine the deficit.

    By Accounting Identity the Deficit MUST EQUAL The Net Savings of the Private Sector + the Net Savings of Foreigners in US Dollars (the inverse of the trade deficit).

    There is a reason the US Deficit was approximately 10% of GDP last year. The US Trade Deficit was about 3% of GDP and the Private Sector Net Saved 7% of GDP. 3%+7%=10%.

    In the 1990’s when the government ran a surplus, the surplus was only possible because the private sector took its savings rate negative. Had the private sector kept on saving we would have had a recession and the government would have seen deficits from falling tax revenues and rising unemployment expenses – regardless of it’s policy to try and balance the budget.

  • http://deleted Don Levit

    I believe in a previous post you said that a good portion of the private sector’s net saving was foreigners.
    You also said that the vast majority of the domestic savings was in the top 2%.
    I’ll ask again “Is our economy sustainable with most of the wealth concentrated in the top 10%?
    It also seems to me that MMTers do not want people to save, becaues it detracts from GDP today.
    They seem to have little concerns for tomorrow.
    Since when did saving become a liability?
    Don Levit

  • Hans

    Mr Roche, I believe monies (resource) is far more relevant than a body count…

    If the government complex grows at a greater pace than the free market, it will only do so at the expense of the latter…

    As for the 10% of employable people that are not employ by business, if most of the government complex and it regulations were eliminated I suspect many of your 10 percent would be gainfully hired…

    Anywhere from 5 to 10% of gross sales, is simply the cost to comply with Mandarin rule…

  • Cullen Roche

    Unemployment surged because revenues at corporations collapsed. Companies didn’t fire 5% of the American workforce because of the govt. In fact, I think the lack of govt regulation is what caused this crisis to turn from a minor recession to a banking crisis.

    Look, I am not rejecting the notion that the pvt sector MUST be the driver of real economic growth, but I think you’re finding the wrong boogeyman when you blame everything on the size of the US govt.

  • Adam

    Just a refresher…

    Net Government Deficit (or Surplus) MUST EQUAL Net Private Sector Savings + Foreign Sector Savings (in US Dollars).

    The private sector savings is not primarily held by foreigners. You need to add them together – i.e. Private Sector Savings + say China’s Dollar Reserves.

    I personally do not think the current socio-economic paradigm is sustainable. I would say that MMT is primarily agnostic on that since it only describes the monetary system. Whether or not it is sustainable and or proper is more of a political decision.

    MMT is all for private sector savings, that’s why we support deficits for nations like the US. By accounting identity if a nation wishes to net save then the government must run a deficit (unless its trade balance is in surplus, which is not the case here in the US).

  • Adam

    Much of the debt that Russia defaulted on in the ’90s was in Rubles. Somewhere between bad advice and just plain stupidity. Yes it is very possible.

  • Hans

    Yes, Mr Roche, you are correct that indeed the principal driver is the private sector…

    However, one just needs to examine the energy industry as to the effect of government regulations and

    prohibitions…I still remember the 1975 Arabic oil embargo and its deleterious effects on the USA economy…

    Also, remember that oil imports are by far the largest imported item and the sole responsibility for our trade deficit…

    I can not provide any supporting evidence, however, I suspect the greater the mass of government is, the smaller the growth and the stymie GDP per capital will result…

    You must agree, that at some point the manifestation of governing becomes counter productive to the workings of the economy..

  • Hans

    I am both pleased and relieved to read your response….

  • Cullen Roche

    Certainly, govt could squash the pvt sector. I would argue that a communist regime acts in this manner to suppress the pvt sector. The govt does not act in the best interests of the pvt sector and is instead used as a tool by an elite few to suppress the rest of society. The USA is still in the hands of the people. It might not feel like it all the time, but we always have the power to guide govt in the best interests of the majority. That is the power of the USA and our representative republic.

  • Hans

    When great sadness, contempt and bitterness I am in agreement with your second sentence…

    My heart hangs low that such an appraisal would ring true…

  • http://deleted Don Levit

    Other than relying on that equation, can you explain why private savings has anything to do with the government?
    Only if you start from a base of 100% taxation is that true.
    Don Levit

  • Adam

    Don, it’s not a direct cause and effect relationship.

    GDP = C + I + G + NX
    C = Private Sector Consumption
    I = Investment (plant & Equipment type investment not stocks and bonds)
    G = Government Spending
    NX = Net Exports

    We also know by accounting identity that (G-T) = (S-I) – NX
    T = Taxes (so G-T = deficit)
    S = Savings (so S-I = Net Private Sector Savings)
    and also remember that -NX is the same as Foreign Sector Savings in Dollars (assuming US GDP is being discussed)

    and remember spending = income; so S-I and -NX and T are leakages from the system.

    Individual Incomes = C + S + T

    It’s not that the government is causing or creating individual savings, but if the government reduces its spending then by nature government is reducing incomes (GDP). Reduced incomes means reduced ability to save.

    Think back to the 1990’s when the government was running a surplus. As T went up (and the deficit went down) consumers either had to reduce C (which would have preciptated a recession) or reduce S. In hind sight households reduced savings to the point of adding debt.

  • Adam

    After all that Don, this might be a tad clearer…

    (S-I)-NX are leakages out of the system. If they are not made up by (G-T) then the economy shrinks until the accounting identity balances out. changes in any of those components will set into motion SOME chain of events until the identity is satisifed.

  • Don Levit

    I understand MMT claims the full faith and credit of the U.S. Government is based primarily on the power to tax.
    Currently, we are spending about 40% more than we’re bringing in. Taxation supports 60% of our expenses.
    Is there some point in which taxation is a moot point, say at 30% support?
    Or, are you saying that the mere power to tax is enough to sustain the full faith and credit of the U.S. Government?
    Don Levit