While I’d agree with many of your statements with respect to currency, they’re not true of money. People invent media of exchange all the time: eurodollars, mortgage-backed securities, BestBuy gift cards…the list goes on and on. The derivative crash in 2008 showed how little involvement or even awareness the government has of most of the money.

Maybe we should clarify terms here. In this article, I am discussing the capacity of the US government to spend (create) money denominated in its unit of account (USD). I agree that the definition of money should be more broadly construed than mere national currency since money in its general form is debt. To take your example, BestBuy gift cards are “money” because they are a form of debt redeemable for BestBuy products. I.e, they are BestBuy credits.

This is nearly identical to the manner by which USD are tax credits. The relevant quote from Minsky here is “Anybody can issue money; the problem is to get it accepted”. The US government solves this problem by imposing tax liabilities on assets and income; creating obligations which can only be fulfilled by USD. BestBuy solves the problem by making their credits redeemable for products

I would also agree that the US government, under the present monetary system, has little control or awareness over the amount of money in circulation, even over money denominated in its own unit of account. This is because the vast majority (maybe as high as 97%) of circulating USD is generated endogenously via banks extending credit. However, while privately created dollars (we can call them ‘bank dollars’) do increase the volume of money in circulation, all credit extended is matched by a balancing liability also held by the private sector. This is why the Federal government is the only institution capable of increasing the net financial assets of the private sector. This is the essence of the sectoral balances model, which is exactly what we see when examining national accounting balances between the governmental, private domestic, and foreign sectors.

Of course a Social Security check diverts physical resources. Not when it’s printed, but when the retiree bids a set of golf clubs away from whoever else would have bought them. Same with Treasury coupons.

Yes, but the alternative bidder is also offering a bid with financial assets issued by the government, assuming this is not some ‘barter’ auction. If your point is that the Social Security check increases the retiree’s spending capacity relative to the other bidder and thereby diverts the golf clubs to different hands, then I agree.

You are certainly right that investors like the risk-free return of Treasurys. In these times of high risk everywhere else, it’s no surprise they’ve bid yields to historic lows. They would equally like mugging futures contracts from a highly established Mafia branch. That doesn’t make Treasurys a social good. They are precisely a contract to mug future taxpayers.

Most MMT economists advocate doing away with Treasury bonds altogether. Or at least limiting their issuance to something like 3-month bonds catered to individual savers and barring institutional investors. MMT shows that Treasury bond issuance is a totally superfluous operational relic which today functions mainly to line the pockets of the already-wealthy. There is no need for the government to “borrow” back money it has already created. This is mere legal convention due to the mandate that the Treasury General Account (TGA) at the Fed maintain a positive balance.

Perhaps you can tell me what “sufficiently” employed labor looks like? The Federal Reserve just gave up trying. There are idle physical resources in the economy; I’m not assuming otherwise. Maybe those retirees’ appetite for golf clubs exactly lines up with a bunch of between-jobs golf club assemblers, who get tidily slurped off their couches. But that would be an astonishing coincidence.

The Fed does not have the capacity to employ labor because it does not have the authority to create net USD (spend) on its own. All it can do besides setting interest rates is accept collateral in exchange for liquidity. But this is just a financial asset swap, not a net injection of new financial assets. The authority to create money lies with the Congress, as outlined in the Constitution.

The MMT solution to idle labor is the Federal Jobs Guarantee (FJG). The FJG is a federally funded fixed-wage jobs guarantee program that eliminates involuntary unemployment. The FJG wage is the de facto minimum wage and serves as an inflation and labor price anchor as the Federal government hires out of the fixed-price sector during economic expansion and offloads labor to the program during contractions. This model displaces the Philips Curve and Non-Accelerating Inflation Rate of Unemployment (NAIRU), both of which assume there is some natural and inevitable tradeoff between unemployment and inflation.

Current Fed operations rely on these faulty theoretical frameworks. Mosler describes this as (and I’m paraphrasing here) “trying to drive a car from the passenger seat with a wheel that’s not connected to anything”. There’s no evidence that cutting the fed funds rate decreases unemployment or increases inflation. The reasons for this are obvious to anyone with an understanding of MMT. It may even be the case that cutting the bank rate increases unemployment since decreased interest on excess reserves and lower Treasury yields decreases the creation of net financial assets and thereby decreases aggregate demand.

Idle resources are idle for reasons. The homeless guy or the waitress in the restaurant government closed can’t suddenly turn into a cruise operator or an architect. Retirees will buy things that were mostly already in demand by the younger and poorer. Every government check shifts physical resources and creates both winners and losers.

Idle resources and labor are indeed idle for a reason, and that is because the financial assets necessary to employ them either do not exist or are not held by those in a position to spend them productively. The government has the capacity to employ all available real resources and labor not employed by the private sector. Further, the private sector depends on the government to provide the net financial assets in the common exchange unit of account in order to accommodate its savings desires. There is no monetary economy without the power of the central authority to 1) issue its tokens and 2) enforce coercive fines, fees, and tax liabilities. This is true of all developed civilizations to date and is crystallized under the current monetary regime.

The point of MMT is to show that the government is never subject to a financial spending constraint since it is the sole and sovereign issuer of the currency. The actual inflationary spending constraint is the real resources and labor available for employment.

Corporate accountant and former auditor with degrees in philosophy and accounting.

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