MMT thought

Electronic copy available at: http://ssrn.com/abstract=1905625

Understanding The Modern Monetary System
Cullen O. Roche
August 5, 2011

 "The government is an entity created by the people and for the people. It exists to further the prosperity of the private sector - NOT to benefit at its expense. If this entity is allowed to exist for its own benefit or becomes corrupted by a concentration of power or abuse of its currency issuing powers it will become susceptible to dissolution via the populace's rejection of that government."

Virtually Speaking site for Deficitowl

We really have to arrange a way for you to visit "in world".

We hear you and Jay through a connection to Blog Talk Radio. Although we can use an inworld voice system we rarely do, preferring to type into chat. This allows use to "talk" and ask questions without actually interrupting your discussion.

As to the venue: Here is view from the rear of the site. As you can see it reproduces a Roman auditorium that has been up dated.

A closer view of the platform where Jay (avatar) and guest(s) (avatar(s)) are normally seated.

We know it's past its unsell-by-date but we did have our own version of the platinum coin for you.

:=))

The obverse is, of course, your image and the reverse has an owl. :=))

The view from the dais, as seen from the position your avatar might be.

 And yes, that is me (avatar) as I was, oh, 30 years ago? :=))

Probably can't see it but I am wearing our group's Deficit Owl pin.

National Debt? What National debt.

Hmmmm, the national debt and how it might effect our progeny.

The US contracts to have a highway built and pays $20,000 for the work.

The builder does the job for $10,000 and then spends $10,000 for a new Chinese car. (No comments on the profit and then the car decision; I just needed some numbers.)

The Chinese dealer deposits the $10,000 in her checking account and is faced with a decision, does she go to the money market and buy yauns with the dollars? Assuming she hopes to sell another car. perhaps buy some new shoes here, and may have bills to pay in the US, like US taxes, she will probably just keep the US dollars in the checking account. Or, perhaps, want to invest for a little interest in something safe, like US bonds.

She buys $10,000 worth of bonds; the Treasurer looks at the $10,000 and says," Wow, we have our road and some of the money back too. That drains some money out of the public pool that we put in earlier, which eases inflationary pressure but, unfortunately, it also reduces demand; we must watch and see if more spending is needed."

Note Well: The money used to buy bonds, increase the National Debt, had to have been spent first by the government. There is no other source for that money. Even if the Chinese government wants to buy US bonds, it must go to the financial market and buy US dollars with its yauns. And the dollars it buys were spent for some project earlier. The only new money involved in paying back bonds is the interest and at present there is damn little of that. The principle is merely recycling back money that had already been spent.

Are we burdening our children? With poor education, health care, crumbling infrastructure? Yes. With a debt and inflation? No.

Conrad Neil ‏@Radman622 (And any others. :=))   )

I have never tried to list URLs like this before. I hope I haven't left you with a copy and paste chore.

No attempt has been made to put these in any particular order.

I think it is vital that we, as in We The People, gain a general knowledge of how our financial system actually works. If this theory does, in fact, model our system, then we are making really bad decisions. I have seen no examples where, when this model is applied, the outcome wasn't as predicted.

Conrad Neil asked in a Twit about the need to control inflation. As you read through all of this , and I hope many of you do, remember that a "Deficit Owl" understands that the ability to "print" all the money you want doesn't mean you do not exercise restraint. We have two major economic controls: 1. Deficit - the accelerator and 2. Taxes - the brake. Coordinate these to achieve three things: 1. Slight inflation, 2. Zero unemployment, and 3. Full production.

Essentially, the deficit is used to inflate the currency some by getting more in the public hands. More in public hands means an increase in demand. An increase in demand will pull on production and start increasing supply. An increase in production will mean a decrease in  unemployment.

As to supply siders who think pushing on the string will increase demand, I suggest there is a great opportunity for a snowplow distribution system in Florida.

Oh, Deficit Owl, a term coined by Dr. Stephanie Kelton. Her Twitter handle is @deficitowl and is well worth following. And so is the tag #MMT.

!                                            MMT Bibliography
http://boonyvilleusa.blogspot.com/

http://www.forbes.com/sites/pascalemmanuelgobry/2012/10/19/no-the-united-states-will-not-go-into-a-debt-crisis-not-now-not-ever/

http://moslereconomics.com/

http://www.mikenormaneconomics.blogspot.com/

http://mythfighter.com/2013/01/23/mmt-to-make-your-case-begin-with-what-people-already-believe/

http://www.modernmoneyandpublicpurpose.com/tutorials-new.html

http://www.youtube.com/watch?v=nBOxnpdCqds&feature=youtube_gdata_player

http://en.wikipedia.org/wiki/Chartalism

http://www.washingtonpost.com/business/modern-monetary-theory-is-an-unconventional-take-on-economic-strategy/2012/02/15/gIQAR8uPMR_print.html

http://neweconomicperspectives.org/category/stephanie-kelton

http://neweconomicperspectives.org/p/modern-monetary-theory-primer.html

http://www.youtube.com/playlist?list=PL85C3640A1C6F23DA

http://pragcap.com/understanding-modern-monetary-system

http://pragcap.com/understanding-the-modern-monetary-system-2

http://www.youtube.com/watch?v=jT-Bvy7qy3A

http://pragcap.com/whoa-thats-a-lot-of-private-sector-savings-i-mean-debt?utm_source=twitterfeed&utm_medium=twitter

http://hir.harvard.edu/debt-deficits-and-modern-monetary-theory

Fiat Currency in (very) brief

[Vox ‏@deniseromano

[#TeaParty didn't protest about taxes when white POTUS put two illegal wars on a credit card & [blew the Clinton surplus #tcot #GOP #ccot


Taking a great leap into space from this Tweet. Please note: This in no way is intended to suport Bush or denigrate Clinton. I suspect that neither realized the implications of what they were doing.

First, two (at least) illegal wars. Yes, so we move on.

Next, on August 15, 1971, President Nixon ended our currencies convertibility to gold. One of the few things I applaud him for. As of that date we have operated with a fiat currency. (Not the car.) I need to skip detail here but a fiat currency is given value because it is the only way to pay the federal taxes that the federal government imposes.

So taxes give the currency value. They also provide an efficient means of draining excess currency (demand) out of the economy. The government in  a fiat economy is free to print all the money it needs. In fact the government can never, never, never go broke. It's impossible. So the government can put money into the economy pool we play in and, if there is too much (inflation), drain some out.

And that's it for taxes. Taxes do not pay for anything. This is like learning that Santa Claus doesn't exist but it's true. The government can print all the money it needs. If it prints too much and inflation shows up, it drains the excess with taxes. That's all; show is over; nothing more to see here.

Which means that the government must, must run a deficit. If it didn't there would be no money to tax. The deficit is the money we get paid and exchange for goods and services. No deficit, no economy; it's that simple.

How to tell if there is a danger of inflation? Is there unemployment? Then the demand for goods and services is obviously not at a maximum. Is our production capacity not at its maxiumum? Then the supply is obviously not at a maximum. If either of these is not at its maximum then the last thing we want is a budget surpluses.

I know that everyone praised Clinton for his surplus. This would have been reasonable if not especially good while we were on the gold standard. However, the surplus meant that the public were going into debt and that proved to be un-sustainable.

And all that borrowing? What are we "borrowing"? It has to be money we have already printed and spent. You cannot buy a US bond with anything but US currency. And the payment? A bond holder can only expect US currency in payment. And who has the monopoly for printing said currency? I rest my case.

I’m sorry that this is, at once, too long and too short. Ask questions and I will try to answer; I will expand on this theme here from time to time.