Bonds and Tax Accounts Are Rituals 

Most likely, when you discuss federal spending with the general public, people will tell you that the federal government must tax or borrow before it can spend. If you choose to see federal spending from the premise that the federal government is dependent on the private sector, then you unwittingly empower certain entities within the private sector who are both undeserving of and unauthorised to have that power. Ironically, it is not big business, or people such as the Koch’s or the Walton family that are directly responsible for the public’s misconception of who is in charge. Through its behaviour, it is the federal government itself that is most directly responsible for disseminating private sector supremacy nonsense.

The US Dollar Must Be Infinite, Because Real Resources Are Finite

I hate the term “money”. It is vague. I prefer taking the time to say or type “US dollars”, “British pounds”, etc. After all, when people in the US ask, “Hey, you got any money?”, they are asking, “Hey, you got any US dollars?” Bread, green, brass, bob, quid, dough, bucks – it’s all US dollars, British pounds, etc., to which people are referring. The reason for this is because the US dollar is the most widely accepted monetary instrument in the US. 

Brief Notes for Wednesday Morning, 20.07.2016

Vacation is still ongoing, ending on Friday. Therefore, this explains the family pictures and political jabs on Facebook and the lack of economics content. Today, in brief, I'll explain what QE is and the "purpose" behind it.

The term QE, or “Quantitative Easing” was coined by Richard Werner, with whom I’ve had the great misfortune to debate on several occasions; an activity which I do not recommend, unless you fancy having your carefully crafted, well-reasoned arguments dismissed with the childish phrase, “That’s Fed PR!”, or something along the lines of, “The New York Fed controls the Federal Reserve”. In short, if extreme annoyance and high blood pressure is your thing, you’ll do well to accept an invitation to debate Werner. 

Anyway…

Brief Notes for Tuesday Morning, 19.07.2016

First, on my list is this persistent “wasted vote” nonsense spewing from Hillary supporters. 

“A vote for Jill Stein is a vote for Trump!” 

Irretrievable nonsense. Neoliberals within the Un-Democratic Party will say anything, childishly “bullying” progressives into supporting that vile, neoliberal, economic illiterate Hillary Clinton. 

So, let’s be clear:

1. a vote for Jill Stein is a vote for Jill Stein
2. a vote for Trump is a vote for Trump, and
3. a vote for Hillary is a vote for Hillary 

Nothing more elegant than that. Applying any alternative meaning is nothing less than an attempt to bully people into foregoing their right to choose. If I vote for Jill Stein and Trump wins, my candidate lost, but I did not vote for Trump. Not my fault. Blame Trump voters. If I vote for Trump and Hillary wins, my candidate lost, but I did not vote for Hillary. Not my fault. Blame Clinton voters. If I vote for Jill Stein and she does win, feel free to blame me for your neoliberal candidate’s loss. 

Macroeconomics: It's about efficiency. 

We ask what real resources a nation has and then ask how that nation can best utilize those real resources in the most sustainable manner possible, enabling all to derive good benefit from the economy. On this correct view, it is quite clear that the specious neo-liberal concept of efficiency, defined as "sacrifice"; manifesting as deliberate deficit reduction and the shifting of fiscal policy away from the public purpose (austerity), results in high levels of unemployment, crumbling infrastructure and social decay. In a word: inefficiency.

Towards a progressive concept of efficiency – Part 1

Illustrating Macroeconomic Inefficiency

We can easily illustrate macroeconomic inefficiency by examining the US food supply. We ask: the purpose of farmland is to do what with it? Produce food. Next, we ask, does the US have immense agricultural resources available? Yes. So then, what do we do today?

First, we pay farmers not to grow X or Y. Then, we utilize farmland to grow crops, not to feed humans, but to feed cattle that would prefer grass and to create unnecessary biofuels. Let us also ship off some of the food that we do produce for humans to other nations that they may benefit from our production. The result? A reduced supply of food and inefficiency. Who benefits? Not the public.

"Gasoline prices lowest in a decade"

Just waiting now for the Fed to claim that the sluggish economy will improve in the fall when consumers begin spending the dollars that they saved from low summer gasoline prices.

A Few Words on the Scotland Question

In the days following a successful leave vote in the Brexit referendum, Scotland remains upset that things didn’t go their way. Upset might be a bit too gentle. They’re angry; so much so, that many want out of the UK now more than ever. They’re bitter, they want to stay in the EU and they’re not going to tolerate Longshanks… I mean, “Tory England” any more. 

I sympathise to some extent. The Scots are a great people. I understand their concerns and especially share their feelings about the Tories. There are many of us non-scots who wouldn’t mind shipping the Tories off to a small island to rot. In truth, more than a few deserve to spend the rest of their lives in prison. That being said, where I do not sympathise with Scotland is the desire to break with the UK, remain in the EU and keep the Pound Sterling. Yes, neoliberalism and ordoliberalism are major factors driving my opinion with regard to the EU, but there’s a concern about leaving the UK, which I do not think that Scotland has thought through very well. What will Scotland do for “money”? I do not mean that in the sense of production. I literally mean to ask, what will Scotland do for a currency?

Foundational Problems of the Left Part II: Progressives and Errant Views of Inflation

As an addendum to yesterday’s post, before I begin, I’d like to clarify the point that taxes reduce spending power and thus, can reduce the spending power of the rich whilst raising the spending power of the poor. When progressives say, “tax the rich!”, what they’re saying, though they do not know it, is, “destroy currency that is in possession of the rich!”. Under our current fiat monetary system, that is precisely what taxation does. It doesn’t get collected by government then respent on social programmes, or the military, nor does it end up in the hands of the poor. The national government does not need revenue today enabling it to spend. In fact, the national government’s job as a sovereign currency-issuer is to conjure currency out of thin air and then spend it into the economy. Progressives fail to realise this and so, their mantra of tax the rich will do nothing to help the poor in any way, nor will it secure and fully fund necessary public programmes. The illusion that taxing the rich funds national spending comes when progressives then spend an amount equal to what was destroyed in taxes. 

The Foundational Problem of the Left - The Taxation of the Rich Prior to Spending

In furtherance of my series on what’s wrong with the left, today I wish to discuss national taxation and how it relates to the left’s strategy. The fundamental problem is the errant notion that capital is somehow greater than its sovereign, the currency-issuing national government. The left sees the world through the eyes of Eugene Debs and so, sees a world not of free-floating, inconvertible fiat monetary regimes, but of fixed exchange systems, such as the gold standard. Grounding its strategy commensurate with this viewpoint both demonstrates the folly of progressives and dictates their failure. For Debs, the strategy made sense. The left had to fight on two fronts. Firstly, against capital itself going head to head with it for better pay and working conditions and secondly, politically for power in government to codify labour’s demands as law and to shift fiscal policy towards full employment and the public purpose. The left’s strategy was fine tuned to the reality that government’s fiscal space was constrained under a gold standard.

The Difference Between You and The Federal Government is Authority and Access

I’ve discussed many times now that the US dollar is just a number with a “$” symbol in front of the number. It is not a commodity. It is not finite; it is infinite, because numbers are infinite. Anyone who tells you that the US dollar is finite, or that the US government does not emit US dollars, doesn’t know what they’re talking about. At all times, when the US government spends, it is spending US dollars into existence via keystrokes, by entering an account and typing a number. That number becomes US dollars. At no point in time does the US government need your numbers before it can type them into someone else’s account. The notion is patently absurd. To illustrate the absurdity, let’s use you as an example.

Today's Reply to George Kendall on Monetary Mechanics in the UK

I've tried repetitively to post my reply to Mr. Kendall, but Facebook seems to be having issues with posting in the group. Therefore, for that reason and to further a learning opportunity for the general public, here is my reply to George Kendall.

What of Deficits and Inflation?

A brief note here to answer a question about inflation. All spending carries the risk of inflation. The question is whether or not deficits automatically translate into inflation. The answer is no.

The government could at this moment issue $40 trillion. If that $40 trillion merely sat in an account somewhere unspent, it is not a problem. The problem occurs when the $40 trillion is then spent on goods and services. In doing so, aggregate demand increases. If the economy is unable to meet that demand, then the price level will rise. 

We must begin thinking correctly in terms of real resources and not "money". Real resources are finite. Currency in the US, UK, Canada, Japan, Australia et al., is not finite; it is infinite. However, once you begin spending that which is infinite to buy that which is finite, inflation will be a possibility, whether that spending is public or private. 

If you want to create demand-pull accelerating inflation with budget deficits, then you must spend persistently more than the economy is capable of producing. If there remains the ability to increase output, then that budget deficit is not a problem. How do we know whether or not we can increase output?

Unemployment. If it remains, then the deficit is too low.

One of My Replies to George Kendall on UK Budget Deficits

George Kendall, Andy Blatchford, Peter Martin and I have been having a pleasant, albeit a bit frustrating discussion. Frustrating because the now defunct Bretton-Woods system always manages to obstruct progress towards an understanding of macroeconomic reality. This morning, George replied to Peter and myself, demonstrating that the Bretton-Woods obstruction is still very much alive and well. We can thank orthodoxy for that. Since I’m always on the lookout for opportunities to impart knowledge to the layperson, I thought it a good idea to post George’s comments and mine here as a learning opportunity.

Some Persistent Questions Answered Regarding the Job Guarantee

I’ve still not finished moving house. What might have been a straight-forward task has turned into chaos preparing the sub-floor. Piles of household items, furniture and wall decor are now everywhere cluttering the house. So, I am sitting in my garage using an untrustworthy Windows 10 box that I had lying about, rather than my beloved Mac (which I refuse to have running in a garage), sweltering in the heat and humidity. This then is the reason why I’ve not posted this week, nor been able to give a proper reply to anyone (including George Kendall, whom I must get back to soon – Apologies George.). I’ve promised a few answers to nagging questions regarding the function of the JG, so this morning during a break in activity, I’ll get to some, but not all.

The Australian Government is Sailing the Neoliberal Waters of Recession

For laypersons unfamiliar with monetary policy, or for those who believe in its “healing powers”, allow me to set the record straight. Today, the RBA is busy trying to stimulate growth in the Australian economy by shifting around dollars that already exist. Monetary policy is a blunt instrument that does not add needed dollars to the economy, but merely shifts around what was previously added by fiscal policy. Monetary policy will change a portfolio composition from all liquid dollars to some liquid and some bonds and vice versa, but will not “add” dollars to the system. Why is this?

Business Is Not The Job Creator

In the age of neoliberalism, it is guaranteed that the public will be inundated with "free market" nonsense. One glaring piece of nonsense is the errant notion that business is the job creator. The currency-issuing national government is and in turn, consumers spend that currency which results in employment. 

All of us are consumers, including the national government which purchases goods and services with its own currency. 

When the business owner steps out of his or her's office to grab lunch, he or she transforms into a consumer. 

A Brief Note on Deficits

I’d like to take a moment to add something to Bill Mitchell’s excellent article “Iceland proves the nation state is alive and well” found here: http://bilbo.economicoutlook.net/blog/?p=33707 which, I feel, would make an excellent learning opportunity for the general public concerning deficits and the economy.

In the section “The public deficit supported growth until private domestic expenditure was strong enough”, we note from the chart that at the start of the Global Financial Crisis in 2008, Iceland was running a pretty large deficit in order to counter the collapse of the economy. As the years move ahead, we see the deficit gradually reduce until we reach 2015 where it is almost non-existent. Today, Iceland’s unemployment rate is very low and the economy is doing great. 

The Money Supply, the Price of Money, Monetary Policy and Inflation

Much confusion surrounds the items in this article’s title. Thanks to orthodox viewpoints we have nearly an entire populace that believes Jack and the Beanstalk is a true story. Now, of course, I’m not being literal. I am, however, trying to make a point. Like, say, Tolkien, orthodox economists fashion a fantasy world all their own. Unlike Tolkien however, these economists write their fantasies down and then push it onto the populace as reality. Much of it is mere assumption. 

Federal Deficit Spending is Money Creation

In addition to closing on a new house and moving over the next two weeks, plus dealing with allergies, I am pre-occupied with writing a series on the Gold Standard and why it was and always will be, a monumental failure. Therefore, I’ll keep today’s discussion brief with another look at how federal spending works. Before I begin, I wish to point out that for the sake of the layperson’s familiarity and understanding, I am going to use the word “money” in reference to federal spending rather than “currency”. We will also skip discussions of private debt and the sectoral balances.

The State of The Economics Profession Today

I've a brief musing that I wish to impart on the state of the economics profession using the history of astronomy as a comparison.

Universal Basic Income: An Economic “Destabilizer”

As an addendum to yesterday's article concerning the Job Guarantee versus the UBI, I’d like to clarify a couple of points concerning the inflationary aspects of a UBI and its inability to discipline inflation. In yesterday's article I chose to address the potential wage-price spiral effects caused by a UBI, because the point that all income maintenance programs such as a UBI only increase aggregate demand has already been hammered into the ground. However, today I will address this point from a different angle, hopefully providing some clarity to the layman.

A Few Words on UBI and the Job Guarantee

Members of the general public were probably unaware that several months ago, an intense debate raged between two differing camps on macro policy, namely those in the federal Job Guarantee camp and those promoting a UBI. Briefly, I wish to discuss the two proposals for the benefit of the public. Before I begin, however, I’d like to mention my approach with the public. 

Required Reading Material

Many of you who know me are aware of my admiration for Michal Kalecki. For those of you unfamiliar with him and his work, I'd like to share with you Kalecki's "Political Aspects of Full Employment". For those of you who are familiar, do enjoy!

Political Aspects of Full Employment

Inflation: Ad Nauseum

It just won’t stop. Oh, you can tell people to focus on long-term involuntary unemployment and the negative effects thereof, which make the effects of inflation seem like a walk in the park – and it should be the main topic of discussion – but, no. Some people must talk about inflation and, quite frankly, 99% of these “some people” have no idea what they’re talking about. Why is that, you might ask? Well, it’s all quite simple really. 

How To Tell The Difference Between Fiscal and Monetary Policy

As some of you are aware, I have spent the day in irritation at people who simply will not give up on inflation no matter what anyone tells them. In an article earlier today I pointed out that the errant thinking of one such person was due to their inability to understand the difference between monetary and fiscal policy. Whilst dealing with other things today, I thought for a while on how best to convey the difference between the two policies to the average person. I think I’ve found a solution:

Dog crap.

To Repeat: There's No Such Thing as "Printing Money" 

Confusion continues surrounding federal spending. I cannot blame the public since there is a constant barrage of the term "printing money" ever since Trump said it. Previously, we discussed some key issues surrounding printing money:

1. Printing Money relates to the gold standard.

2. There were three ways a government could spend during the gold standard:

- Taxes
- Borrowing
- Print Money

3. Printing Money doesn't occur in a free-floating, non-convertible fiat regime. (The US, UK, Canada, Australia, Japan, et al.)

4. Printing cash is a separate issue entirely from government funding operations. 

For the benefit of those who are still confused, I'll explain the concept of printing money in a different way. Let us suppose that you are playing the game Monopoly. Let us also assume that though you own properties, your income from rent isn't enough to fund your spending desires to buy more properties. So, you simply go grab some paper and scissors, cut out some rectangles and write any dollar amount that you like on the paper and everyone else agrees to accept them. Essentially, you've just printed money to fund your spending. Of course, this explanation is very simplistic, but we need to get you thinking in the right direction. 

There's No Such Thing as a Private Sector US Dollar

Currency is the product of the national government that issues it. In the case of the US dollar, that national government is the US Government. There is no issuance of US dollars among private entities. Every US dollar in existence is in existence, because the US Government brought it into existence. Many believe that or act as though there are two types of US dollars:

Postscript

As a postscript to my post "There's No Such Thing as a Private Sector US Dollar", I'd like to share with all of you a question that I received from a person who is trying to understand banking operations:

"When banks make loans, you say that they denominate or 'peg' their IOUs to the US dollar. Does that mean those IOUs become US dollars?"

Good question and the answer is no. The IOUs remain IOUs. They are only denominated in US dollars and never become US dollars. The "pegging" has the effect of making them "behave" or "act" like US dollars - better said, they act as money in the private sector. When you pay back that bank "loan", the IOUs (money) that were created in the initial transaction are then destroyed. At no point do bank loans ever involve actual US dollars lent out and at no point do bank IOUs become US dollars.

There's no such thing as a private sector US dollar.

If at any time you have a question for me, feel free to ask on Twitter @elliswinningham or on Facebook.

Macroeconomics: It’s Not About Scarcity. It's About Efficiency

“Money” cannot be scarce for any sovereign currency issuing government. The question is never about "money", ever. Mainstream economists, politicians, the media and "free market” advocates enjoy making economics a question of scarcity. A scarce supply of currency right along with scarce resources. When it comes to "money", we must first understand what we're talking about. When people in the US ask us if we have enough "money" to buy an apple, they're asking about US dollars. US dollars are a currency. 

A currency can be scarce for those who use it. You, me, Walmart, Wall Street, the individual fifty states are all users of the US government's currency and these private entities can run out of it. A user of currency can also be another nation. For instance, China is a user of US currency. China cannot issue US dollars, so if it wishes to have them, it must find a way to earn them. Also, the EMU nations are users of currency. Nations such as Spain, Italy and Greece are users of currency, because they do not issue the Euro. The European Central Bank issues the Euro for member nations to use. So, like Illinois and Ohio in the US, the EMU nations must tax or borrow. They must have an income to spend. Without a central fiscal authority (a federal government), the EMU nations can face very real debts and involuntary insolvency. 

The US Government Does Not “Print Money” to Fund Spending

On May 11, 2016, CNN ran an article by Heather Long with the headline, “How can Trump 'print the money'?”, filled with misinformation that only neoliberalism can conjure up, finishing strong with warnings about the U.S. becoming just like a small African nation called, you guessed it – Zimbabwe. Let’s debunk the article.

From the start, allow me to point out that I am not a Trump supporter. People who know me, know that this is true. In the article, Ms. Long asks, “So how exactly do you print money?” The actual answer is, you don’t. 

Introductory Series: On Private Debt and the Mismanagement of the US Economy

[Since this discussion is well over ten thousand words long, I have edited the complete text and in one case, rewritten the section on Minsky and financial instability in a language suitable for the general public, shortening it considerably, as well as broken the discussion down into three parts. I will finish editing and post parts II and III as time permits.]

On The National Debt: Is Trump Telling the Truth?

On Monday, CNN ran a story with the headline: “Trump: U.S. will never default 'because you print the money'” which raised some eyebrows. The general public, trained by mainstream “economists”, the media and politicians had a freak-out moment, claiming that Trump is nuts. Firstly, because the general public thinks that the national debt is an actual debt and secondly, the general public thinks that “printing money” is something the federal government does and that something will lead to hyperinflation. Among the populace who understands how the monetary system works, eyebrows were raised for a different reason: It’s unusual hearing any politician say something that is true. Well, sort of true. 

Inflation - Yet again and again and again and...

In reference to Social Security we see statements like this one floating around out there:

"with a ton of baby boomers retiring and not enough workers there will be more money chasing too few goods = inflation"

The subject making the above statement is conjuring up the words of Milton Friedman (more money chasing too few goods) to warn us all that "inflation" is something to fear when it comes to federal spending and Social Security. The whole premise is pure nonsense. Now, why am I saying that it's nonsense? Isn't it true that his assertion could occur? Yes, it is a possibility, but only given some very extreme factors. In other words, the chances of Social Security causing accelerating inflation right now or in the very near future is extremely low. Here's why.

GDP Redistribution and The Federal Job Guarantee Proposal

Today, I’ll be discussing what GDP is, how it is moved to profits (the 1%) and how we can reverse 35 plus years of GDP redistribution by initiating a federal Job Guarantee. For part of this discussion, we will review material from previous posts that are relevant to the topic at hand. 

Blame Neoliberalism, Not Each Other

What’s worse than listening to mindless deficit terrorism? Listening to people celebrate deficit reduction. Everyday people without any background in macroeconomics; who have no idea that there are three sectors in the economy and that federal spending depends quite a bit on what the external sector is doing; who have no knowledge of what monetary and fiscal policy are; who do not understand private debt; who cannot tell you what an inventory cycle is; who do not know that SNAP is an automatic stabilizer, let alone what an automatic stabilizer is; who could not explain to you what a demand leakage is: these people just “know” that the federal deficit must be reduced, because their political heroes in Washington D.C. said so. You will know these people by their lifestyle.

How Federal Budget Deficits Work

I will begin today’s discussion by stating what a federal budget deficit is not. A deficit is not:

When US Government spending is greater than its income from federal taxes. 

Now, why is this wrong? The word “income” is what makes it wrong. There is no such thing as an “income” for a sovereign currency issuer like the US Government. Therefore, the textbook definition of a federal budget deficit is wrong, even though it seems to be correct. The above definition leads to all kinds of misunderstandings and nonsense concerning federal spending which, frankly, every last one of us can do without. 

Can The US Government Default on the National Debt?

Today, I’m going to take a different tact to address this question. Let’s assume that there is a rich guy who buys $1 million in US Treasury bonds. Hey, fantastic. I’m sure that you're thrilled that he can afford such a purchase while millions struggle. No biggie. That’s just life in America, right? Some people have loads of money to loan the federal government and others, well, they’re just lazy or something. I guess this guy is just more productive and responsible than most people. You see, he’s a “go-getter”; a real visionary that worked hard, played by the rules and went out and made something of himself while others slept in, played video games and now ask for hand outs. You too could have what he has if only you’d pull yourself up by your bootstraps and get some responsibility in your life. Stop being lazy. Hey, that’s life in America.

What Is a Credit Card and How Does It Work?

Most people believe that the concept of the credit card is straightforward: People deposit their US dollars in banks. Banks then offer credit cards. They give you a credit card and a limit as to how much you're allowed to spend. Then, when you swipe the credit card, the bank covers your purchase by handing out the US dollars that their customers deposit and later on, you pay the bank back plus interest. Simple. 

The Money Multiplier: How Banks Operate In The Land of Make Believe

M = 1/RR

A simple little equation. It says that the money multiplier (M) equals one divided by the reserve requirement (RR). For those of you mathematically inclined, it says that the money multiplier is the inverse of the reserve requirement. This cute little equation and the concept that it describes is taught to economics students. You will find a description of the concept in most Economics 101 textbooks and much like the Energizer Bunny, the teaching and reinforcement of money multiplier in the minds of students goes on and on and on throughout their undergraduate career. By the time they enter graduate school, they are “firm believers” in the holy word of the Church of Economic Nonsense.

Federal Taxes: They Aren’t Funding Federal Spending

Since it is tax season, I want to again discuss how federal taxes work. But this time, a little bit more in depth. I wish to demonstrate the concept of federal taxation by pretending that I am the federal government and that there are three people in the non-government sector, Bob, Patty and Jane. Afterwards, we will discuss where your tax dollars actually go and why you pay federal taxes.

Negative Numbers: Understanding Federal Spending

In pre-algebra, students use a number line to help them learn to add and subtract negative numbers. Starting out, the concept may seem difficult for some, but really, it isn't. For instance, consider the following statement:

-1 + -2 = -3

Pretty straight forward. Just add and don't forget to leave the (-) sign in place. Zero, (0) being the absence of value, is the balancing point between two infinities: Positive numbers and negative numbers.

Debunking The US National Debt Hysteria

That thing out there that's at $18 trillion and rising; that thing that will be a future burden on our grandchildren; that thing that will bring the US government to financial collapse; that thing we are told to fear by the media, politicians and Occupy Democrats memes; that thing that liberals and conservatives accuse each others’ presidents of increasing; that thing, much like the monster hiding under your bed at night, doesn't exist. I am going to state the following for the umpteenth time:

The US National Debt is not a real debt and so, it does not exist.

The SNAP Dilemma: “Moochers” or Valid Macroeconomic Policy?

I wish to address the federal government’s food stamp program, SNAP. Generally, in all political debates, SNAP falls under one of two categories, depending on which “team” you support: “It helps the poor” or “lazy moochers”. Factually, both sides miss the point. The debates only result in vicious attacks and the mention of useless “statistics” that prove nothing and do nothing to protect SNAP, such as, “red states are the moochers”. Yes, SNAP does help lower income people buy groceries and yes, there most likely is a tiny fraction of recipients wishing to “milk” the system. But the function of the program is far more than just providing a means to buy food. In fact, without SNAP, some of you who aren’t on the program might not have jobs today. The “lazy” vs “hard working” political thinking is the result of a culture steeped in Calvinistic thinking, too much TV “news”, a steady diet of political nonsense and not enough education.