There is no difference between a “currency drain” and revenue, one and the same thing.
This is only true when some finite limit is placed on the available dollars in the economy such as we did with the gold standard. We replaced the value of the gold reserve with the ability of the economy to produce goods and services. Retaining a system built around defending that gold reserve to avoid unnecessary disruption was critical to global trade but it doesn’t properly recognize the reality of our current monetary system.
The largest change of abandoning the gold standard was in how deficit and debt are calculated. With the gold standard, the formula for the deficit was “Spending — taxes — gold reserve=deficit”. This allowed spending up to the point where the total money supply equals the gold reserve’s value before it was considered “in deficit”. By destroying all “revenue” with a placeholder accounting entity the government created “policy space” to spend. The federal government, by Constitutional authority, is the monopoly issuer of the dollar and neither needs nor uses the revenue to spend.
Simply removing the value of the gold reserve from that formula made it “Spending — taxes=deficit”, making all spending above tax collections “deficit” and this translated into a “debt” that is nothing more than an accounting of all government created money in the system not yet used to pay a federal tax obligation. The debt is our “net” money supply once private sector bank debt is accounted for. This number would be considerably higher if the government held tax and bond receipts awaiting spending back into the private sector in the lag between spending and collection of tax.
Treasury bonds served the purpose of leveling out the money supply in that lag time with a mandate that all deficit spending (that would drive the money supply above the value of the gold reserve) be matched (not funded) with bond issues. The balance of maturity dates for bonds is predetermined by Treasury to allow for longer payout time for investments such as infrastructure. Since the government’s spending created the only excess reserves in the system it is accurate to say that spending “funds” bonds, not the other way around.
Investors agreed to allow the government to destroy their money for a predetermined time, after which it would be returned to them with a small interest payment added. The only reasons for retaining Treasury bonds with a fiat currency are to give the central bank leverage to set interest rates above the natural rate of zero and to provide a floor for investors. The ability of the government to make good on the debt in dollars is never in question, as it can produce any amount of dollars it wishes.
What is in question is the value of those dollars when measured in terms of real productive capability that is greatly harmed by not properly managing the economy. Instead of using the economy to balance a mostly useless accounting identity our government should be using its ability to create the currency to manage the economy to realize its full potential. 100% employment should be the goal of our monetary policy, even if the government has to become the employer of last resort.
The Fed currently uses its authority to set interest rates to maintain some level of involuntary unemployment that provides a stable of hungry workers for employers. This is institutionalized cruelty and enables the animosity and racism that results from the false perception that the people’s taxes “fund” the lifestyles of those who are first fired and last hired. This animosity also endangers critical supply chains as politicians feed it with promises to cut automatic stabilizers for political gain. Should their pandering to our worst instincts reduce those stabilizers beyond a tipping point we will see a cascading unemployment event at the next dip in the business cycle that will make ’08 seem like a picnic.
There may be another way to structure the whole system so that it acts more in accord with MMT theoretical claims, and at this point they are only theoretical claims, but I’m not holding my breath until I see that happen.
This is where we disagree. No one has forwarded any substantial objection to the descriptive part of MMT in our financial/monetary system. All objections to date are nothing more than straw man arguments set up to be knocked down by orthodox economists and neoliberal politicians advancing a lot of “what ifs”. The only prescriptive portion of MMT is the federally funded job guarantee to set the bar for wages and benefits and replace most automatic stabilizers. Ignoring the ability of money created by bank loans to be inflationary and their dependence upon federal dollars to be retired was shown to be in error in the ’08 crash which set us back in ways we will never recover from.
We can continue to believe that our government is somehow our enemy (somewhat of a self-fulfilling prophecy) that can not manage the economy properly or we can acknowledge the founders’ intentions and set a higher bar for politicians to serve the people directly instead of catering to wealth and power in hope of some overflow factor, demanding that “our” resources be utilized for “our” benefit. The system in place is entirely capable of doing either and creating additional disruption with an unnecessary redesign would only impair the potential for change.
to defend the value of that currency, and to facilitate the capital formation in the banking industry to fund new or expanding ventures, not to mention the maintenance and accrual of personal wealth.
The banking industry functions entirely by the license granted to it to create dollar-denominated debt by Congress. Depending on banking to produce wealth that must be repaid, with interest, via public money creation when the currency is a no-cost commodity available to Congress to produce “real” wealth as a store of value has been our mistake in the past. Doing so means that only ventures that directly produce profit will ever be possible and any public wealth will be ignored as non-essential.
Where MMT is utilized I predict it will almost certainly be a stealth utilization, like the extraordinary Fed moves to counter the great recession, it will not come as a dismantling and reordering of the current complex currency and government funding system.
We agree on this because MMT is the current framework of our monetary system and only the myths and outright lies perpetuate the deeply divided political climate and enable the extreme income inequality now so pervasive and damaging to our nation and society. Over the last few decades, we have watched the outright purchase of our government and the birth of neoliberalism. This has allowed our economy to skirt the edge of fascism with the boisterous approval of well more than half of the population.
If the average voter understood the relationship of government and banking to the currency they would favor greatly restricting banks and expanding the ability of government to spend for the public purpose. Only the perception of government as a “competing cost” to the economy enables this grand larceny and extreme concentration of wealth and countering that perception is the purpose of those who advocate for MMT.
