We have certainly tried saving money since the dawn of civilization, as the occasional bag of discovered coins shows, but this served to draw it from circulation, allowing the powers that be to issue more, without as much fear of inflation.
Without a peg to any currency ie: gold standard, inflation of the currency (monetary) is not possible. Only money in circulation to purchase resources can drive up the price of those resources, so savings do not contribute to inflation until they are deployed back into the economy. Excessive saving is deflationary, not inflationary. Also, inflation of resource prices only occurs if too much money is deployed to purchase an individual resource as long as the market is competitive. This is our current problem driving inflation as patents and industry mergers, as well as illegal price setting between competitors, have driven critical prices upward in excessive profit-seeking.
Was Roosevelt just putting unemployed labor back to work, but unemployed capital, as well? That’s when the deficit started. Given much of that the government borrows, currently gets spent in ways which don’t constitute a profitable investment, from enormous militaries, often kept busy blowing up other countries, than actively dealing with them as useful parts of the global system, or simply paying people who are not working, rather than using this money to develop jobs for them, as in the New Deal, thus perpetuating a lack of skills, will eventually catch up to the overall health of the country.
FDR’s success was mostly derived from his ignoring of the gold standard restrictions and deploying the currency as if it were fiat. The nation was broke, but still retained the value of the gold reserve. That value was all concentrated in the bank accounts and share value of the wealthy, much as it would be now if we retained the gold standard.
To say that FDR used “unemployed capital” is not correct, as he simply capitalized available resources and labor that was always available. He recognized the failure of the gold standard to allow for full employment and resource utilization in a modern economy and gave us the first venture into a resource based economy with a fiat currency the nation could never run out of. This was how he funded Ameria’s entry into WWII, which should be our model for combatting the even greater threat of climate change.
As long as resources and labor are available for the currency to deploy inflation is not a concern. Of course, the vast effort of WWII did deplete many resources and available labor and his battle against inflation took many forms. While rationing of goods and price control were the primary forms, he also sold “war bonds” to draw down available currency reserves. This was promoted as a “borrowing operation”, but was actually just destroying reserves and paying on the debt. With few commodities or products available to purchase a small interest dividend, much lower than the potential inflation, was all it took to entice people to purchase the bonds.
The currency-issuing government certainly didn’t “need” its own money back, but the people felt as if they were contributing to the war effort. This illusion of “lending” money to the government to fund its operations was the source of current misperception around the Treasury operations and the myth of borrowing and debt has been weaponized by conservative politicians extremely successfully because it resonates with how any entity, especially households, that aren’t the US government must budget their incomes.
The Treasury and Federal Reserve literally have no function that makes revenue from any source available for Congress to spend after it is balanced to zero by the debt entry made in the government sector at the time the currency was created in the private sector. To anyone familiar with dual entry spreadsheet accounting and sectoral balance this should be obvious. Reducing the debt only serves to reduce the “net” (after private bank debt is settled) money supply in the private sector, as the government sector has no need for money. The only seven times we have actually reduced the debt in our history were all followed almost immediately by deep recessions or depressions. Please refer to the graph in the short article here.
Most of the economists I know attribute considerable blame for the mortgage crisis on Clinton’s surpluses that caused wealth to seek an alternate store of value in the absence of Treasury bonds. US housing was seen as the next best safe storage, but the extremely flush reserves were not satisfied by just mortgages and the market produced derivatives that were little more than investors running with scissors. Bush delayed the inevitable with deficit spending for his agenda and cooled off the run on imported tech after the Y2K debacle, but it was too little too late and it all crashed eventually. Those same economists, all proponents of MMT, were the only ones predicting a crash in the late ’90s as private sector bank debt soared and people used their homes as ATM cards in the absence of public money in the economy.
Given the nature of predatory lending/disaster capitalism, it seems the eventual conclusion will be those holding the most of these government promises will be trading them for remaining public properties.
The monopoly issuer of the currency can never involuntarily default on any obligation that is denominated in the currency it can create at will. It simply isn’t possible, or concern of anyone who understands Treasury bonds. That said, those who don’t understand are considerably more numerous and they vote, creating political weaponization of our bond debt that isn’t even a debt that must be paid by taxpayers. The only danger posed by Treasury bonds is that misguided politicians believe their own rhetoric and actually attempt to use the economy to service it instead of using fiscal deficits to service the economy.
Given that borrowing isn’t even a necessary function of our monetary system and mostly serves as welfare for the already wealthy to prevent the mischief we saw in ‘06-’08 it would be absolute folly to cause any more misery in this economy. Anything that is available for sale, including the labor the private sector rejects, is affordable at the federal level, making any misery that can be mitigated with federal spending strictly a political decision, not economics. If we can’t grasp this politically we are not prepared to tackle the massive investments that will be necessary when climate change finally smacks us hard enough to end deniability. The sheer idiocy of stating we can’t afford to save the human species is beyond comprehension even now.
We have the best system in the world to provide for everyone with the vast resources available, domestically or imported, but we appear to be stuck in stupid and the corruption that is inevitable when wealth is allowed to inject itself in governance. No system is idiot proof, so those wanting to revamp our monetary system to prevent corruption are on a fool’s errand. Let’s attempt, instead, to make people more aware of the corruption and the myths that enable it.
