This whole "making new money" thing (1 Viewer)

[tomkat364]

Disclaimer: I have not studied economics and do not understand 'economic theory'. My only experience with economics has been personal, and I need to earn enough money to cover what I spend.

I am very confused by the discussion of national debt and deficit that goes on lately. The government taxes the population, uses this revenue to pay for social programs, government salaries, and defense spending, amongst other costs. The government operates on a deficit, essentially spending more each year than it collects in taxes. Due to this deficit, the national debt, partly owed to private investors, foreign countries, and some of which is borrowed from the government itself, has reached enormous levels. Am I on track so far?

Now, any individual operating in this fashion eventually cannot meet the cost of their debt, defaults, and collapses into bankruptcy. I am told that this will not happen to the government, because it has the power to mint more money to ensure that it does not default. This is my problem...

I, as an individual, earn money at work which I exchange with other workers for goods and services. They use the money I give them to do the same. This money represents value, and is physical and finite.
The government doesn't need this money to pay the debt, because it can just mint more money or revalue the existing money to make the debt a moot point. Am I still on track?

So the big question: If the government doesn't need the real, finite money to pay the debt, thus allowing us to not even worry about the debt, then why does the government take MY real, finite money to pay for it's costs? Why does the government need tax revenue... if... the government... doesn't need.. tax revenue? Help me out here, I'm baffled. They SAY they don't need it, but they continue to take it by threat of force. What's up with that? This is a serious question.

 

[gdgyva]

Disclaimer: I have not studied economics and do not understand 'economic theory'. My only experience with economics has been personal, and I need to earn enough money to cover what I spend.

I am very confused by the discussion of national debt and deficit that goes on lately. The government taxes the population, uses this revenue to pay for social programs, government salaries, and defense spending, amongst other costs. The government operates on a deficit, essentially spending more each year than it collects in taxes. Due to this deficit, the national debt, partly owed to private investors, foreign countries, and some of which is borrowed from the government itself, has reached enormous levels. Am I on track so far?

Now, any individual operating in this fashion eventually cannot meet the cost of their debt, defaults, and collapses into bankruptcy. I am told that this will not happen to the government, because it has the power to mint more money to ensure that it does not default. This is my problem...

I, as an individual, earn money at work which I exchange with other workers for goods and services. They use the money I give them to do the same. This money represents value, and is physical and finite.
The government doesn't need this money to pay the debt, because it can just mint more money or revalue the existing money to make the debt a moot point. Am I still on track?

So the big question: If the government doesn't need the real, finite money to pay the debt, thus allowing us to not even worry about the debt, then why does the government take MY real, finite money to pay for it's costs? Why does the government need tax revenue... if... the government... doesn't need.. tax revenue? Help me out here, I'm baffled. They SAY they don't need it, but they continue to take it by threat of force. What's up with that? This is a serious question.

opens a beer, and opens the popcorn

this ought to be good

 

[Khayembii Communique]

The government taxes the population, uses this revenue to pay for social programs, government salaries, and defense spending, amongst other costs.

This isn't true at all. Taxation has nothing to do with government spending. Think about it this way: when you pay the government taxes, the government takes the money you paid and destroys it. When the government spends, it creates money out of thin air and then spends it. This is a simplification of what is going on that makes it easier to understand.

The government operates on a deficit, essentially spending more each year than it collects in taxes. Due to this deficit, the national debt, partly owed to private investors, foreign countries, and some of which is borrowed from the government itself, has reached enormous levels. Am I on track so far?

This is true, obviously.

Now, any individual operating in this fashion eventually cannot meet the cost of their debt, defaults, and collapses into bankruptcy. I am told that this will not happen to the government, because it has the power to mint more money to ensure that it does not default. This is my problem...

I, as an individual, earn money at work which I exchange with other workers for goods and services. They use the money I give them to do the same. This money represents value, and is physical and finite.
The government doesn't need this money to pay the debt, because it can just mint more money or revalue the existing money to make the debt a moot point. Am I still on track?

It doesn't really "revalue existing money" but yes.

So the big question: If the government doesn't need the real, finite money to pay the debt, thus allowing us to not even worry about the debt, then why does the government take MY real, finite money to pay for it's costs? Why does the government need tax revenue... if... the government... doesn't need.. tax revenue? Help me out here, I'm baffled. They SAY they don't need it, but they continue to take it by threat of force. What's up with that? This is a serious question.

The government doesn't take your money to pay for its costs. The government collects taxes to reduce aggregate demand in the economy. Also, the government taxes because if it didn't, there would be no need for its currency. Taxation is a macroeconomic policy tool, not a funding mechanism. Note, though, that this only applies to the federal government. State and local governments must tax to fund as they cannot create their own currency.

 

[logansrun]

Disclaimer: I have not studied economics and do not understand 'economic theory'. My only experience with economics has been personal, and I need to earn enough money to cover what I spend.

I am very confused by the discussion of national debt and deficit that goes on lately. The government taxes the population, uses this revenue to pay for social programs, government salaries, and defense spending, amongst other costs. The government operates on a deficit, essentially spending more each year than it collects in taxes. Due to this deficit, the national debt, partly owed to private investors, foreign countries, and some of which is borrowed from the government itself, has reached enormous levels. Am I on track so far?

Now, any individual operating in this fashion eventually cannot meet the cost of their debt, defaults, and collapses into bankruptcy. I am told that this will not happen to the government, because it has the power to mint more money to ensure that it does not default. This is my problem...

I, as an individual, earn money at work which I exchange with other workers for goods and services. They use the money I give them to do the same. This money represents value, and is physical and finite.
The government doesn't need this money to pay the debt, because it can just mint more money or revalue the existing money to make the debt a moot point. Am I still on track?

So the big question: If the government doesn't need the real, finite money to pay the debt, thus allowing us to not even worry about the debt, then why does the government take MY real, finite money to pay for it's costs? Why does the government need tax revenue... if... the government... doesn't need.. tax revenue? Help me out here, I'm baffled. They SAY they don't need it, but they continue to take it by threat of force. What's up with that? This is a serious question.

If the government just printed what it needed, then people would find infinite new needs for which the government to print money and the money you have received in exchange for your labors would be worthless. If everybody had a billion dollars, a McChicken sandwich from McDonalds would cost considerable more than one of those dollars.

 

[tomkat364]

The government doesn't take your money to pay for its costs. The government collects taxes to reduce aggregate demand in the economy. Also, the government taxes because if it didn't, there would be no need for its currency. Taxation is a macroeconomic policy tool, not a funding mechanism. Note, though, that this only applies to the federal government. State and local governments must tax to fund as they cannot create their own currency.

Sorry, still not understanding this part. Back when money was physical, like the 1000+ years of western civilization prior to dismantling the gold standard, countries still collected taxes in order to pay for governmental services. The ships that were built for the Spanish armada were paid for using real, physical silver from the King. America had heaps of gold at fort knox to back the dollar until it became inconvenient. You're suggesting that those governments were not really paying for stuff with all the money they collected?

 

[Khayembii Communique]

Sorry, still not understanding this part. Back when money was physical, like the 1000+ years of western civilization prior to dismantling the gold standard, countries still collected taxes in order to pay for governmental services. The ships that were built for the Spanish armada were paid for using real, physical silver from the King. America had heaps of gold at fort knox to back the dollar until it became inconvenient. You're suggesting that those governments were not really paying for stuff with all the money they collected?

No, that's completely different.

 

[Lutherf]

The MMT response to this should be something along the lines of "The requirement to pay tax is what creates value in the currency so the solution is to simply tax more as a method of maintaining value in your currency"

 

[tomkat364]

No, that's completely different.

Sorry, missing the point I guess. If those governments collected real, finite, physical money and used that same money to pay for the government's spending, why is our government now different? I understand that we dismantled the gold standard, and now money is less concrete. But a good bit of that government spending somehow gets turned back into real money. For instance, all those medicare payments go to hospitals and doctors who use that actual money to buy chicken sandwiches from McDonalds. The medicare tax paid by the McDonald's employee then... just... disappears? Why have a medicare tax if the money doesn't go toward medicare spending? Why not just have one, huge, 'aggregate demand reduction tax'? And if these taxes don't actually amount to 'revenue' for the government, then how does tax evasion equate to lost revenue, as this article suggests?
Federal Revenue Lost To Tax Evasion | Demos
This site specifically says that these evil tax dodgers increase the deficit AND the taxes paid by every other law abiding taxpayer. But... if the government doesn't actually spend this tax revenue, then why care about this 'deficit' which doesn't really exist? It would seem like the government is lying to us all, saying that the deficit matters when it comes to taxes, but that it doesn't matter when it comes to spending. No?

 

[Khayembii Communique]

Sorry, missing the point I guess. If those governments collected real, finite, physical money and used that same money to pay for the government's spending, why is our government now different? I understand that we dismantled the gold standard, and now money is less concrete.

Because under the gold standard the amount of money was tied to the amount of gold in reserve. The government couldn't create new money whenever it wanted. In the case of seignorage regimes, it was literally constrained by the amount of gold minted.

But a good bit of that government spending somehow gets turned back into real money.

Government spending is real money so I don't know what distinction you're trying to make here?

For instance, all those medicare payments go to hospitals and doctors who use that actual money to buy chicken sandwiches from McDonalds. The medicare tax paid by the McDonald's employee then... just... disappears? Why have a medicare tax if the money doesn't go toward medicare spending? Why not just have one, huge, 'aggregate demand reduction tax'?

Because politicians believe that they need to fund programs through taxation.

And if these taxes don't actually amount to 'revenue' for the government, then how does tax evasion equate to lost revenue, as this article suggests?

It doesn't, though it does add to the deficit because it's decreased the amount of tax dollars remanded.

This site specifically says that these evil tax dodgers increase the deficit AND the taxes paid by every other law abiding taxpayer. But... if the government doesn't actually spend this tax revenue, then why care about this 'deficit' which doesn't really exist? It would seem like the government is lying to us all, saying that the deficit matters when it comes to taxes, but that it doesn't matter when it comes to spending. No?

There's no reason to care about the deficit at this point aside from the fact that we should be running a larger one.

 

[Tetron]

Because under the gold standard the amount of money was tied to the amount of gold in reserve. The government couldn't create new money whenever it wanted. In the case of seignorage regimes, it was literally constrained by the amount of gold minted.



Government spending is real money so I don't know what distinction you're trying to make here?



Because politicians believe that they need to fund programs through taxation.



It doesn't, though it does add to the deficit because it's decreased the amount of tax dollars remanded.



There's no reason to care about the deficit at this point aside from the fact that we should be running a larger one.

The problem I have with your conclusions are that for this to be true you would have to understand the economy better than the 435 members of the house of representatives and all their staffs. The 100 senators and all their staffs, and anyone with any significant interest in becoming a senator or a congressman. If this economic concept was true then if even one of them understood it they would spread it to the rest so everyone could use it.

 

[Critter7r]

The problem I have with your conclusions are that for this to be true you would have to understand the economy better than the 435 members of the house of representatives and all their staffs. The 100 senators and all their staffs, and anyone with any significant interest in becoming a senator or a congressman. If this economic concept was true then if even one of them understood it they would spread it to the rest so everyone could use it.

I figure that all the stuff we're mulling over in these threads is so much high-level thinking that if they do think they understand this, they figure it's just easier to play along and keep running deficits without worrying too much about it.

Because, according to what I've read, the gov't can't just print money to infinity and beyond, there IS a ceiling (but it's not a static ceiling). But trying to get Average Joe to wrap his head around it is next to impossible so they just keep going with "taxes fund the gov't", instead of, "we make you pay taxes to limit the aggregate demand of products and services to a manageable level, offset the deficit and ensure that there's a value to the Dollar to keep everyone coming back for more."

 

[Khayembii Communique]

The problem I have with your conclusions are that for this to be true you would have to understand the economy better than the 435 members of the house of representatives and all their staffs. The 100 senators and all their staffs, and anyone with any significant interest in becoming a senator or a congressman. If this economic concept was true then if even one of them understood it they would spread it to the rest so everyone could use it.

"Al Gore

Early in 2000, in a private home in Boca Raton, FL, I was seated next to then-Presidential Candidate Al Gore at a fundraiser/dinner to discuss the economy. The first thing he asked was how I thought the next president should spend the coming $5.6 trillion surplus that was forecasted for the next 10 years. I explained that there wasn’t going to be a $5.6 trillion surplus, because that would mean a $5.6 trillion drop in nongovernment savings of financial assets, which was a ridiculous proposition. At the time, the private sector didn’t even have that much in savings to be taxed away by the government, and the latest surplus of several hundred billion dollars had already removed more than enough private savings to turn the Clinton boom into the soon-to-come bust.

I pointed out to candidate Gore that the last six periods of surplus in our more than two hundred-year history had been followed by the only six depressions in our history. Also, I mentioned that the coming bust would be due to allowing the budget to go into surplus and drain our savings, resulting in a recession that would not end until the deficit got high enough to add back our lost income and savings and deliver the aggregate demand needed to restore output and employment. I suggested that the $5.6 trillion surplus which was forecasted for the next decade would more likely be a $5.6 trillion deficit, as normal savings desires are likely to average 5% of GDP over that period of time.

That is pretty much what happened. The economy fell apart, and President Bush temporarily reversed it with his massive deficit spending in 2003. But after that, and before we had had enough deficit spending to replace the financial assets lost to the Clinton surplus years (a budget surplus takes away exactly that much savings from the rest of us), we let the deficit get too small again. And after the sub-prime debt-driven bubble burst, we again fell apart due to a deficit that was and remains far too small for the circumstances.

For the current level of government spending, we are being over-taxed and we don’t have enough after-tax income to buy what’s for sale in that big department store called the economy.

Anyway, Al was a good student, went over all the details, agreeing that it made sense and was indeed what might happen. However, he said he couldn’t “go there.” I told him that I understood the political realities, as he got up and gave his talk about how he was going to spend the coming surpluses.

 

[Khayembii Communique]

Robert Rubin
Ten years ago, around the year 2000 just before it all fell apart, I found myself in a private client meeting at Citibank with Robert Rubin, former U.S. Treasury Secretary under President Clinton, and about 20 Citibank clients. Mr. Rubin gave his take on the economy and indicated that the low savings rate might turn out to be a problem. With just a few minutes left, I told him I agreed about the low savings rate being an issue and added, “Bob, does anyone in Washington realize that the budget surplus takes away savings from the non-government sectors?” He replied, “No, the surplus adds to savings. When the government runs a surplus, it buys Treasury securities in the market, and that adds to savings and investment.” To that I responded, “No, when we run a surplus, we have to sell our securities to the Fed (cash in our savings accounts at the Fed) to get the money to pay our taxes, and our net financial assets and savings go down by the amount of the surplus.” Rubin stated, “No, I think you’re wrong.” I let it go and the meeting was over. My question was answered. If he didn’t understand surpluses removed savings, then no one in the Clinton administration did. And the economy crashed soon afterwards.

When the January 2009 savings report was released, and the press noted that the rise in savings to 5% of GDP was the highest since 1995, they failed to note the current budget deficit passed 5% of GDP, which also happens to be the highest it’s been since 1995.

Clearly, the mainstream doesn’t yet realize that deficits add to savings. And if Al Gore does, he isn’t saying anything. So watch this year as the federal deficit goes up and savings, too, goes up. Again, the only source of “net $U.S. monetary savings” (financial assets) for the non-government sectors combined (both residents and non-residents) is U.S. government deficit spending.

But watch how the very people who want us to save more, at the same time want to “balance the budget” by taking away our savings, either through spending cuts or tax increases. They are all talking out of both sides of their mouths. They are part of the problem, not part of the solution. And they are at the very highest levels."
Mosler

Sorry for the two part post apparently this was too long to put into a single post.

 

[JohnfrmClevelan]

I'm going to lift most of this straight from a post I made just a few weeks back on a similar subject. To answer Tomkat's questions, you need to understand what money really represents - debt.

**********

A farmer in a small town goes into the general store to buy some seed. He has no money, but tells the store owner he will pay for the seed when his crops come in. The owner agrees, and accepts an I.O.U. for $10. Money (or something like it) has just been created. (If you can't accept dollars in a hypothetical, call it 10 hours of labor that the farmer has promised.)

The store owner wants to buy some whiskey. The bar owner also knows the farmer, and accepts his I.O.U. as payment for $10 worth of booze. Now the farmer owes the bartender, who can present the I.O.U. and demand payment from the farmer.

Now, add in a bank. A bank acts as a third-party agent for I.O.U.s, granting credit and accepting deposits (other I.O.U.s) from various people (who may not know each other well enough to happily accept personal I.O.U.s). The bank (if the laws allow) can even print up some of their own banknotes, so people can carry bank I.O.U.s around with them and transact business with them. So the bank is owed money by the people it loans banknotes to, and it owes money to people who have deposited I.O.U.s with the bank.

At any point in time, if money exists, more stuff has been produced than purchased. (In barter, on the other hand, the exchange is immediate.) If you have money in your pocket, or money in the bank, it means you have already earned it, but you have not yet spent it. You have, for the moment, produced more than you have consumed. You basically are owed something by the economy as a whole, and you can spend your dollars whenever you like, which sort of completes the transaction (your labor for some good or service). That is why money = debt. If you hold money (an asset), somebody else holds the liability (they owe the economy some production).

Now add in a government. They can, through force of law, position themselves as the central banker, and they can standardize all private bank I.O.U.s (as U.S. dollars). So they are also in the unique position of being able to create dollars without owing anybody anything. They create the dollars (bonds, really), spend them, and that's the end of it. (Banks obviously cannot do that.)

Note that it's very possible to have a banking system, money, etc., without the government having a central bank and the power to create money. You could allow the banks to create money, and even banknotes, and fund the government 100% through taxation using bank-created dollars. (This is a very simple model, which is probably why it appeals to anti-Fed types.) But it comes with problems, too. The government can only spend what tax revenues bring in. Banks fail under these conditions, and depositors lose their money. There is no government backstop to solve problems.

A government's central bank, on the other hand, can create dollars as it wishes, which allows for things like insuring your deposits, bailing out failing banks, and funding government deficit spending. Deficit spending is a handy tool, in that it allows the government to make up for lost aggregate demand during recessions and depressions, even when tax revenue is dropping.

Deficit spending also allows for liability-free assets (dollars and bonds) to be held by the private sector. $1 billion in deficit spending is $1 billion that we can save, without a matching liability. (That's what Warren Mosler was talking about in KC's post above.) It's $1 billion that we have earned that isn't going to be taxed away. It's $1 billion that we can spend without increasing consumer debt by $1 billion. In short, it's a good thing for the economy.

 

[JohnfrmClevelan]

The problem I have with your conclusions are that for this to be true you would have to understand the economy better than the 435 members of the house of representatives and all their staffs. The 100 senators and all their staffs, and anyone with any significant interest in becoming a senator or a congressman. If this economic concept was true then if even one of them understood it they would spread it to the rest so everyone could use it.

Have you ever listened to these geniuses? Do you think that this guy understands much of anything?

 

[tech30528]

Disclaimer: I have not studied economics and do not understand 'economic theory'. My only experience with economics has been personal, and I need to earn enough money to cover what I spend.

I am very confused by the discussion of national debt and deficit that goes on lately. The government taxes the population, uses this revenue to pay for social programs, government salaries, and defense spending, amongst other costs. The government operates on a deficit, essentially spending more each year than it collects in taxes. Due to this deficit, the national debt, partly owed to private investors, foreign countries, and some of which is borrowed from the government itself, has reached enormous levels. Am I on track so far?

Now, any individual operating in this fashion eventually cannot meet the cost of their debt, defaults, and collapses into bankruptcy. I am told that this will not happen to the government, because it has the power to mint more money to ensure that it does not default. This is my problem...

I, as an individual, earn money at work which I exchange with other workers for goods and services. They use the money I give them to do the same. This money represents value, and is physical and finite.
The government doesn't need this money to pay the debt, because it can just mint more money or revalue the existing money to make the debt a moot point. Am I still on track?

So the big question: If the government doesn't need the real, finite money to pay the debt, thus allowing us to not even worry about the debt, then why does the government take MY real, finite money to pay for it's costs? Why does the government need tax revenue... if... the government... doesn't need.. tax revenue? Help me out here, I'm baffled. They SAY they don't need it, but they continue to take it by threat of force. What's up with that? This is a serious question.

You are on the right track. The next logical conclusion is that all taxes are punitive, nothing more than government steering behavior.

 

[fmw]

This isn't true at all. Taxation has nothing to do with government spending. Think about it this way: when you pay the government taxes, the government takes the money you paid and destroys it. When the government spends, it creates money out of thin air and then spends it. This is a simplification of what is going on that makes it easier to understand.

Since money grows on trees perhaps you can explain why the government doesn't pick enough money from the tree to give to citizens so that all citizens can be wealthy. Does is like poverty or is there something wrong with your theory?

 

[fmw]

Disclaimer: I have not studied economics and do not understand 'economic theory'. My only experience with economics has been personal, and I need to earn enough money to cover what I spend.

I would say you understand practical economics better than degreed economists.

 

[tomkat364]

A government's central bank, on the other hand, can create dollars as it wishes, which allows for things like insuring your deposits, bailing out failing banks, and funding government deficit spending. Deficit spending is a handy tool, in that it allows the government to make up for lost aggregate demand during recessions and depressions, even when tax revenue is dropping.

Deficit spending also allows for liability-free assets (dollars and bonds) to be held by the private sector. $1 billion in deficit spending is $1 billion that we can save, without a matching liability. (That's what Warren Mosler was talking about in KC's post above.) It's $1 billion that we have earned that isn't going to be taxed away. It's $1 billion that we can spend without increasing consumer debt by $1 billion. In short, it's a good thing for the economy.

I actually read a post on a different website that I think you host, which also helped explain this viewpoint. But I still have questions. First of all, you claim that money represents debt. I get that. Prior to dismantling the gold standard, that debt was specifically tied to a certain valued object. If you held a $1 note, that represented $1 of real, actual gold that you had 'on account'. The paper money was simply a lighter, easier to exchange placeholder for that gold. Obviously, the amount of gold that $1 represented could go up or down, but it held a tangible value that now is all smoke and mirrors. There was an intermediate that everyone agreed upon: GOLD. And the farmer, the banker, the merchant, they all wanted the gold, which everyone would value. The money was a stand-in for that intermediate. Now there is no intermediate, so there is no real value to the dollar, other than what we make believe it represents. Kind of like Confederate dollars, which are only valuable to a coin collector and have no recognized worth.

What economists seem to ignore is your last statement. How can any money exist without a liability? IT CANNOT! If money is equivalent to debt, then there MUST be a liability for the money to have any meaning. Someone NEEDS to owe SOMETHING to someone else. Under the gold standard, the money represented a share of the gold the federal government possessed. Now, the government is creating dollars with no value behind them. If the money that I earn and save represents my labor that I have not yet exchanged of it's value in goods and services, the new money that the government creates equals... what? The government doesn't create goods or services, so they are simply causing inflation.

What tangible value does the government currently possess that my $1 note represents? The note is an IOU from the central bank, right? What does that IOU entitle me to, if they can simply create more notes? They have to have SOMETHING in their vaults to act as collateral!

 

[Khayembii Communique]

Since money grows on trees perhaps you can explain why the government doesn't pick enough money from the tree to give to citizens so that all citizens can be wealthy. Does is like poverty or is there something wrong with your theory?

You're talking about a basic guaranteed income, which is something that's been talked about, but a basic guaranteed income has a higher risk of being inflationary than a job guarantee.

As for giving out money so "everyone is wealthy" that would be inflationary. We've already covered that, go back and read the thread. And I never said money grows on trees I said it's created out of thin air.

 

[Khayembii Communique]

I actually read a post on a different website that I think you host, which also helped explain this viewpoint. But I still have questions. First of all, you claim that money represents debt. I get that. Prior to dismantling the gold standard, that debt was specifically tied to a certain valued object. If you held a $1 note, that represented $1 of real, actual gold that you had 'on account'. The paper money was simply a lighter, easier to exchange placeholder for that gold. Obviously, the amount of gold that $1 represented could go up or down, but it held a tangible value that now is all smoke and mirrors. There was an intermediate that everyone agreed upon: GOLD. And the farmer, the banker, the merchant, they all wanted the gold, which everyone would value. The money was a stand-in for that intermediate. Now there is no intermediate, so there is no real value to the dollar, other than what we make believe it represents. Kind of like Confederate dollars, which are only valuable to a coin collector and have no recognized worth.

What economists seem to ignore is your last statement. How can any money exist without a liability? IT CANNOT! If money is equivalent to debt, then there MUST be a liability for the money to have any meaning. Someone NEEDS to owe SOMETHING to someone else. Under the gold standard, the money represented a share of the gold the federal government possessed. Now, the government is creating dollars with no value behind them. If the money that I earn and save represents my labor that I have not yet exchanged of it's value in goods and services, the new money that the government creates equals... what? The government doesn't create goods or services, so they are simply causing inflation.

What tangible value does the government currently possess that my $1 note represents? The note is an IOU from the central bank, right? What does that IOU entitle me to, if they can simply create more notes? They have to have SOMETHING in their vaults to act as collateral!

A liability is an accounting tool. In this case there's nothing else aside from "the collateral" of the US economy. You legally can't get your dollar bill changed into anything except for other forms of currency. Even if they wanted to give you gold or something else, they legally can't.

 

[Exquisitor]

"Al Gore

Early in 2000, in a private home in Boca Raton, FL, I was seated next to then-Presidential Candidate Al Gore at a fundraiser/dinner to discuss the economy. The first thing he asked was how I thought the next president should spend the coming $5.6 trillion surplus that was forecasted for the next 10 years. I explained that there wasn’t going to be a $5.6 trillion surplus, because that would mean a $5.6 trillion drop in nongovernment savings of financial assets, which was a ridiculous proposition. At the time, the private sector didn’t even have that much in savings to be taxed away by the government, and the latest surplus of several hundred billion dollars had already removed more than enough private savings to turn the Clinton boom into the soon-to-come bust.

I pointed out to candidate Gore that the last six periods of surplus in our more than two hundred-year history had been followed by the only six depressions in our history. Also, I mentioned that the coming bust would be due to allowing the budget to go into surplus and drain our savings, resulting in a recession that would not end until the deficit got high enough to add back our lost income and savings and deliver the aggregate demand needed to restore output and employment. I suggested that the $5.6 trillion surplus which was forecasted for the next decade would more likely be a $5.6 trillion deficit, as normal savings desires are likely to average 5% of GDP over that period of time.

That is pretty much what happened. The economy fell apart, and President Bush temporarily reversed it with his massive deficit spending in 2003. But after that, and before we had had enough deficit spending to replace the financial assets lost to the Clinton surplus years (a budget surplus takes away exactly that much savings from the rest of us), we let the deficit get too small again. And after the sub-prime debt-driven bubble burst, we again fell apart due to a deficit that was and remains far too small for the circumstances.

For the current level of government spending, we are being over-taxed and we don’t have enough after-tax income to buy what’s for sale in that big department store called the economy.

Anyway, Al was a good student, went over all the details, agreeing that it made sense and was indeed what might happen. However, he said he couldn’t “go there.” I told him that I understood the political realities, as he got up and gave his talk about how he was going to spend the coming surpluses.

We should go back to the days when when you printed your money you boiled stones in your enemy's blood.

The above post is nonsense. This is just an excuse for what Bush did with the Clinton surplus. Bush gave upper tax break and instead of creating jobs everybody put their extra money in the housing bubble which broke.

The surplus is spent anyway putting that money back in people's pockets and savings. The poor people who have less in their bank accounts are the wealthy or will be the wealthy who put their extra money in the housing bubble instead of creating jobs with it.

"Job creators" don't create jobs work does and so does the economy.

The question is where does the growth come from? If the total money in the economy increases, where does this increase come from?

 

[tomkat364]

A liability is an accounting tool. In this case there's nothing else aside from "the collateral" of the US economy. You legally can't get your dollar bill changed into anything except for other forms of currency. Even if they wanted to give you gold or something else, they legally can't.

Then money doesn't represent debt, it represents nothing. Liability is an outstanding debt for goods or services. If I use my credit card to buy a TV, the credit card company spots me the cash, which is given directly to the TV salesman. I have an agreement with the credit card company that I will repay that cost, with interest if necessary (I never use more credit than I can pay back immediately, so I never actually deal with the interest), but they have a legal right to take my property and money if I do not pay up. That is debt, that is liability. The previous posts claim that money equates to a debt, but there is no collateral or backing for that debt. You have claimed that the government doesn't actually use tax revenue directly for spending, so then there should be no need to have tax revenue.

This line of thinking does not hold water, and it becomes more and more evident that economists (i.e.the Fed) are scheister's who have appropriated public funds with empty promises perpetual assurances of downstream benefit that can never be realized. They trust in their ability to use circular logic and big words to create the APPEARANCE of stability, but have built this house on even less than sand.

 

[Khayembii Communique]

The above post is nonsense. This is just an excuse for what Bush did with the Clinton surplus. Bush gave upper tax break and instead of creating jobs everybody put their extra money in the housing bubble which broke.

lol that's not why the housing bubble was created or burst.

The surplus is spent anyway

No, a surplus is just money sitting in the treasury general account at the Fed. By definition, it's not money that's spent, because it's surplus money over spending...

 

[Fenton]

Have you ever listened to these geniuses? Do you think that this guy understands much of anything?

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And you descend into hackery as you allegedly support Bernie Sanders of all people.