The way I read it, he’s agreed that it’s about inflation, not solvency.

That is, in ratings agency speak, willingness to pay could be an issue, but not ability to pay.

That’s enough for me to declare victory on that key issue, and move on.

Not that I at all agree with his descriptions of monetary operations or his ‘inflation channels.’ I just see no reason to rehash all that and risk loss of focus on the larger point he’s conceded.

This reads like a true breakthrough. Hopefully this opens the flood gates and the remaining deficit doves pile on, and July 17, 2010 is remembered as the day MMT broke through and turned the tide.

And in the real world it’s all about celebrity status.

With Jamie’s credentials and definitive response to the sustainability commission, Paul finally had a sufficiently ‘worthy’ advocate which gave him the opening to respond and concede.

I Would Do Anything For Stimulus, But I Won’t Do That (Wonkish)

By Paul Krugman

It’s really not relevant to current policy debates, but there’s an issue that’s been nagging at me, so I thought I’d write it up.

Right now, the real policy debate is whether we need fiscal austerity even with the economy deeply depressed. Obviously, I’m very much opposed — my view is that running deficits now is entirely appropriate.

But here’s the thing: there’s a school of thought which says that deficits arenever a problem, as long as a country can issue its own currency. The most prominent advocate of this view is probably Jamie Galbraith, but he’s not alone.

Now, Jamie and I are, I think, in complete agreement about what we should be doing now. So we’re talking theory, not practice. But I can’t go along with his view that

So long as U.S. banks are required to accept U.S. government checks — which is to say so long as the Republic exists — then the government can and does spend without borrowing, if it chooses to do so … Insolvency, bankruptcy, or even higher real interest rates are not among the actual risks to this system.

OK, I don’t think that’s right. To spend, the government must persuade the private sector to release real resources. It can do this by collecting taxes, borrowing, or collecting seignorage by printing money. And there are limits to all three. Even a country with its own fiat currency can go bankrupt, if it tries hard enough.

How does that work? A bit of modeling under the fold.

Let’s think in terms of a two-period model, although I won’t need to say much about the first period. In period 1, the government borrows, issuing indexed bonds (I could make them nominal, but then I’d need to introduce expectations about inflation, and we’ll end up in the same place.) This means that in period 2 the government owes real debt service in the amount D.

The government may meet this debt service requirement, in whole or in part, by running a primary surplus, an excess of revenue over current spending. Let’s suppose, however, that there’s an upper limit S to the feasible primary surplus — a limit imposed by political constraints, administrative issues (if taxes are too high everyone will evade), or the sheer fact that tax collections can’t exceed GDP.

But the government also has a printing press. The real revenue it collects by using this press is [M(t) – M(t-1)]/P(t), where M is the money supply and P the price level.

What determines the price level? Let’s assume a simple quantity theory, with the price level proportional to the money supply:

P(t) = V*M(t)

By assuming this, I’m actually making the most favorable assumption about the power of seignorage, since in practice, running the printing presses leads to a fall in the real demand for money (people start using lumps of coal or whatever as substitutes.)

OK, now let’s ask what happens if the government has run up enough debt that the upper limit on the primary surplus is a binding constraint, and it’s necessary to run the printing presses to make up the difference. In that case,

[M(t) – M(t-1)]/P(t) = D – S

But P is proportional to M, so this becomes

[M(t) – M(t-1)]/VM(t) = D – S

Rearrange a bit, and we have

M(t)/M(t-1) = 1/[1 – V[D-S]]

And what does this imply? Since the price level is, by assumption, proportional to M, this tells us that the higher the debt burden, the higher the required rate of inflation — and, crucially, that as D-S heads toward a critical level, this implied inflation heads off to infinity. That is, it looks like this:

So there is a maximum level of debt you can handle. In practice, if it makes sense to say such a thing with regard to a stylized model, at some point lower than the critical level implied by this model the government would decide that default was a better option than hyperinflation.

And going back to period 1, lenders would take this possibility into account. So there are real limits to deficits, even in countries that can print their own currency.

Now, I’m sure I’m about to get comments and/or responses on other blogs along the lines of “Ha! So now Krugman admits that deficits cause hyperinflation! Peter Schiff roolz” Um, no — in extreme conditions they CAN cause hyperinflation; we’re nowhere near those conditions now. All I’m saying here is that I’m not prepared to go as far as Jamie Galbraith. Deficits can cause a crisis; but that’s no reason to skimp on spending right now.

204 Responses

  1. “Paul finally had a sufficiently ‘worthy’ advocate which gave him the opening to respond and concede.”

    What did he concede exactly? I don’t see it.

    He says countries can be forced into declaring bankruptcy according to his model. That means they have to plan for deficits now. That’s not a victory.

    I don’t think he ever said governments can’t make payments if they want to.

    1. P.S.

      Krugman in his second post does not actually retract the hyperinflation/bankruptcy model he uses in his first post. And JG’s own comment notes thankfully only that he didn’t repeat it – it doesn’t actually claim that he retracted it.

    2. After Krugman’s posting, Galbraith left a comment, Krugman responded and then Galbraith had the last word (which Mark Thoma helpfully put on one page).

      A lot of good reader comments too— I thought Paul Davidson’s (#79) hit the nail on the head.

      Dear Paul; Given all your assumptions, no wonder you reach your conclusion. For example you assume the quantity theory of money. But the quantity theory requires an assumption of neutral money in both the short run and the long run. But Keynes, in hisarticle for the Spiethoff festschrift specifically argued that in a monetary economy , money is never neutral — in eiher the short run or the long run. For Keynes, the neutral money axiom was like the “axiom of parallels in a non-Euclidean world [ See page 16 of THE GENERAL THEORY.]

      And if you employ axioms that are not characteristic of our entrepreneurial economy, then the teaching will be, as Keynes noted, “misleading and disasterous”

      If you load the argumen with biased assumptions then your conclusions willbe biased.

  2. I agree with Warren that Krugman conceded (sort of). These folks don’t concede by giving in explicitly but any abandoning the argument and giving up implicitly. (Saves face.) But we will have to see whether Krugman changes his tune, subsequently, If that happens, it would be a substantial victory for MMT.

    On the other hand, I am not convinced that Krugman and other New Keynesians are about give up the quantity theory of money, the money multiplier, the primacy of monetary policy, and NAIRU yet. I doubt that they will give up “stickiness” in favor of Keynesian uncertainty at this point, either. Or switch to stock-flow consistent modeling. So we will have to wait and see.

    But MMT is now “out.” When Krugman and Galbraith are debate it in the NYT, that’s definitely celeb status. Welcome to no longer being marginal, or peripheral to the debate.

    The last mile is closing!

    1. The good news is it doesn’t much matter whether they give up on those other things are not, as long as the argument has shifted from solvency to inflation, which hopefully is now happening.


      1. Agreed. At least liberals and progressive would stop shooting themselves in the head and only aim at their feet. 🙂

  3. Anon,
    Perhaps this is politically how a Nobel Prize winner has to concede. 🙂 He also has to be careful as Princeton is heavily invested in Debt/Deficit phobia. But I believe WM has had coffee with him and went over some of these things, so if Warren detects some sort of a concession then there probably is one.

    It was disappointing to see the only graph he includes is a y=x2 type of thing that quickly goes asymtotic. When you have that, its not surprising that the word “Wiemar” appears within 4 comments. Prof Krugman should have realized that. The picture was ominous (besides fictitious), was not in the spirit of advocating more fiscal support that is needed at this time, it was not helpful to what he says is his current policy recommendation.

    Prof Galbraith really has the gloves off though. I really admire him here for what he is doing. Hang in there lets see where it goes from here this may be a multi-step process.

    1. Matt, I suspect that Prof. Galbraith realizes that the clear and present threat to the republic from the right is more significant in the long run than “respectability” among one’s peers. In the end, it will enhance his reputation not only as an economist but also as a bold and courageous player. His response to the madness of the deficit commission and criticism of the president for appointing it was searing. Moreover, he had already climbed out on a limb with The Predator State, continuing in the iconoclastic tradition of his father.

      This is getting “interesting,” as they say. I’ve been waiting for it impatiently, and I am glad that Krugman finally added his celeb status, even if in opposition. Remember, Mark Thoma dismissed the idea of a debate with Bill Mitchell as obviously useless, since Bill rejects the sacredness of the money multiplier.

  4. Krugman never retracts stuff he’s written.

    And he wrote about a hyperinflation/bankruptcy model in his first post.

    If the meme that he’s conceded something gets around, he’ll do another post explaining how he didn’t. That’s what he always does in that sort of situation.

    Apart from that, he agrees that inflation is not a problem near term. And he’s quite aware that the government can make any payment it wants to. There’s no change in his thinking there. But he wouldn’t be writing up such a model if he didn’t think there was a long term generic fiat risk for inflation and bankruptcy by choice.

    He’s always been in synch with MMT insofar as deficit timing is concerned. But he remains out of synch as to the methodology for how to deal with the long term.

    BTW, he never used the word insolvency. That’s being attributed to him by those who think he’s conceded something, apparently.

    His second post is a follow up explanation on his first. It’s not a concession of any sort based on what was actually written and commented in these posts. What’s planned at coffee is another thing.

    What it does show is that Krugman’s been in synch with the substance of MMT deficit strategy all along, much more than he’s generally given credit for by MMT. That should be a good thing, if you can get past trying to get “concessions” out of him.

    1. P.S.

      The good news is that they engaged productively.

      Not that there were “concessions”. There weren’t any.

    2. And everybody should read JG’s comment in the second post.

      There’s still quite a gap there between him and Krugman.

      1. Krugman is basically a New Keynesian monetarist, as his citing the quantity theory shows. That puts him at odds with MMT and PK (Davidson chided him on his appeal to the discredited quantity theory in his comment). There is no indication in what Krugman said that he has backed away from that.

        I would still say that his tone was conciliatory. But no explicit concessions. I don’t think that he conceded on insolvency, because I don’t think it ever held it. He does think that “at some point” deficits and debt could be problematic, but he doesn’t spell it out in practical terms. He knows that the modeling he provides would never actually come to pass.

        Randy Wray provides a good answer to such (faux) concerns in his comment on “More on Deficits Limits,” i.e., tax receipts typically strong outpace GDP growth in recovery, automatically reducing the deficit, just as the automatic stabilizers increased it. Moreover, the counter-cyclical stabilizers like unemployment benefits decrease as recovery sets in. Krugman is well aware of this, of course, so his hyper-inflationary model based on y=x2 is bogus — and politically damaging by giving ammunition to the opposition, as Galbraith admonishes.

      2. Yes, Wray’s point is fundamental and very important to the timing dynamic and the perils of premature austerity.

      3. The offset requirement is often claimed, but I have never seen a citation of US law to back it up. Calling Beowulf
        I’ll outsource this one to the General Accountability Office.

        In the past, Treasury had access to both a cash and securities draw authority. Intermittently between 1942 and 1981, Treasury was able to directly sell (and purchase) certain short-term obligations to (and from) the Federal Reserve in exchange for cash… In the years Treasury used this authority, it borrowed on average about 11 days per year. Use of this authority was concentrated mostly in times of war or armed conflict… The most Treasury borrowed on a single day throughout the period was $2.6 billion in 1979,(p.41 of pdf)

        Another notable thing about 1942 (other than the Rose Bowl being played in North Carolina, of course) is that because of WWII, Tsy and Fed went on a “tap system. That is, Tsy sold Treasuries to all comers at a fixed interest rate (0.375% short term, 2.5% long term), any unsold Treasuries were purchased by Fed.

        This lasted until the Tsy-Fed Accord of 1951, which created our current system of allowing the Fed to adjust interest rates independent of Tsy… about the time the Fed started to think of itself as the fourth branch of government, the Constitution notwithstanding. The Australians used a tap system until the late 70’s.

        Hmm, so maybe we should a preliminary step to the plan– 1. revoke the 1951 Accord and go back to the tap system, 2. stop issuing Treasuries longer than 3 months and then, 3. start issuing interest-free US Notes in lieu of interest-bearing Treasuries. :o)

    3. On the debate, from a very interesting blog post:

      “And comparing this to his earlier quote from Jamie above, we see that this conclusion postulates hyperinflation and voluntary default as issues that can come up, but not as Jamie says, “insolvency,” or “bankruptcy,” if by this one means running out of money rather than voluntary default. But what about “high interest rates” and the Government’s inability to borrow? Doesn’t Paul have a point here?

      I think not. It’s Paul who constructs the situation as one in which the Government must borrow and perform debt service, and it is he who assumes that the interest rates the Government will pay will be determined by the market. Jamie and the MMT theorists make no such assumptions. That is why Jamie says: “. . . the government can and does spend without borrowing if it chooses to do so . . . “ and also that “ … Insolvency, bankruptcy, or even higher real interest rates are not among the actual risks to this system.” In other words, to successfully meet this point of Jamie’s, Paul needs to discuss the situation of increasing deficits, rather than the situation of increasing debt, and then show that the hyperinflation that would accompany very high deficits could make the Government insolvent. Instead, however, he shifts the ground of the argument and ends up claiming that the money supply and the debt could reach levels high enough that the resulting price increases would induce the Government to voluntarily default even while it retained the authority to credit private sector accounts to pay obligations in its own currency.

      This, of course, could very well happen, since leaders are free to do all sorts of things they are not forced to by actual constraints on their authority or capability. But it is the hyperinflation issue Paul is raising here, and not the issue of solvency risk which Jamie was speaking to and which Paul himself originally raised in his blog post.”

      What’s wrong with this?

      First, Krugman did not raise the issue of solvency risk. He only talked about voluntary bankruptcy/default.

      Second, the crux of the debate as described in the post above is about the generic no bonds proposal, which JG did not invoke directly. That may be an argument Krugman is not even aware of yet as such.

      As noted before, MMT has to become more direct about the required use of “no bonds” in its generic arguments.

      1. “Second, the crux of the debate as described in the post above is about the generic no bonds proposal, which JG did not invoke directly. That may be an argument Krugman is not even aware of yet as such.:

        I mentioned it in the comments, which I believe he reads to some degree. Perhaps he saw it.

      2. nothing there on bonds

        exactly what do they fear about not issuing bonds?

        exactly what do they deny in not issuing bonds?

        BTW, I haven’t seen an answer to my specific question anywhere, beyond boilerplate MMT stuff that explains why bonds aren’t necessary but that doesn’t actually answer the question

      3. Anon,
        didnt the US have to issue bonds before they went to ZIRP and before they could pay interest on reserves prior to fall 2008?

        ie To maintain the non-zero policy rate, it would seem you would have to sell bonds if you didnt have other authorized mechanisms to conduct monetary policy. I might suggest to them to shorten all maturities if they were against giving alot of free balances to bondholders. Not all counties are at zero so they may need to sell bonds correct?

      4. My point is that these people understand full well the potential of modern monetary system and are afraid of it. Mimicking the gold standard with political restraints like the $-4-$ offset requirement is their security blanket. Samuelson basically admits this. Plus, “shh, for God’s sake, don’t tell anyone.”

      5. Matt, as I understand it, the Treasury has to issue debt to offset deficits $-4-$. That is a political not a financial requirement. To go to no bonds, that legislation would have to be changed first.

        As far as the Fed goes, I believe that it already has the authority to either pay interest on excess reserves, obviating the need for bonds to drain excess reserves in order to hit the target rate, or it could just let the overnight rate fall to zero.

        So the issue with no bonds would be getting it through the legislative process against heavy lobbying by the financial industry and others that profit from the interest subsidy. Of course, all sorts of scary myths would surface.

      6. Good point Matt

        I guess implicit in my question would be why would a fiat system not have gone to no bonds with enabling legislation (paying interest on reserves) as a required part of that

        Tom is also correct as things stand now, with payment of interest on reserves now approved, but bonds required by existing legislation

        You can think of the Fed’s credit crisis QE balance sheet expansion as no bonds at the margin, via the central bank, for extraordinary reasons

        The no bonds proposal assumes institutional consolidation of treasury and central bank, so that sort of credit crisis QE activity would just have been rolled into the regular no bonds operation, had it been in place

      7. Tom,

        Can you point me exactly to where Samuelson understands the implications of a no bonds policy choice?

        or Krugman for that matter?

        I don’t think you can. I think you’re assuming some things here.

      8. I do not think that there is any law which requires the US Treasury to issue debt $-4-$. Of course, there is a no-overdraft rule, but as Beo pointed out that can be beaten.

        Even in MMT lit, it was assumed that the rates would fall to zero (because paying interest on reserves was not considered).

        Seigniorage powers have been known to economists – just that they think its inflationary. So thats why you hear “they can’t print the money right?”

      9. “Can you point me exactly to where Samuelson understands the implications of a no bonds policy choice?or Krugman for that matter? I don’t think you can. I think you’re assuming some things here.”

        I doubt that either of them has gone into this detail about a fiat system, but they are top tier economists and know how a fiat system works. An issuer of a fiat currency has no need to fund itself with taxation or finance itself with borrowing. That’s what “fiat” means. And it scares them speechless because they are imagining hyper-inflation if the rabble get their hands on the check book.

      10. “I do not think that there is any law which requires the US Treasury to issue debt $-4-$. Of course, there is a no-overdraft rule, but as Beo pointed out that can be beaten.”

        The offset requirement is often claimed, but I have never seen a citation of US law to back it up.

        Calling Beowulf.

      11. Toms Hickey:

        “top tier economists” have NO IDEA “how a fiat system works.”

        no idea at all

        i know you worship authority and the academy as a good left wing poodle, but come on. save this crap for the kos morons

      12. Thanks for referencing my review of the Paul/Jamie exchange. I don’t agree that Paul didn’t raise the issue of “solvency risk.” Here’s the passage from Paul’s first post:

        ”Now, Jamie and I are, I think, in complete agreement about what we should be doing now. So we’re talking theory, not practice. But I can’t go along with his view that

        “So long as U.S. banks are required to accept U.S. government checks — which is to say so long as the Republic exists — then the government can and does spend without borrowing, if it chooses to do so … Insolvency, bankruptcy, or even higher real interest rates are not among the actual risks to this system.”

        OK, I don’t think that’s right. To spend, the government must persuade the private sector to release real resources. It can do this by collecting taxes, borrowing, or collecting seignorage by printing money. And there are limits to all three. Even a country with its own fiat currency can go bankrupt, if it tries hard enough.”

        Here Paul is addressing Jamie’s claims about solvency and bankruptcy risk. Later on in the post he starts slipping into the inflation/voluntary default argument. So, here he denies that there is no solvency risk, and later on he reasons that there is an inflation risk that can lead to an insolvency choice. So, he shifts the ground of the argument.

        He never really explicitly concedes that there is no forced risk of insolvency arising from the inability of Government to spend if it wants to, but his shifting of the ground of the argument suggests that he knows there’s no solvency risk based on such an inability, only a risk that a Government having the inability to continue to spend would voluntarily default on its obligations or on fulfilling the needs of its citizens.

      13. Yes, I think we can meet in the middle here.

        The “don’t think that’s right” became his option to cherry pick what he thought was wrong from a list of things, some of which he could be forced to agree with.

      14. For me there’s more than enough there to state he’s recognized the risk is inflation and not solvency, and leave it to him to not agree with that in his future posts.

      15. Well, I’m backed into a corner again.

        I agree in part, “there’s more than enough there to state he’s recognized the risk is inflation and not solvency”.

        I would qualify that by saying that he has never said there is such a thing as (involuntary) insolvency. Never. Anywhere. I guarantee it. He’s too smart to say that. So he’s always recognized the risk is not insolvency. This didn’t change that.

        What he did say here, and did not retract, is that there is a risk of voluntary default under conditions of hyperinflation. He distinguishes voluntary default from involuntary insolvency. What is implicit in this is that such default risk is largely due to the risk of bond market vigilantes. And implicit in that is the bond financing mechanism of USG. He alludes to the possibility of money financing at the margin, but I’m not sure he’s considered the potential for a permanent comprehensive arrangement without bonds.

      16. Seems to be a fair statement of Krugman’s position.

        1) Krugman doesn’t seem to get that “the bond vigilantes” have no power over government (consolidating Treasury and Fed) if government so choses. The government can influence interest rates along the yield curve whenever it wishes. “The bond vigilantes” is another gold standard myth.

        2) I am pretty sure he hasn’t ever considered the no bonds or natural rate = zero concepts. Why would he?

      17. The bond vigilantes have a lot of power in a bond system. That’s not a myth. They’ve not had much to shout about in the last decade, but they were a major force in the 2 decades before that. The reason he might be interested in the no bond proposal is precisely because its a system where there are no bonds and therefore no bond vigilantes. That’s interesting.

      18. As I understand the MTT position, the bond vigilantes only have power because the government gives it to them. That is a political choice, not a necessity of financing, even with bond issuance.

      19. Well, let’s be clear on what we’re talking about.

        Yes its a choice to issue bonds.

        Assuming that choice, I’m not sure what the MMT position is. You may be right. The Fed could choose to make infinite markets in bonds and intervene along the curve, I suppose. But they haven’t made that choice either. And the feasibility of doing that effectively seems to have been debated quite a bit on this blog and elsewhere.

        In any event, those are two choices that haven’t been made in the current system. Hence the fact that bond vigilantes are a factor when they want to be.

      20. The problem is that the US is still pretending its on the gold standard. Under that regime, the bond market is a factor. Under a fiat regime not, since the government is not actually financing its debt and the cb can set the rate structure it desires. Moreover, it is the Treasury that sets the coupon rate. And, of course, in the final analysis, bonds are unnecessary. Responding to the demands of the bond market is a choice, not a necessity, and it is driven by an ideology that is favorable to bond holders.

        A lot of the fear-mongering has centered on the sustainability of growing interest on the national debt. If the people realized that interest on the national “debt” is just a subsidy, I doubt that they would stand for it. Anyway, that bogeyman would disappear from the national discourse.

      21. Not just the US.

        Is there a fiat regime in existence that doesn’t issue bonds?

        Must be more than mass, global delusion. Why do you think they do it?

      22. brings back memories of the old days when i recall that russia would net spend and sellers would hold ‘cb credits’ and not issue securities.

        it was considered a sign of an emerging nation to do it that way at first, graduating to selling tsy secs as it matured.

      23. I’d actually love to see what Krugman would write about that proposal in a blog post.

      24. WARREN: Very interesting point. Lots of things done in third world (or I suppose second world) countries that are seen as “immature” versions of how it ought to be done in first world.

        Too look at places where it might be different, you need to look at countries that operate outside of Harvard orthodoxy — maybe China, Dubai, North Korea, Taiwan, etc.

        You will not see it anywhere that is run by people who went to US Universities of any repute (and there is no MMT professor at any US university of first, second, or third tier)

      25. Joe, I think that it is more than he wouldn’t stoop, although a bit of that, too. It’s so out of paradigm for a monetarist that it would seem absurd on the face of it. Krugman is an inside-the-box thinker, albeit a good one. He is just in the wrong box. 🙂

      26. Joe, to step back a moment on what the government should be spending money (whether tax cuts or new spending) or how Tsy should deal with inflation or trade deficits. The first hurdle is what operational steps are required to go to a “no bond” system.

        The simplest approach, albeit a “no long bond” system, would be for Tsy to announce it would no longer sell anything longer than 3 month T-bills (which sold at today’s auction at 0.115%). If rates stayed low, we’d cut projected debt service by at least 90% (which would cut trillions in future debt from Pete Peterson scare charts). This wouldn’t need Congress’s prior approval, but they would have to vote periodically to raise the statutory debt limit ceiling down the road.

        The idea of Tsy simply overdrafting its reserve account and paying interest to the Fed (net profits refunded back to Tsy anyway) is even more straightforward operationally. However, the politics of the matter are an issue. It’d confuse the hell out of congressmen, and that’s a problem since Tsy “draw authority” for overdrafting would require both prior congressional approval and annual debt ceiling limits votes (even Fed-held debt is subject to the statutory debt limit). When Congress has allowed it previously (off and on from the 40’s to the late 70’s), it was for short term overdrafts of relatively small amounts.

        Tsy could create its own money by minting coins and/or the printing (or the electronic equivalent) of US Notes. Neither are counted as debt under the statutory debt limit (so no debt ceiling votes). But while Tsy could mint high-denomination coins tomorrow, to create money via the more practical US Notes (i.e. Lincoln Greenbacks) would require prior congressional approval since currently there’s a $300 mill. cap and a prohibition on their use as reserves.

        I suppose the cleanest start would be with the the 3 month T-bills and once Congress’s deficit fevers begin to break but before the Fed starts jacking up the T-bill rates, transition to Tsy-created money, starting with mandatory spending programs– the automatic appropriations for, among other things, federal debt payments, Social Security and Medicare trust funds and automatic stabilizers like food stamps, Medicaid and unemployment insurance.

      27. I think what’s missing in this debate is the distinction between the political and economic realms. While logically intertwined, especially when, as Paul Krugman does, one assumes bond markets as given and potent, the economic debate leads to the question of whether and under which economic indications government should deficit spend, whereas the political, assuming the answer to the prior is yes, poses the question of how and to the benefit of whom.

        Notwithstanding the possibility that the no bonds idea may be mathematically unsound (I guess this is what anon would like to see Krugman weigh in on), its ultimate political goal, as I understand it, is not to rein in future deficits by eliminating supposed debt spiral dynamics but to redirect future deficits away from bond holders to other beneficiaries by tying it to to an accountable, political instead of an allegedly self-serving ‘free-market’ process. This is the political dimension of the no bonds proposal.

        The economic realm assesses whether deficits matter and whether they inevitably lead to unsustainable future developments that end in either voluntary or involuntary insolvency. It is the last distinction (voluntary vs. involuntary) where I understand Warren believes Krugman has given way.

        By assuming a certain potency of and lack of control over the bond markets, Krugman models his projections along the perception of risk that the current political arrangements in the US and most other countries as well as general misinformation of the public generate. Jamie, on the other hand, in good FDR tradition and with the support of MMT models and empiric data, assumes these fear dynamics away. It’s a question of who is (not who should be) in control and at what point people start dumping a currency. So, with regard to bonds, there are at least two separate questions that remain unresolved between the two.

        First, is or isn’t there fear to fear under current political arrangements? And second, if so, would a change in arrangements (e.g. no bonds) alleviate these dynamics without having any other negative effects?

        While the former is within the bounds of the Krugman Galbraith debate, the latter is hypothetical and imo (always assuming MMT models are correct) neither necessary for the two schools to find common ground nor for MMT policies to be implemented successfully. In fact, Krugman’s models as I crudely read them ironically make a much stronger point for no bonds than MMT does. MMT knows no fear ;-).

      28. Here is an explanation that I think is plausible. Government borrowing has generally always been a requirement because of commodity money and convertibility. It was not generally realized that state money gets value from the government’s power to tax and its prerogative of defining legal tender for payments to it.

        This view of a commodity as money’s “real” value has persisted, however. It leads to the government’s are revenue-constrained like other endogenous entities. This, of course, favors the government’s creditors, and they are assiduous in making sure that the government remains solvent and can meet its cash flow requirements without depreciating the currency.

        Under the pressure of the financial demands of the Civil War, Lincoln realized that the government as currency issuer did not actually have to borrow and could just issue its own notes, and he did just that. It worked marvelously.

        Of course, the financiers did not like the “greenback” arrangement, since they lost their subsidy, and they worked politically to wrench control over money back from government, which they were successful in doing. However, subsequent developments culminating in the Panic of 1907 disrupted that arrangement, too. As a result the Fed was formed as a compromise through the Federal Reserve Act of 1913. That framework remains in place, with a public-private central bank that is politically independent from Treasury but works closely with Treasury.

        When the world went on the gold standard, then bonds and actual government borrowing were necessary. 20th century economic thinking developed around that model. Greenbacks were essentially forgotten even though some remained in circulation for some time. It is well known that JFK revived them, but the facts are generally confused with conspiracy theory. This piece purports to set forth the facts and asserts that JFK, under the guidance of his father, did intend to end run the Fed.

        Be that as it may, the presupposition is that bonds are somehow necessary financially and this gives bondholders say over matters affecting government solvency and liquidity (cash flow).

        Krugman accepts this view, even under the present fiat monetary regime, while Galbraith and MMT do not. Krugman dredge up the familiar hyper-inflationary scenario to attack it. Y = X2 is essentially the same as WEIMAR or ZIMBABWE. If you were like me, you initially thought, “Where did THAT come from?” and then immediately, “Oh, yeah.”

        At this juncture we are back to a replay of LIncoln and JFK’s interest-free money versus the subsidy consisting of a risk-free generously paid parking place. The entire Establishment is allied against taking that away.

        While neither Galbraith nor MMT are presently agitating for no bonds and zero interest, once the theory is accepted and the false household-government finance analogy is debunked, then the public is going to change its economic views and this will have political repercussions for those receiving government subsidies they claim are necessary when it is obvious that they are not.

        Of course, a lot of other things will become obvious, too, and the public will demand they also be changed. This would involve not only a vast political realignment, but it would also discredit swath of the Establishment, including most of the economics profession that has participated in perpetuating a bogus frame.

        There is a growing grassroots movement for monetary reform. I think that this direction is inevitable as knowledge spreads. With the Internet these things easily go viral.

      29. “While neither Galbraith nor MMT are presently agitating for no bonds and zero interest, once the theory is accepted and the false household-government finance analogy is debunked, then the public is going to change its economic views and this will have political repercussions”

        That’s not gonna happen.

        E.g. nobody mentioned the no bond proposal to Krugman. MMT is too reticent to standardize it and promote it. Why I don’t know, because the entire theory depends on implementing it.

      30. “The purported “JFK greenbacks” were issued pursuant to longstanding federal legislation mandating that a certain number of U.S. Notes always be in circulation by the Treasury. It had nothing to do with any executive order or secret special measure by JFK.

        In other words, the “JFK Greenbacks” issued in 1963 would have gone into circulation no matter who was in theWhite House.

        The fact is an act of Congress passed on May 31, 1878 declared that the U.S. Treasury is required to keep $322,539,016 in U.S. Notes in circulation at all times.”

      31. You seem very interested in getting the MMTers into a discussion on the no bonds proposal.

      32. “In other words, the “JFK Greenbacks” issued in 1963 would have gone into circulation no matter who was in theWhite House.”

        This is true and point out in the piece I linked to. The point is that evidence exists that JFK was planning to take on the Fed. The piece suggests that it was planned for his second term. So it is not just a conspiracy theory to suggest that he was moving in that direction.

      33. “That’s not gonna happen.”

        I wouldn’t be so sure. “Never” is a long, long time. Everything changes.

        When the government-finance-is-the-same-as-household-finance analogy is finally debunked, and it will be, a lot of changes will be forthcoming.

      34. Tom,
        Good summary above. It could end up breaking down on old fashioned “Provincial” vs “Eastern Establishment” lines. Krugman, although a Democrat, works for the NYT, halting Treasury issuance would probably knock another 10-20% off NYC real estate values. Prof Galbraith is from Texas (hook ’em!) so he is not as conflicted by the Eastern ties. Stiglitz writes for Vanity Fair (NYC based) so he’s out, etc.

        imo Clinton and Bushs both politically brought this to both the major parties over the last 20+ years (i think you have said two flavors of really one Party in US now). So, both political parties seem to be captured to a great extent by these eastern establishment lobbies for right now. There are a few cracks (Crist/Palin/Grayson/Paul) but nothing major yet and these people will have to be “adjusted” by MMT. I think WM has correctly IDed the Tea Party movement as fertile ground for this message if you can get thru on the intellectual level 😮 . But I think its going to have to start outside the Eastern Establishment. Perhaps Krugmans hesitancy here is proof of this, many eastern Progressives and those they are close to are just too financially tied to the status quo and this is hard to break away from (would be for me).

        Agree about the re-shuffling. If this breaks along these lines, for instance, I could see you and I potentially in the same party then, while in different ones now…that type of thing.

    1. Mike there is a radio host called Phil Grande who almost every week plays a clip of you ridiculing Peter about his housing crash call a few years back. It was you and luskin I believe on a fox news tv panel with Schiff. What did you do to phil grande that he personally dislikes you so much and constantly ridicules you with that clip? I cannot believe he would play that clip almost every week for the past several years without some personal issue.

  5. I consider this debate of great importance for the not distant victory of MMT over the flown orthodox economics theories.

    I see it as round One of the World Heavyweight title boxing mach. The biggest obstacle for MMT was to reach this ring. Once allowed to fight for the title, MMT will take down any opponent with its heavy punches of logical arguments.

    Attention, the new Heavy Weight Champion of the World is coming!

    1. Well, it;s colorful. Hope you’re right. But this was an exhibition match. And I suspect that since the champ was badly beaten, at least in my view, he is much more likely in the future to try to duck a real fight with the title on the line.

  6. “I do not think that there is any law which requires the US Treasury to issue debt $-4-$. Of course, there is a no-overdraft rule, but as Beo pointed out that can be beaten.”

    I can not say for the US but in some other countries it is called Budget where there is an article called along these lines “Sources of financing of budget deficit”. This law is approved annually 🙂

    1. When the Finance Minister announced the budget, he/she is making some forecasts and is essentially announcing the spending and the tax RATEs. Most likely the budget is in deficit. The parliament approves these numbers – the spending and the tax rate and hence the fiscal stance – expansionary or otherwise. It also approves the FM’s forecasts of the deficits.

      The deficit financing is approved because the Treasury and hence the parliament has no or limited overdraft at the central bank. It doesn’t know what Beowulf knows.

  7. I think PK’s post was essentially on JG’s view that governments spend first and borrow later type of thing.

  8. I think the flaw in Krugman’s model is not taking into account the rest of the structural deficit and just looking at interest on the debt. I estimate this is around 2% of GDP but the total deficit is around 10% of GDP. So we are much closer to hyperinflation than Krugman thinks.

    Any feedback (corrections/additions) on following sections would be appreciated:

  9. Beowulf and Oliver, Very good replies I think. I really like your strategy to cut back on interest costs, Beowulf.

    Oliver, I like your analysis, but I think an additional point is that MMT economists tend to approach things from the point of view of achieving public purpose and see their role as informing people about what can be done to achieve it. It’s not that they know no fear. It’s that “we” think that our role is to give the best economic advice and then do what we can to get that implemented.

    If you are right about his thinking, then Paul Krugman, however, is perhaps too clever by half. His expertise is in economics. He has no special expertise in forecasting 1) fear and when it will become overwhelming; 2) political dynamics; or 3) political decisions. To assume that the bond markets will control interest rates and neglect to tell people that this is not economically inevitable, and that his forecast of what will happen with increasing debt is dependent on Government policies that can be changed at our collective option, is either a mistake, or a projection made in bad faith since he never claims that our continued used of the bond market is a political inevitability.

    If he had said that, then we all could have replied that it clearly is not a political inevitability, since these are changed all the time. If we can pose a choice between Social Security and continued use of the Bond Market, as I did recently here:

    then I think we will quickly find that continued use of the bond market is not inevitable.

    1. Tom, LetsGetItDone, thanks for the replies and the history lesson!

      I’m not sure whether Krugman thinks along the lines of whether the bond markets are necessary or not. I think it’s more a question of, given the fact that they exist, what dynamics they will produce. Give the bond markets too much credit, mix in some false understanding of reserves and QE and you inevitably come up with the hockey stick. Maybe he’s been practising with Al Gore.

      …To assume that the bond markets will control interest rates and neglect to tell people that this is not economically inevitable, and that his forecast of what will happen with increasing debt is dependent on Government policies that can be changed at our collective option, is either a mistake, or a projection made in bad faith since he never claims that our continued used of the bond market is a political inevitability…

      I think his models are fooling him because they’re loaded with false and simplistic assumptions. He is an economist, after all :-). No time for complexity or political dynamics. Assume nothing changes except the variable I intend to prove will inevitably lead to catastrophy. Et voilà: we have a hockey stick. Sadly, in reality all else is not equal.

      1. Ramanan,

        re your 11:52

        not a discussion, a promotion

        I just don’t see the point of it all if MMT’er don’t adopt no bonds front and center – yet they don’t, with the exception of Mosler’s formal proposals

        what’s the point otherwise of trying to explain to the world that it doesn’t really need to issue bonds?

        why go on about governments not being revenue constrained unless you’re prepared to act on it?

      2. hmm but Bill has also mentioned a lot of times about this. Probably we haven’t seen them saying this in recent times – thats why ?

        Also there is a possibility of paying interest on reserves and defending a non-zero rate. But that too is no-bonds.

        I somehow feel uncomfortable about no-bonds.

      3. The way I would put is that the monetary regime change in 1971 when NIxon shut the gold window unilaterally and it was ratified in 1973 internationally. The world is no longer operating under a convertible fixed rate regime but a nonconvertible flexible rate one. Monetary and fiscal policy was never revised to reflect the change in operational reality. Certain things were necessary financially under the gold standard that no longer are. These items need to be revisited and justified under the new system or else eliminated in the interest of efficiency using Ockham’s razor. What is the justification based on public purpose for retaining bonds when under the present system interest payments constitute a subsidy since borrowing is no longer necessary. Is there a more efficient and effective way to proceed now. If there should be justification of some bonds or interest payment for public purpose, then shouldn’t what is essentially a subsidy be offset to some degree by a tax that balances transfer of public funds to private interests. There is room for debate here.

  10. Ramanan,

    Here’s how I might put it.

    I’d like to see anybody who considers themselves an MMT’er explain why they would not be in favor of a no bonds system.

    And therefore why they would not be in favor of a uniform across the board MMT policy position that absolutely recommends a change in the monetary system to no bonds (like Warren’s).

    I don’t think such an argument against no bonds is possible while being an internally consistent one. I don’t think it’s possible to embrace the MMT intellectual view of the monetary system while being OK with government bond financing at the same time. Anybody who wants to can consider that to be a challenge. I doubt anybody will try. I’d be very curious about the mental gymnastics of how they might do that.

    (And by argument I don’t mean some wishy washy political delay tactic to an eventual implementation of no bonds.)

    1. re your 2:18

      Bill’s definitely in favor of it and Bill’s one of the big players.

      But why isn’t it THE policy position of MMT as a REQUIRED outcome of the correct view of monetary operations? What possible justification is there for leaving bonds as they are, and going on about the glories of a future MMT world?

      Why does it always come up as a feasibility and a possibility – rather than a desired and NECESSARY outcome?

      Like in the Galbraith/Krugman debate. Galbraith’s language around the implicit idea of no bonds was laughably ambiguous. That’s because he didn’t make it explicit. That’s because its not a uniform and essentially mandatory policy position for MMT. As a result, Krugman really didn’t know what JG was talking about – not really. PK won that debate essentially because the other side was ambiguous about no bonds, IMO.

      Finally, why am I the one making this sort of argument when I’m not even an MMT’er?

      Answer: frustration with an ambiguous policy orientation and lack of action plan (except Warren’s)

      1. Anon:

        Yes, no bonds is logical consequence of MMT position, which needs explicit change at Fed to enable Treasury to run overdraft as per usual course of business.

        It is radical and clarifying. It create emotional revulsion.

        It is also not 100% necessary as you can get to reasonable approximation of MMT operation without it by fudging. That may be why they are coy.

        I also agree with you that Krugman got better of Galbraith, even though Warren declared it a MMT victory.

      2. thanks, Zanon

        yes, maybe coy is the word

        funny ironic they also accuse Krugman of coyness in his understanding of MMT

      3. P.S.

        I am less coy.

        I believe any MMT’er who does not believe in no bonds should be dismissed from the legion.

        Easy for me to say.

      4. I think MMT is an academic discipline and they have used their description to come up with the proposals.

        The question of how to highlight these proposals to the policy makers is a slightly different question but I guess you want them to do this more often. But I think right now, their effort is to fight for fiscal expansion because that is more urgent.

      5. Abba Lerner many years ago explained why an MMT’er could live with bonds. The answer is, if you desire to provide the non-govt sector an interest-bearing alternative to rb’s. In the case of interest-bearing rb’s, bonds are still available for non-banks. I’ve never been completely on board with no bonds myself. I’d prefer a very low FFR and only short-term t-bills sold at a fixed spread to the FFR, as an (low) interest bearing risk-free asset for non-banks. Also, FYI, much of the discussion about various options above I already explained in “paying interest on reserve balances” and “interest rates and fiscal sustainability” at

      6. I can live with that economically. However, my objections relate more to policy and therefore politics.

        I have three objections to bonds. The first is that debt issuance, especially as a deficit offset, fosters the government-finance-is-like -household-and firm-finance. analogy. This adversely affecting policy-making by biasing voters against their economics interests and it is being used intentionally in this way for political advantage.

        Secondly, the principal reason that bonds are retained in a fiat system is to institute politically-independent, supposedly purely economic fiscal discipline in the form of bond vigilantes, who will ride herd on inflation. The result of this is to skew policy in favor of using employment as a tool in fighting “inflationary expectations.” Again, this baises policy.

        Thirdly, interest on government securities constitute an unnecessary subsidy under a fiat system. A countervailing reason based on public purpose would have to be adduced to justify this expenditure of public funds that lands in private hands and does not seem to benefit the public proportionately. One of the greatest objections to increasing deficits is that deficits adds to the national debt and eventually the interest becomes burdensome as percentage of GDP, and eventually unsustainable. Folk falling for the bogus government-household finance analogy are not only concerned about “having to pay back the debt,” but also over the increasing interest payments.

        Going to no bonds eliminates these issues. My suggestion is a matter of political strategy because I sense that the strong position politically is to propose no bonds and negotiate from there, once it is established that bond issuance is not needed under the present system. We might end up with something like Scott proposes, and I can live with that. No problem, once the principle that no bonds are necessary is established, and the debate is based on facts and predictable outcomes rather than myth and fantasy, such as what Krugman has aptly called “the confidence fairy.” Then we can actually do policy rather than fear-mongering while we deliver policy-making into the hands of “the bond market.”

      7. I don’t know why but I think issuing debt instruments at all maturities looks like a diversification to me and a strategy to minimize inter-temporal interest costs.

        I think Anon said something like that on Billy Blog sometime back.

        It is difficult to keep interest rates permanently at one point. Difficult to resist – especially since its a tool.

      8. The question I have is whether interest rate setting or even influence used as a tool by a cb which is run by technocrats fits into the scheme of market capitalism. It seems to me that if this is permitted all the talk about a “free market” is just bogus. This is essentially the mark of a managed economy if not a command economy.

        My point is again political more than economc. Either get the right to admit that this is a managed economy and shut up about free markets, or if they want a free market, then get rid of government bonds and cb interest rate controls, and let the so-called free market private sector take care of this. This is what the Ron Paul libertarians seem to want, and I believe that it was the system that Milton Friedman preferred. Nor do they stop there. So let’s put it on the table and have that debate.

        The cb using interest rates as a tool is not only against free market philosophy; it is also anti-democratic to have a small group of technocrats making decisions that profoundly affect society when these appointed officials are unelected and unaccountable, and the cb is supposedly politically independent. According to Hayek, putting technocrats in control of markets is the beginning of totalitarian statism and the road to serfdom.

        Keynes wrote to Hayek praising The Road to Serfdom. As a libertarian of the left, I agree with some of Hayek’s points. The political challenge is to sail safely between the Scylla of socialist statism, the totalitarianism of the left, and the Charybdis of corporate statism, the totalitarianism of the right. While I think that Beck and the TP’ers have the wrong target, there is always the threat of state capture. In the US, the present threat is state capture by the right, leading to corporate statism. This is now becoming a global threat, as international institutions effectively controlled by muli-nationals and international finance capital are becoming increasingly powerful.

        I don’t see this as an economic issue alone. It is both philosophical and political, with far-reaching implications and lasting consequences for humanity. These are valid issues, I think, and they should be debated. MMT’ers should be prepared to present their views relative to the larger issues. While other MMT’ers may have thought this through, Bill Mitchell is the most outspoken about it policy-wise.

  11. Tom, Anon, and Zanon, Tom, I thought your statement of explanation was very fine, and I’ll be happy to use it with credit, of course.

    Anon, I think that Bill Mitchell, Warren, Scott Fullwiler, Mat Forstater, and Randy Wray have all taken on the no bonds position at one time or another. Also, I don’t know why you’re so excited about insisting on a particular MMT-correct position. If people think that we can get close to a zero interest rate more quickly by going with Beowulf’s position, or the position Warren suggested here.

    Also, when you say:

    “Like in the Galbraith/Krugman debate. Galbraith’s language around the implicit idea of no bonds was laughably ambiguous. That’s because he didn’t make it explicit. That’s because its not a uniform and essentially mandatory policy position for MMT. As a result, Krugman really didn’t know what JG was talking about – not really. PK won that debate essentially because the other side was ambiguous about no bonds, IMO”

    I think you’re mistaken about the effectiveness of Galbraith’s reply. He wanted to keep things simple and avoid the wonkiness embraced by Krugman. If you look at all the replies, I think it’s clear that Galbraith plainly won the debate. I also think that Galbraith didn’t go into the no bonds proposal because he thought it was a side issue, relative to the main points he chose to emphasize in his replies.

    Zanon, I don’t share your perspectives. First saying about no bonds that:

    “It is radical and clarifying. It create emotional revulsion.”

    is certainly to state no more than a personal reaction.

    My own personal reaction is no more subsidies for China and Japan and rich Americans? Where do I sign up to support that policy?

    And I’ll bet a majority of Americans will feel the same way when they learn that paying interest is projected to total $11.8 Trillion dollars between now and 2025, especially when I tell them that we can eliminate that cost and spend the same amount of money and have Medicare for All with no co-pays, no deductibles, and no increase in taxes.

    And second, I think if one reads all the replies to Krugman’s two blogs, one has to have a considerable amount of personal bias to believe that Krugman won that debate. Krugman got slaughtered on the quantity theory of money, he conflated the deficit and the debt, and of course, he blew the interest cost issue entirely. I thought that his model was particularly damaging. it was so easy to question his assumptions and to expose them as fictions that it actually had the effect of lowering his credibility, at least in my eyes.

    In addition, there was one very late comment on the second post, that I thought was particularly damaging to Krugman from one “chartalist.” Here it is:

    “It is wrong to say that if the government spends by “printing money” we may get inflation. A government with its own non-convertible currency ALWAYS spends by ISSUING NEW MONEY. When you get a $100 check from the government and cash it or deposit it in your checking account (in which case demand deposits that are counted in the money supply increase) the money supply increases, as simple as that. Hence ALL government spending creates new currency. When the government sells bonds afterwards, it mops up this excess of “money” to help the Fed hit its fed funds rate target. Bonds are merely an interest rate maintenance tool, not a source of funding for the government.

    As the government is the MONOPOLY issuer of the currency, there is no other way to get your dollars than from the government. The money you use to pay your taxes or buy bonds comes from government spending. Spending HAS to come before Taxing and Bond Sales.

    As for inflation, it it not caused by too much money but by too much spending. What is too much? When you are at full employment and the private sector spending is greater than the capacity of the economy to produce that’s when spending is too much. In this case the government can simply tax this excess income away to prevent inflation.”

    1. LetsGetItDone: “no bonds” is absolutely radical. It shoves stake through the heart of belief on money system, and it supremely clarifies MMT position. This is fact.

      That it create emotional revulsion is also fact, because I have brought MMT up to many academic macroeconomists and I am telling you this is effect it has. Maybe you have a list of macroeconomists you have converted to MMT and are now writing papers on how everything they know is wrong.

      please show me this list.

      your claim that Krugman did not win debate is laughable because Krugman does not debate. My gods, where do you get off thinking people in comments section are in any way equal to, or engaging, with nobel prize winner liberal lion paul krugman?!

      After those krugman posts we are exactly where we began. paul krugman, assured of his correctness, continues to influence all of DC from his perch and princeton, nytimes, and I am sure at time white house linked cocktail party. mmt continues to skunk around 4th rate gutter schools, blogging on internet alone, and in one case, build cars for millionaires on island. it is not invited to any cocktail parties where people who matter are in attendance.

      how in gods name do you think any of this works? you and tom hickey should get together for a delusion-fest

      1. “no bonds” is absolutely radical. It shoves stake through the heart of belief on money system, and it supremely clarifies MMT position. This is fact.

        Yes, it shoves a stake through the heart of the common belief of what the monetary system is. But, because according to MMT this belief is false, it does not shove a stake through the heart of what the monetary system already is. Namely one in which bonds are used to set interest rates (and subsidise their owners). MMT asserts there is no system inherent imperative to borrow, indeed that the concept of government borrowing its own creation is logically absurd, so that all current legal provisions to do so are per definition voluntary political constraints under false pretences which can be (indeed have been) overcome in a political process.

        The big hurdle is to convince the world that the MMT reading of current reality is fact whereas the standard reading and wording is fiction. This isn’t the same as convincing the public that current operational reality necessarily needs to be chaned! Apparently, anon isn’t there yet. Once he is, the argument of whether one wants (not needs!) bonds is determined by discussions over who should control them and who should profit from them. So, although logically coherent with MMT, ‘no bonds’ is secondary to discussing ‘are bonds a necessary or a voluntary institution and who controls them at what risk and who profits’, imo. voluntary vs. involuntary

        Is it a fact of the markets controlling the conditions under which government may spend (private over public) or is it a fact of the government allowing the markets to give a feedback as to how it wishes government to spend in the future while profiting from the interest (public over private).

        But we’ve had more than 500 posts on this topic before without much avail.

      2. Thanks!

        And who knows, maybe it’s MMT that isn’t there yet. I’m primarily trying to identify the hurdle, not profess over who has to jump over it in which direction even if it’s clear which side I’m standing on.


      3. Good point Oliver.

        But, shoving stake through heart of belief on monetary system exposes the great fraud that is academic macroeconomics, ben bernanke, bank bailout, geither, krugman, mankiw, etc. etc.

        take politicion to one side.

        i have yet to see a single economist at first, second, or third rate university be persuaded about MMT correctness.

        Why is this? surely as academic they are interested in truth?

        If anyone on this or any other MMT board can show me single academic economist who has changed his mind on how monetary system work, I will be much obliged.

        MORON like tom hickey thinks principals of accounting can be pushed through by populist rebellion. Is nonsense, the battle is in university

      4. I have yet to see a single economist at first, second, or third rate university be persuaded about MMT correctness.

        I don’t work in academia, but I fear your assertion can be broadened to say I have yet to see an academic who has been persuaded by arguments to completely change his/her frame of reference, period. Adjust, yes, change, no. Once you’re in professionally, the way out becomes very difficult because you build your universe around professional insights / beliefs. Which is why it’s important to always maintain a fair amount of humility, imo.

        And because of this, I think Warren’s and Tom’s proposed points of attack are more promising than focussing on academics of other flavours and their followers. MMT needs new disciples and scholars. Academic respect and converts will follow.

        Btw., Scott, Randy, Bill, Jamie and others all work at universities, if I’m not mistaken…

      5. Oliver:

        Scott, Randy, Bill, Jamie all work at university, but it is 4th class university. Except for Jamie, he is at 3rd class, but since it is in texas under democrat admin he is back to 4th class.

        i say this not as insult to them, but as sad fact.

        i agree that sclerosis of professor is big. but so is sclerosis of everyone else.

        tom and mosler are taking ridiculous tact as mark thoma demonstrated. mosler says something that sound crazy, person goes to authority they trust in university (Krugman), authority says “man is crazy”. case closed.

      6. Hey, I never said that it was going to be easy. It’s hard changing a normal paradigm, unless someone with authority backs it up, and those in authority are heavily invested in the normal paradigm. Paradigm shift only happens when the anomalies become so great that they cannot be addressed ad hoc (Kuhn). Crises present that opportunity. In this crisis the normal paradigm failed, as Queen Elizabeth forced the economists to admit. Their excuse that no one could have seen it coming was less than convincing, however, since some people, notably former Treasury “wise-man” Wynne Godley, did. Although no longer at Her Majesty’s Treasury, he could say that he told them so, but nobody listened, they were so sure they were right.

        So maybe, just maybe, we are ripe for change. We have to keep on truckin’ and look for the opening. There is no way to predict where it will come from, so it’s a battle on all fronts. But Jamie Galbriath’s strong stance recently is likely to have an effect on the profession. Maybe not sudden, but others will come around, too. Once it is out there, no one wants to be left holding the bag, looking like an idiot.

    2. Interesting stuff Joe,, of course the other argument for “printing money” is the one Edison made, “If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good… its a terrible situation when the Government, to increase the national wealth, must go into debt and submit to ruinous interest charges”.

      Edison’s whole speech is pure gold, not least of which is he doesn’t take an intellectual angle, he make an emotional appeal. The psychologist Daniel Gilbert once made an interesting point about why climate change hasn’t resonated politically–
      Moral emotions are the brain’s call to action… Yes, global warming is bad, but it doesn’t make us feel nauseated or angry or disgraced, and thus we don’t feel compelled to rail against it as we do against other momentous threats to our species, such as flag burning. The fact is that if climate change were caused by gay sex, or by the practice of eating kittens, millions of protesters would be massing in the streets

      Moral emotions are the brains call to action. The way to get the American people interested in MMT is to tell them they’re being cheated, you know who’s cheating them and you know how to stop the bastards cold. As a policy goal, I agree with Joe 100% that Medicare for all is necessary but I think the angle of attack is taxes– every penny projected to be spend on debt service should be refunded across the board as tax cut. If I remember correctly, the CBO projects $500 billion a year in debt service over the next decade (ramping up from less than $200 billion this year to $900 billion in 2021), the employee half of payroll taxes (SS and Medicare) is roughly $450 billion this year. As Matt Franko noted, this is an issue that crosses party lines (though its more fun using fiscal conservative language). To give an example, here’s how I’d pitch “Treasury reform” to voters–

      “When you can, look at your last pay stub and look at the 7.65% FICA tax withholding. It was originally intended to fund Social Security and Medicare, but Congress is lazy, they throw everything we send them for taxes in a big pot. I think you can spend your money better than the government can but Congressman Tanner [or whoever, every story needs a villain so the audience knows who to root against] wants to keep using it to make unnecessary interest payments to bond holders instead. You think you’ve earned that money but Tanner thinks his friends have earned a bailout, so you lose. Over the next 10 years, every penny you pay in FICA taxes will go to pay interest to the bond market. Turner and his cronies in Congress have it set up so the government gives banks money interest-free, but when it lends itself money.. it uses your taxes to pay interest to going to banks and foreign investors. Why? Because the investors care about their government money very much and Congressman Tanner doesn’t think you care about your tax money at all… But if you do, we need to let Tanner and his friends know that the welfare office is closed, the government cheese is all gone, the bailouts are over. We need to fire Tanner and hire a congressman who will burn smoke and oakum to reform the Treasury Department so the federal government can go back to funding programs the way it used to, when it was led by better men than Tanner, by creating dollar bills instead of dollar bonds.
      Let me explain, soon after Abraham Lincoln became President, he had arrange financing for fighting the Civil War, which is tricky when half the country has suddenly stopped paying taxes, he realized that the economic effect of printing an interest-free dollar bill is the same as printing an interest-bearing dollar bond, too many of either leads to inflation, too few of either leads to deflation. [I have no idea if Lincoln had that insight, and I think Congress pushed the Greenbacks, not Lincoln– ehh, let Doris Kearns Goodwin worry about that]

      This means that paying interest on dollar bonds is just stupid, it gives away free money and makes you pay taxes instead. Lincoln was smart enough to figure it out, Jack Kennedy was too. So both presidents printed dollar bills instead of dollar bonds. Its not a partisan debate, Kennedy was a Democrat, Lincoln was a Republican. Instead, its a debate between honest and crooked. How else could a government with a license to print money somehow manage to lose money on the deal?

      Tanner’s solution is simple, “let’s raise taxes!”. A better idea is Treasury reform. Its time to fire the managers and stop letting special interests walk out the back door with your tax money. Treasury reform means that the 7.65% FICA on your pay stub every week goes to 0% FICA, It mean American workers keeping over $400 billion year of their own money to spend, save or invest without adding one Lincoln penny to the national debt. It means, at long last, Tanner will stop eating kittens.” :o)

      1. Debunk the government-finance-is-the-same-as-household-finance and everything falls into place. That is the lynchpin. Pull that and the entire edifice falls.

  12. Krugman says: ” To spend, the government must persuade the private sector to release real resources. It can do this by collecting taxes, borrowing, or collecting seignorage by printing money. ”

    Ive read this like 50 times and i still dont get it. What is he saying? To me, if I had some resources for sale, if the govt credited my bank account, I would release them. I dont care if they taxed somebody, or issued treasuries, or applied Beowulf’s Law© and seignoraged.

    Is this just not well written and he is saying that the govt has to collect balances before it can then transfer them to me? This is not clear.

    1. It’s nonsense in my eyes. Nothing he lists up in the second sentence has anything to do with the real resources he claims must be released. He actually claims the private sector must first release financial resources for government to spend them, which is the taxes / bonds fund spending argument. Real resources don’t figure anywhere in this. MMT is much more stringent when it comes to distinguishing the two, imo.

    2. Agreed. It’s a poor sentence.

      But here’s one that’s at least as bad. It’s from the Galbraith quote that Krugman used in his first post:

      “So long as U.S. banks are required to accept U.S. government checks — which is to say so long as the Republic exists — then the government can and does spend without borrowing, if it chooses to do so … Insolvency, bankruptcy, or even higher real interest rates are not among the actual risks to this system.”

      Check that out again:

      “then the government can and does spend without borrowing, if it chooses to do so”





      That’s quite a tangled web of qualification and conditioning.

      When you get right down to it, it has to do with no bonds and the 500+ discussion.

      Both sides could have been clearer.

      1. I do not know why MMT chooses to describe things in that way.

        For example, the Bank of Japan continues to monetize the government debt but MMT calls it gold standard description. What is the harm in calling the Bank of Japan purchase of government debt as debt monetization ? (if it is understood that the neoclassical fears are not valid).

      2. I agree.

        Vocabulary prohibition raises suspicions about motive and concealment. It is a danger to credibility.

      3. hmmm …

        I somehow find it more illuminating to talk of the central bank and the government on a deconsolidated basis.

        You will soon find me using “the public debt is hurtling toward the 150 per cent level with more to come” 🙂 even though I support JG.

      4. I disagree. Cognitive research shows that reinforcing an opponents frame is counter-productive. MMT should correct concepts that are obsolete and don’t apply under the present system. Physicists don’t let others get away with talking about the ether or some such without loud complaints.

        Part of establishing a new way of seeing is “rectifying names,” as Confucius said a long time ago in a place far away. Science now calls it operational definition.

      5. monetize means ‘turn into money’

        so the question is what your definition of ‘money’ is.

        gov secs fall into some of the monetary aggregates, and are therefore ‘money’ in that sense.

        so the govt buying it’s own securities that are already ‘money’
        and paying for them with a reserve balance that is also ‘money’
        means the amount of ‘money’ is unchanged. etc.

        (and both are financial assets/gov liabilities, so under any definition of ‘money’ financial assets/gov liabilities are unchanged)

        when ‘money’ meant something directly convertible into gold the dynamic was very different.

      6. Well, sometimes you have to ease the audience into a new reality. My father is a doctor, retired now. If he discovered a patient was terminal, he couldn’t just up and ask them if they like the song “Don’t Fear the Reaper, you have to ease them into their situation slowly.

        Similarly, its shocking enough to most people that deficits are not a problem. I take zanon’s point that “no bonds” is a big hurdle. Better to ease into it by first revoking the 1951 Tsy-Fed Accord (can be done by Admin leaning on Fed or by Congress) to set up a fixed-rate tap system or to announce “no long bonds” policy (Tsy can make that decision unilaterally). There’s no economic need to take the next step and ask Congress for approval to transition to US Notes as long as the politicians don’t mind that the statutory debt limit will keep increasing, albeit with 90% to 95% lower interest cost.

        I’ve been a fan of the Import Certificate and the Market Anti-Inflation Plans as part of monetary reform for political reasons. The immediate objections to fiat money will aalways be about inflation and trade balances (e.g. devaluation). If the goal– and it should be–is to take away the Fed’s power to control inflation and, indirectly, employment with interest rates, it’d go down easier by giving the Fed responsibility for controlling inflation by a MAP market, and perhaps control trade balances by an IC market (that’s a political call, Dorgan’s 2006 IC bill proposed giving it to Commerce Dept).

      7. Well, I’m with you guys on the Krugman/Jamie passage(s), but I’m not on “monetize” (though I think I’m close to Beowulf’s view). Monetize is a loaded term, because 99% of economists and the general public define it as “exchange bonds for money and thereby supercharge the impact of the deficit or debt on inflation.” Don’t blame MMT for that–we didn’t “load” the term, everyone else did. We’re just trying to avoid using a term that has a certain meaning to everyone (or pointing out that the common use of the term doesn’t apply), believing that’s far easier than redefining the term. If everyone understood that “monetize” really means “exchange term maturity debt of zero maturity debt and there’s virtually no additional impact on inflation,” then no problem. But they don’t. By the way, we haven’t shied away from teaching how it actually works, either, as I did in my Nov. 2009 blog post “What if the Govt Just Prints Money?”

        I think the vast majority of the time that we suggest not using a term, it’s for a similar reason–common understanding of the term is inapplicable, and that’s tough to fight. So we move to a different term, and usually in the background, for experts, try to explain the details. No conspiracy or intent to conceal whatsoever. Just a recognition that certain words almost always bring a certain response that we’re trying to avoid so we can actually discuss how things work. We’ve been doing this long enough that we’ve seen it 1000s of times. If everyone was willing to sit down and discuss it through like you all are, then no problem. But they’re not.

      8. Beowulf, maybe you should think about working up a paper on his citing the relevant law. That would be a very worthwhile addition to required readings. Right now, there is too much loose thinking around this, and citations are difficult to come by. It would really be helpful.

      9. Yes I reading the nice post on NEP. Probably I may change the wording because printing is literally printing. That too is no problem because households will get rid of the currency they do not need and banks will return the notes to the central bank.

      10. What’s an IC and MAP?

        Start with something Wynne and Marc wrote a few years ago…
        Mainstream macroeconomics (MM) is always based ultimately on some concept of equilibrium[3] with prices giving signals which either clear markets or (occasionally) fail to do so. A central contention of the paper will be that, with trivial exceptions, there are no equilibria (or disequilibria) outside financial markets and the role of prices is to distribute the national income, with inflation sometimes playing a key role in determining the outcome.

        So if you’re going to clear a trade imbalance (which after all, doesn’t mean an imbalance in tonnage but rather an imbalance in the price of import versus the price of exports), clear it through a financial market. Warren Buffett’s Import Certificates do just that. The Levy Institute had a good write up of the IC plan and an interesting modification. In Buffett’s plan, the dollar value of exports sets the number of allowable import certificate for which importers can sell on the market. Since imports greatly exceed exports, exports will be subsidized. The Levy paper recommended keeping the import-driven cap but letting Tsy auction (no doubt a Vickrey auction) off the ICs and use the revenue to reduce payroll taxes dollar for dollar.

        Similarly, the Market anti-inflation Plan (what Bill Vickery called a gross markups warrants market) was an idea that David Collander (who’s still teaching up at Middlebury) and Abba Lerner came up with to clear inflation itself,in particular cost push inflation, through the market (the two added a “fourth rule of functional finance” that concerned price levels). Their original MAP proposal gave companies a property interest in their current price levels (and you could probably limit the number of required participants to the largest 2,000 or so companies, as Old Man Galbraith put it, “its easy to fix prices that are already fixed”). If the inflation target is 2% and I want to raise prices 5%, I have to go to the market and buy warrants from a party that is cutting an equivalent dollar value of prices (err, Walmart). Use your market power here, you can’t help but push down prices there, equilibrium. Bill Vickrey thought it’d be more practicable to use the value-added price (the gross markups that VAT tax hits) as the measure instead of tracking nominal prices. A company that raised prices without going to market to buy warrants would pay a stiff VAT tax as a penalty. Note since it was Lerner who pointed out in the 30’s that the higher the value added price, the greater the monopoly power of a seller, the Vickrey MAP happens to also be market based antitrust enforcement tool.

        Of course either IC or MAP could be set as a tax, but using financial markets would establish equilibrium more effficiently, I would suggest,than a tax rate set by a majority vote of the Senate Finance Committee. Vickrey loved the idea of providing a new tool (incentives based incomes policy as Collander has called it) to combat inflation that didn’t require raising interest rates, he thought that was a critical requirement to return the economy to chock full emploment (<2% U3 unemployment).

        What's nice is both tools are flexible enough that Tsy (or the Fed) could quickly adjust trade balances and inflation rates by issuing (or buying) import certificates or gross markup warrants from the market. I don't think anyone else has made the comparison between Buffett's idea and the Lerner/Collander/Vickrey idea, but I think they're a matched set. They may be quite unnecessary under an MMT regime but better to have and not need than vice versa. Offhand, I'll mention that Jamie Galbraith has written (a footnote in his wage inequality book) that MAP is too impractical to implement. I'm unclear of his objection, but its a pity. Collander once wrote that aggregate demand worked to create full employment during World War II, but people forget it required an incomes policy to control inflation. Of course, that incomes policy was established by one Ken Galbraith at the Office of Price Administration. Ken's book Theory of Price Control was based upon his lessons learned from the OPA (I think the quip about fixing prices that are already fixes is from there). What Lerner and Collander were up to was… enabling the use of World War II-style aggregate demand by outsourcing Ken Galbraith and the OPA to the market system

      11. Thanks Beo .. yeah I had once just seen something at Levy about import certificates – didn’t look at it properly.

        MAP is a good think to research on for me – Thanks.

      12. You’re welcome Ramanan.

        I see that I misspelled David Colander’s name… one ‘L’ not two. I’m sorry about that, the dangers of typing from memory.
        Here’ a link to Colander’s Middlebury website.

        He’s written a lot of interesting articles, and rather helpfully he has pdf links for most of them. His writings about Abba Lerner (who knew there was a fourth rule of functional finance?*) and Bill Vickrey, in particular, are worth reading.
        *4. The government must establish policies which stabilize the price level and coordinate both the money supply rule and the aggregate total spending rule with this stable price level at the unemployment level it prefers.

        To integrate the necessity of dealing with the institutional problem of sellers’ inflation by changing institutions rather than accepting whatever unemployment was required to stop inflation, Lerner and I arrived at [this] modification of the rules of functional finance…
        “Functional Finance, New Classical Economics and Great Great Grandsons”

    3. Matt: Krugman says: ” To spend, the government must persuade the private sector to release real resources. It can do this by collecting taxes, borrowing, or collecting seignorage by printing money. ”

      This is what someone who doesn’t realize that the US running a fiat system would say. It presumes that the government spending is revenue constrained, so that the Treasury has to rely on taxation, borrowing or seignorage, whereas the truth is that government spends by marking up up spreadsheets since it funds itself directly. It really seems that Krugman is under the spell of the illusion, or is “just blogging” rather doing peer work since the rabble reading the Times wouldn’t understand it.

      This is just really bad, IMHO. But, hey, he has the Nobel.

      1. I think Krugman wanted to play Straw Man and he found the soft target.

        Thanks to “Marshall’s Longest”, the truth of the matter is the government spends by taxing, and borrowing and by seigniorage and if needed – by asking the central bank to monetize the debt.

        Revenue constraint is a different thing. The government has the ability to spend a lot because of the powers I mentioned in my previous paragraph.

      2. . . . and also the income and wealth it generates by spending which chases government debt.

      3. “Thanks to “Marshall’s Longest”, the truth of the matter is the government spends by taxing, and borrowing and by seigniorage and if needed – by asking the central bank to monetize the debt.”

        This is what I am calling “the illusion.” It is represented as a financial necessity when it is a political (voluntary) choice.

        The basis for perpetuating this illusion is the government-finance-is-the-same-as-nongovernment-finance analogy, which, of course, gets it backwards since government is the issuer and nongovernment the user.

      4. Tom,

        (@11:14). The important thing is that its not “obsolete”. The BoJ has purchased government bonds directly from the government many times.

        In the description of the economic system where the central bank and the government’s balance sheet are combined, it doesn’t matter. On the deconsolidated basis, it has a meaning.

        The aether analogy doesn’t work because there is no aether. Btw, it made a comeback in Cosmology in the early 2000s by the name “Quintessence”

      5. “This is what I am calling “the illusion.””

        – can’t understand why you continue to confuse a fact for an illusion, and an alternative for a fact

      6. Ramanan, Anon. When I say “obsolete,” and “illusion,” am talking about exploiting the potential of a fiat currency. I am not denying that these things are happening now. I am saying that they don’t need to happen under the present monetary regime.

        Moreover, they are inefficient, and if we were starting from scratch instead of transitioning from a convertible fixed rate system to a nonconvertible floating rate system, these procedures would not be adopted, unless by political choice due to interest pressure that profits from them. But if there were no financial industry in place to lobby for these measures, why would they even be thought of?

        We are where we are because of centuries of development, a large part of which is no longer applicable today. Time for some “zero-based budgeting.

        Government would just issue currency and tax IAW functional finance, and the choices made would be by elected representatives accountable to citizens. The present system is not only illusory, it is inefficient, biased, anti-capitalistic, and anti-democratic.”

      7. That’s a legitimate position to take.

        But the language that you use to take that position is akin to a shell game. And it doesn’t need to be, which is the whole point. And I just don’t understand why. The position is legitimate, but the language is deceptive.

      8. The greatest part about the Marshall thread that would not die is that, at no time did Marshall ever say anything.

      9. Its crucial to get the points correctly.

        Of course Anon realized early that “This will never stop” 🙂

  13. Ramanan: “You will soon find me using “the public debt is hurtling toward the 150 per cent level with more to come” 🙂 even though I support JG.”

    Right, because the captured government will not deal with the bad debt that is weighing down the system. This is throwing good money after bad. Recognize it is a “sunk cost,” fix it, and move on. Until this happens one way or another, the problems will linger and some will fester.

    This would likely involve putting the big banks into resolution and getting creative to prevent a liquidation that wipes out the little guys that got ripped off by the predators. But so far none of the big guys are willing to take their lumps and the government is going along with that, since they pay for the reelection campaign.

    1. Tom,
      Even if they fight a ‘no bonds’ proposal, if the govt doesnt do a course correction here, the banks while probably not going down, will be incapapble of making any real money.

      USD NFAs are being transfered from the govt to non-govt sector at about the 110B/mo rate, the entire planet is after them. The foreign sector is getting $42B/mo. of them, with their austerity, they will want even more USd NFA to be able to maintain their full employment programs. The non-govt ex-financial corporate sector is getting the rest and hoarding them, the household sector is getting the corportate sectors scraps that fall off the table and thats about it. The banks are ending up with squat.

      Without households buying homes and autos, the banks are a business that is without an inventory…they cant make any real money. Any spread income on govt securities will be squeezed out as the NFA hoarders in the foreign and corporate sectors will accept less and less in interest on govt bonds, the banks will cease to even be able to eake out a meager existence on this type of spread on govt bonds that they may be squeezing out now. So even if they are trying to cling on to the govt bond broker/dealer/derivatives business and would fight an MMT ‘no bonds’ proposal, any profits in this business segment will be under tremendous pressure as yields plunge to their natural rate of zero and Treasury increases use of its “US Treasury Direct” program in issuing its securities to the ex-financial sectors via the internet.

      I think Goldman is starting to sniff this out. Banks have used their political influence at first after the GFC to make sure they were not shut down, now that it appears that has been priced and settled, they can perhaps move on to trying to get back to business in earnest. For this, people are going to have incomes restored to start buying cars and houses. I can only hope for the banks this means redirecting lobbying efforts to advocate for an MMT full employment policy.


      1. All true, Matt. I see that Goldman is getting hammered. Lloyd was too clever by half and now it is coming back.

        The big banks are finding themselves in a similar position to big labor in the ’70’s. The overreached and opinion turned against them. Unfortunately, the mid and small-sized banks are getting hammered, too. The US needs to rethink its financial system and get real. There was just too much extraction and overreach by the greedy killed the goose that laid the golden egg.

        However, I suspect that financial capital will be a main opponent of MMT when the battle is joined, just as it has been the opponent of reform now. They are not going to give up their subsidy easily.

      2. I see it as too optimistic. Government money is direct competition for banks. They will oppose it to the end. However corporate lobby is way more interested in demand and does not care where this money comes from. So it would be nice to see a lobbying war between banks and corporates 🙂

      3. “owever corporate lobby is way more interested in demand and does not care where this money comes from. So it would be nice to see a lobbying war between banks and corporates.”

        This is of the essence. Financial capitalism is competing against productive capitalism. Increasing effective demand is not a primary objective of financial capitalism, which is rent-seeking and hates inflation because it depreciates money as a store of value. Productive capitalists knows that demand drives investment, not vice versa. Wealth extraction works against them, and debt deflation sickens and kills them.

  14. Scott F.: “If everyone understood that “monetize” really means “exchange term maturity debt of zero maturity debt and there’s virtually no additional impact on inflation,” then no problem. But they don’t.”

    I can see where “monetize” is strictly inappropriate because it is only strictly correct as gold standard terminology, which I believe is the Mosler attitude to the use of the word. And I can see where “monetize” used in the colloquial sense is nevertheless loaded due to the typical misinterpretation of the potential inflation effect, which seems to be the Fullwiler attitude to the use of the word. And I see where a passive approach to framing is counterproductive, which seems to be the Hickey approach. All attitudes are understandable.

    But all those approaches let the word drive the framing, which I think is the wrong way to go. My approach would be not to shy away from using the word, but to reinforce the correct interpretation of its context when it is used, including what it is that’s being monetized and the true story of its inconsequential effect on inflation. I have no problem with the idea that bonds are monetized when the central bank buys them, or that net government expenditures or deficits are monetized in a no bonds system, provided that the idea in each case is properly explained in full.

      1. Oh.

        But purchases of government bonds by the central bank in the Gold Standard was also called debt monetization rt ?

      2. I thought you might raise that point.

        The “purists” would say that whether it was called monetization then or now, it’s not the correct use of the word. But the fact that both forms occurred in the same system is a neat way to highlight the semantics debate. I suspect you’d find that most historic references would refer only to the gold tranche as monetization.

        Doesn’t change the fact that most economists use the word colloquially as they do now without the gold system. And the way in which they use it could apply to bonds back in the gold system as well.

        I say make the word your own in today’s environment, and explain what it means in today’s context.

      3. Under gold, as I understand it anyway, debt is “monetized” by selling gold to pay the debt that comes due instead of raising taxes, which is an end run that is obviously inflationary because it reduces the backing.

        Here is the definition of contemporary monetization at Wikipedia.

        In many countries the government has assigned exclusive power to issue or print its national currency to independently operated central banks. For example, in the USA the independently owned and operated Federal Reserve banks do this.[1] Such governments thereby disavow the overly convenient ‘slippery slope’ option of paying their bills by printing new currency. They must instead pay with currency already in circulation, else finance deficits by issuing new bonds, and selling them to the public or to their central bank so as to acquire the necessary money. For the bonds to end up in the central bank it must conduct an open market purchase. This action increases the monetary base through the money creation process. This process of financing government spending is called monetizing the debt.] Monetizing debt is thus a two step process where the government issues debt to finance its spending and the central bank purchases the debt from the public. The public is left with an increased supply of high powered money.

        This is what most people understand by “monetization” now, and it is presented like a shell game. The government borrows to spend, then takes the bonds and sells them, putting more cash in the system, thereby increasing the number of dollars relative to goods. Boy, that sure does sound inflationary.

        Of course, it misrepresents what actually happens, since it confuses monetary and fiscal, among other common errors.

    1. As the risk of redundancy, I am going to object that terms like “printing” and “monetization” are code words that reinforce the government-finance-is-the-same-as-household-finance analogy, because they reinforce the idea that government is using a specious move (that nongovernment cannot use) to avoid its inherent revenue constraint. While people have to pay up or default, government (“politicians”) can debase the currency. This is just bogus, and it is used to scare people about “the dire consequences that are impending” from this.

      Just listen to some of the interviewers when MMT’er are interviewed. You have to call them on this.

      1. And also at the risk of redundancy, you must fight them, not on the use of the word per se, but on their understanding of the context of its use and the consequences of its meaning in context.

        To avoid the word altogether, is to shrink away and declare defeat. You will always be on the defensive. Go on the offensive, and show them how to use the word properly, on your terms, based on your correct understanding of the monetary system.

        P.S. in my most recent experience, my bank teller actually “printed” out my money balance out for me

      2. ha ha, you two sound like the old Columbia sociologist William C. Casey for a couple of different reasons.
        “He showed how our systems of thought often misdirect us about our world– and those deadly thought processes are just as widespread among leaders and laymen today as they ever were… he’d been thrown out of the place because he taught the students a little too much about banking. The chairman of the board of trustees was president of the local bank.

      3. No need to avoid the word “printing”. Of course, you shouldn’t use “the Fed is printing money” when you talk of the Fed purchases of various assets, but the important thing is that the Fed actually prints money. Its just that its demand led. It prints currency notes on demand.

        By avoiding the usage you are trying to make the description of the monetary system look like a con trick. Something like this “if the combined entity (CB and Govt.) spends by crediting bank accounts its not inflationary but if it prints its inflationary”

        However that is wrong! You know that but you give that impression to the other person.

      4. Fed does not print cash. Treasury prints cash and Fed borrows this cash from Treasury posting collateral which is Treasury bonds.

      5. “The government produces billions of coins and currency notes each year. Coins are made by the U.S. Mint and issued by the Treasury Department. Currency notes are made by the Bureau of Engraving and Printing and issued by the Federal Reserve System (Fed). ”

      6. FED is obliged to buy collateral which is Treasury notes. It buys this collateral with proceeds from FR notes sales.

        So make your pick who gets what

      7. Fed hands out cash notes to banks when banks demand them. The banks can sell the Treasuries they hold to get the cash OR have a reduction in their balances at the Fed. At the same time there may be open market operations needed to be done and in general the Fed’s holding of Treasuries increase when the currency in circulation increases.

        There is no obligation – as in there is no hard and fast rule. The Fed can let the Treasuries it holds mature and have the MBS in presently holds as “collateral”.

      8. Quote from the link:

        The Federal Reserve district banks use receipts from the issue of Federal Reserve notes to buy Treasury securities
        on the open market.

        Page 10

      9. Sorry the quote got cut off. Here is the full quote

        The Federal Reserve district banks use receipts from the issue of Federal Reserve notes to buy Treasury securities on the open market. The securities serve as collateral for the Federal Reserve notes issued by the banks.

      10. Forget the coins for the moment. BEP is just an institution printing currency notes. Easier if you assume that the Fed prints the notes. The US Treasury is not involved in this.

        The Treasury gets involved because profits of the Fed are transferred to the Treasury and hence shown in the budget papers.

        When the Treasury does an open market operation, it leads to an increase in bank reserves. I do not know what “receipts” in this context means. Receipts are used in case there is a transfer of goods and services.

      11. No, it is not “forget”. It is Treasury who PRINTS money and it is the signature of Geithner which is there. Apart from “Federal Reserve” on top of each note there is nothing there that has anything to do with the FED. And if FED gets closed down tomorrow all currency notes will remain valid as legal tender. And each note is backed with collateral which has nothing to do with FED

      12. Table 1 in the GAO article.

        Q for you:

        Currency notes are whose Liabilities ? Fed’s or the Treasury’s ?

      13. It is a wash. Liabilities of FED fully backed by assets which are liabilities of Treasury

      14. No, these ones have 1-to-1 backing by treasuries and this requirement is explicit. sorry 🙂

      15. Maybe in theory – not in practice.

        The Fed has liabilities around $2T+, and it has $777B as Treasuries in assets.

      16. it’s the currency that’s collateralized

        not bank reserve deposit balances

        the Fed is a giant CDO with a super senior excess reserve tranche!

      17. Coins can be physically handled as currency or could be used as bank reserves like Tsy bonds since the Federal Reserve System buys them at face value. If Congress lifted the cap on US Notes and allowed their use as reserves they’d be the equivalent of coins in how the Fed treats them.

        However on the Tsy side, as a vestige of the gold standard regime where metal is real money and paper is debt; Tsy-issued coin money is not considered public debt, Tsy-isssued US Notes, as paper money, would be considered public debt (but exempt from the statutory debt limit).

      18. I’m going to respectfully push back a bit here and add on a bit of a different direction to my earlier point.

        I think “exchanging debt of zero maturity for debt of longer term maturity” is the most accurate way to describe open market operations. I think that’s a better fit to the real world than “monetize.” I also think it’s more accurate to say the reverse when the govt sells a bond. The overarching point is that “monetize” vs. “not-monetize” isn’t an issue–there is no real difference, it’s a false dichotomy–so it’s better to put it that way in terms of an accurate description. Yes, it’s a loaded term, but it’s also irrelevant when you get down to it.

      19. I see your point.

        In engaging anybody who uses the word without understanding your point (just about everybody), I’d be tempted to push back full throttle on the hopelessness of the quantity theory, rather than reject the word itself. I.e. if we’re going to use the word, this is the way we’re using it, sort of thing

        But the more we discuss it, the more I see your point. I think it’s the reflexive association with the quantity theory that loads the gun. MMT should push back on the QT in force. I know it does, but it should do even more so because that and the misunderstanding of inflation transmission is a huge part of the problem.


        23Gold stock: The gold stock of the United States is held by the Treasury and consists of gold that has been monetized: the Treasury has issued certificates reflecting the value of the gold to the Federal Reserve in return for a credit for the same dollar value to the Treasury’s accounts. The gold stock also includes unmonetized gold, against which certificates have not been issued by the Treasury (although virtually all the Treasury’s gold has been monetized since 1974).

        The value of the gold stock is recorded on Federal Reserve and Treasury books at $42.22 per troy ounce, the so-called official U.S. government price established by international agreement and confirmed by Congress in 1973. If the Treasury buys or sells gold, however, the purchase or sale is executed at market prices.

        Acquisition of gold, and its monetization by the Treasury, can affect reserve balances at depository institutions. Acquisition increases reserve balances “Gold stock” and “Treasury cash holdings” rise, but the “U.S. Treasury, general account” balance falls. Monetization leaves the gold stock unchanged, but reduces Treasury cash holdings and increases the Treasury’s general account. Monetization itself does not alter reserve balances, but these balances increase when the Treasury spends the proceeds or shifts the proceeds to the accounts that it maintains with depository institutions

      21. I am still confused about what I quoted but I guess Monetization is gold-standard but Debt Monetization is not gold standard.

      22. Ramanan, Anon, “monetization” and “printing” are often used to define each other in dictionary definitions. Both signify creating legal tender. Historically, it seems that monetization is earlier, when legal tender consisted of minted coins (commodity value plus seignorage). When currency notes became more common than coin, “printing” supplanted “minting.”

        However, monetization came to have a specific meaning under the gold standard. I think that, strictly speaking, “monetization” applies to switching specie for money, not switching one financial asset for another, e.g., swapping a tsy for bank reserves in a fiat system. The correct term for the latter is “liquifying.” “Monetizing” and “liquefyng” are therefore homonymous rather than synonymous They are different concepts. But monetization is often conflated with liquefaction, which creates ambiguity.

        Look, if economics is going to make the claim to be scientific, then it has to have operational definitions and stick with them. Otherwise, it is just “lore.” Other scientists are very careful about how they use terms. Economists need to be, too. I don’t think that it is out of line or confrontational to call them on this. As Scott says, it isn’t all that big a deal, but it is imprecise and does lead to reinforcing the wrong impression in the public mindset. In my view, we should aim for precision and avoid jargon, especially things like “printing” and “monetization.” It is simple to say, even to a shouting Fox news commentator, “That’s a gold standard expression that is no longer applicable. The correct term is “liquify.” It is just substituting a more liquid financial asset for a less liquid one., like shifting a CD to a deposit account.”

        It is true, as Anon, notes, that these are often conflated, even by economists. However, it is also pretty obvious that the connotation of monetization as inflationary, a gold standard holdover, is also at play in the popular mindset.

        Anon is correct, I believe, in saying that the problem is the quantity theory of money at work with respect to the pejorative connotation of “printing” and “monetizing.”. More money in the system, more inflation, since velocity is a constant. Obvious End of subject. Oh, wait.

        The quantity theory is Krugman’s big gun in this kerfuffle with Galbraith, as Davidson pointed out and chided Krugman for doing. Unfortunately, most people won’t get this and think that Krugman’s point is just common sense, since it has become a convention.

      23. Given the strength of Tom’s latest (not longest), I’m tempted to propose a cease fire on this aspect of the debate.


        Tom, I think homomorphous may be more apt than homonymous?

      24. “However, it is also pretty obvious that the connotation of monetization as inflationary, a gold standard holdover, is also at play in the popular mindset.”

        So you think that money was neutral in the Gold Standard ? If bank reserves increase for some reason in a Gold Standard setup, do banks start “lending out those reserves” ?

      25. Ramanan, I am not suggesting that people got things right back then anymore than they do now. The thinking was that any increase in money without a corresponding increase in backing (more gold) is inflationary. Whatever it is worth, that idea persists even though there is no backing. The backing was supposed to mean that money could only vary in direct proportion with change in specie without causing inflation. It seems to me that this is the common belief that at the bottom of a lot of unsophisticated people in the US calling for a return to gold. They are mostly confused.

        Again, it is a mistaken notion of quantity theory.

  15. Maybe a lack of any other word for the direct purchase of Treasuries by the Fed. It happens frequently. The Fed purchases government debt directly from the Treasury when some of its holdings mature.

    Let us say Skeletor threatens to destroy the world unless his bank account is credited with $500b.

    The US government cannot simply credit Skeletor’s bank account because neither the Treasury General Account nor the Treasury Supplementary Financing account has that much. It Fed/Treas can do the following

    1. Call an urgent auction by notifying the primary dealers.
    2. Allow the Treasury an overdraft
    3. Monetize the debt – Purchase Treasuries worth $500b from the Treasury.
    4. US Treasury can use its seigniorage powers. Mint a platinum coin worth $500b and give it to the Fed. The Fed then records it as an asset and increases TGA by $500b.

    (2 & 3 break the law)

    EZ countries spend by crediting bank accounts and even in the gold standard the government would spend by crediting bank accounts.

    I agree with Anon that QT has to be debunked.

      1. I hope to see “mirabile dictu” on my views on the current account. I bet it will happen in 3 months. Will be relieved if you don’t take the bet 🙂

  16. quantity theory is fine

    The problem is finding the right M.

    Net financial assets works well for me. Bank deposits and other liabilities are the ‘open interest’ in the currency with regards to the non govt sectors. The numbers have value, just like the open interest numbers in the futures markets have value, but they are not the stuff of quantity theory.

    The other issue is to recognize the govt. is the currency monopolist and all that implies.

      1. The stuff of quantity theory for corn, for example, would be actual production vs consumption, for example.

        A bumper crop tends to drive prices down as warehouses get filled beyond desired levels.

        A crop failure does the reverse and tends to drive prices up as inventories are depleted.

        Changes in ‘savings desires’ for corn also are a factor.

        Same with a currency. A budget deficit is like a bumper crop and a surplus a crop failure. The deficit spending also produces net financial assets that sit in the warehouse as the total of cash, reserves, and tsy secs.


      1. the realm of credit is ‘open interest’

        loans create deposits
        no net financial assets

        govt deficit spending = reserves plus cash plus tsy secs.

        that’s the net financial equity the supports the entire credit structure.

      2. This is what most people don’t realize. Banks don’t actually create money in the sense of increasing net financial assets. Loans create deposits, and this nets to zero.

        Credit extension is just open interest that draws demand forward and increases velocity. There is an expiration date on open interest. When loans come due and are paid down, that “money” just gets wiped out. In open interest on commodities, the final owner of the contract takes delivery on the good and the financial contract is wiped out. Similarly, the creditor recoups the loan amount in full plus interest and cancels the debt.

        However, the net financial assets created by government disbursements remain in perpetuity unless withdrawn by taxation. So only the government creates “real” money, “real” meaning that which persists. The fragility of the system lies in the open interest created by credit, and it is here that problems leading to a financial crisis arise.

    1. Of course, no one disputes the identity (equation). The kerfuffle since Keynes is about the ∆.

      I think that what is usually meant in the criticism of the quantity theory is that v and t (or q) are generally assumed to be constant, so any increase in m implies an increase in p, i.e., m is the independent variable. Using this logic, a lot of people lost money recently looking at the exponential rise in the monetary base and betting on hyper-inflation, not noticing that lending dried up, velocity plummeted, and effective demand tanked.

      But it is still assumed that any increase in m is inflationary, and most of the public looks at it this way. I think that is the problem Anon is saying needs correction. For example, since “monetizing debt” increases bank reserves, hence the monetary base, it must therefore be inflationary. NOT.

      1. agree

        also note that quite a number of people criticized Krugman for invoking the QT in his debate with Galbraith, rightly so in my view

      2. Can someone please understand how QTM you can get away with “V” being constant?

        Never make sense to me, and is now obviously wrong as V is essentially savings desire.

        How is this justified?

      3. “How is this justified?”

        It is assumed that “normally” velocity remains pretty constant since people’s desire to consume doesn’t vary much in the short run. This overlooks the role that credit extension and momentum play in determining velocity.

        (This is my understanding anyway.)

  17. TomH,

    “The monetary circuit begins with the vertical component, when the State describes that which it will accept for payment of taxes… this causes taxpayers to offer goods and services in return for units of the currency. The State is now able to use its currency to purchase goods and services. This process results in the monetization of transactions in the State’s currency.”

    That was Warren Mosler, from:

    It’s exactly the sense in which I used the word monetization in my:

    #15. July 21st, 2010 at 3:08 pm

    “I have no problem with the idea that bonds are monetized when the central bank buys them, or that net government expenditures or deficits are monetized in a no bonds system, provided that the idea in each case is properly explained in full.”

    Cease fire revoked. I believe this constitutes technical default, and the surrender of your side.



    1. Warren uses the term “monetization” correctly in that it is the exchange of a financial asset for a real asset by the state. Not so in “monetizing” bonds, which is just the exchange of one fiancial asset for another, like making change except liquidity is involved.

      As we know from MMT, the former is a fiscal operation and the latter is a monetary operations. Financial and real transactions and need to be distinguished and kept distinct.

      Say what?

    2. He has used the term “monetization” in exactly the way I have used it in the second case I noted, where “net government expenditures or deficits are monetized in a no bonds system.”

      The exchange of a financial asset for a real asset or product co-produces bank money and bank reserves, which is exactly what happens at the margin in a no bonds system or even what happens in a bonds system, within the range of tight parameter limits of the typical overdraft constraint arrangement, including the typical average treasury balance at the Fed.

      The point is that Warren has elsewhere insisted on the restriction of “monetization” to a gold standard system.

      The usage above has nothing to do with a gold standard system, whether it applies at the margin in a bond or no bond system.

      Furthermore, since the fiat effect of any vertical liability composition – reserves, currency, and bonds – is fundamentally the same vertical effect in totality, I would include the co-production of reserves and bank money under any of them – including the purchase of outstanding bonds by the central bank – as “monetization”. And none of these has anything to do with a gold standard, which is what Warren has insisted elsewhere be the guideline for acceptable vocabulary under MMT. His usage here corresponds to mine, which you all have objected to throughout.

      1. It’s generally ‘printing money’ that i relegate to fixed fx and gold standards.

        monetize means ‘turn into money’ which further demands a definition of ‘money’

      2. Even in gold standard and fixed exchange rate systems, its hardly an issue and demand for money is demand led. The central bank or the state can print money to pay for goods or services. The taker disposes it off and hands it to the bank and banks give it back to the central bank.

    3. If you want suddenly to change your definition of monetization to include deficit spending monetary effects, that’s quite another argument. But in doing so you’re changing your own playing rules entirely, and inconsistently, in the sense that it has nothing to do with the previously argued restriction to a gold standard systems.

      So you’d first have to abandon your “gold standard standard” for the use of the word, before fine tuning your new found definition from there (e.g. excluding bond purchases). That’s a lot to swallow in a 15 minute, 180 degree shift in the fundamental definition of what you’re attempting to argue.

      1. meaning I might be willing to consider bond purchases in context, once I recover from the astonishing about face on the fundamental usage of the word vis a vis the “gold standard standard”

      2. Anon, most terms have a variety of meanings, having different denotations and connotations. I cited the dictionary definition of “monetization,” and the use of the term under the gs. They are substantially different in denotation

        Scott F also said that the difference denotatively was inconsequential, but not connotatively. It’s the gs connotations of “printing” and “monetization” as holdovers in the public mindset, as well as supposedly precise and technical economic discourse, that are at issue, not because they are “wrong” but because they are wrongly pejorative in the current context, which establishes their denotation now. I also showed the difference between “monetization” as referring to a real transaction, and “liquefaction” as referring to a financial transaction.

        I have no problem if terms are technically and linked to operational definitions that clarify them, and which can be cited. Using terms ambiguously in a supposedly precise venue is not OK. I am suggesting avoiding terms that are loaded and whose pejorative connotation is difficult to alter because of long use. In short, I am arguing for precision and that requires careful use of operational definitions.

      3. You know, this is very slippery, and very typical of MMT thought processes.

        It’s slippery here, slippery on Marshall’s longest, and slippery elsewhere.

        It’s made up as it progresses; it never quite hangs together; always waiting for the next shoe to drop, to salvage an inconsistent loop.

        Precision? Good grief. Give me a break.

        Tough to probe, and tougher to have a decent discussion, when one side keeps moving the goal posts for its own convenience.

        I’m withdrawing for now.

      4. Anon, I have to plead ignorance when it comes to technical language in a field that is not mine. Someone who is a professional in this field is going to have clear this up. I have gone as far as I can and to say more would be stepping out on a limb. I may already have made some mistakes regarding terminology, of which I am not aware.

        But the necessity for clarifying terminology is part of my field, and I know that this is absolutely essential to a professional and logically clear discussion of issues. That much is not debatable. My basic point is that the previous convertible fixed rate monetary system generated a universe of discourse. That universe seems to have been imported when the monetary system changed to a nonconvertible floating rate one. Clarity requires that the universe of discourse, including key terminology, shift accordingly in order to prevent confusion from arising.

        As far as I can tell, this is a significant problem in attempting to discuss MMT relative to the prevailing universe of discourse. The largest obstacle that MMT faces is putting the discussion on the basis of operational reality instead of myths that are holdovers from the previous system or arise from dubious assumptions of the dominant economic schools of thought.

  18. MMT: Government spends first and taxes later. Government cheques do not bounce.

    Anon: You are assuming that the no overdraft rule is meaningless. The likelier explanation is that auction failure probability is near zero.

    Ramanan: Yes, they can either break the rule or the Fed can monetize the debt if ever needed, though unlikely.

    MMT : Monetization is a gold standard/fixed-fx terminology.

    Ramanan: The BoJ has monetized the government debt many times

    MMT: Such concepts are obsolete. Applies to the gold standard. Its a wash. In gold standard governments borrow first and spend later. In the Euro Zone too, governments have to borrow first and spend later

    Anon: In the present system too the government borrows first and spends later. The reason the US is different from the rest is that there is the potential to break the no overdraft rule if needed.

    MMT: There is no meaning of a government borrowing in its own currency. Where do the reserve balances to purchase the government bonds come from ? The private sector can’t purchase government bonds if there are no reserve balances in the first place.

    Anon: It’s a great question because it’s so illustrative of my most general point – (leads to Marshall’s Longest)

    Ramanan: It completely avoids who the lender is.

    Ramanan: I just found about the seigniorage power of the Treasury plus the demand for Treasuries happens because of the income and wealth created by government spending.

    Anon: Possible explanation but not MMT.

    MMT: We are living in a fiat currency regime and there are layers of … because of which currency monopoly is hidden

    Anon: Agreed. But it shouldn’t prevent you from first describing it in the way it is and describing it in the proposed system. In this way you can describe the contingency operations in the present system.

    MMT: You should understand the differences in the present system and the gold standard

    Ramanan: I have possible comments to make about the gold standard – the so-called rules of the game never applied!

    . . .

    1. Ha ha, we’re living under the platinum standard– a gold coin’s value is set by statute or worldmarket price, a platinum coin’s value is set by the Secretary’s pen. Actually, if you dig deeper into Title 31, there’s another medal that can be used… (and the third person to guess it right wins!
      31 US 5115(o)
      (8) Bronze medals.— The Secretary may strike and sell bronze medals that bear the likeness of the bullion coins authorized under this subsection, at a price, size, and weight, and with such inscriptions, as the Secretary determines to be appropriate.

      Personally, I think if you’re going to mint a $500 billion coin, for the sake of appearances, it really should be platinum. A bronze “half-ton” would be like owning a Mosler MT900 that you drive home to a trailer park every night. :o)

      And just to be clear that we are talking the US Mint and not the Franklin Mint…
      (9) Legal tender.— The coins minted under this title shall be legal tender, as provided in section 5103.
      31 USC 5103. Legal tender
      United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. Foreign gold or silver coins are not legal tender for debts.

      1. It boogles the mind. Bronze medals. WTF? If that’s the case, then everything that MMT’ers are proposing is mild in comparison. Who ever thought that up? This must be a Trojan horse, planted just in case and hoping nobody notices.

      2. I just checked with a coin collector site, the bronze medal isn’t legal tender (its sold as part of a package with the gold coin its a replica of). I guess the tip off was the code used the word “price” and not “face value” or “denomination”.

        Man I’m looking at the bronze medals, wow, its like the late night informercial part of the coin world.

        Here Tom, feast your eyes on a Clinton medal.

  19. “The largest obstacle that MMT faces is putting the discussion on the basis of operational reality instead of myths that are holdovers from the previous system or arise from dubious assumptions of the dominant economic schools of thought.”

    Tom, this is precisely I and Anon (possibly Anon more than I) want to debate on. !Operational reality!

    First describe it the way it is and then argue it is equivalent to a proposed system, instead arguing that the proposed system is actually the reality.

    1. I agree that there is confusion here. Not among the experts but among people like me who are just now trying to learn about the policy implications of an MMT approach based on functional finance and stock-flow consistent macro models.

      The way I look at it is that operationally the current US system is a kind of Rube Goldberg device and MMT is suggesting to streamline it IAW the operational reality of a fiat system. This would occur somewhat differently in different countries.

      The first step is to describe current operational reality and show its deficiencies. The second step is proposing revisions that would bring it into line with current reality. This might be somewhat different in different countries legally and operationally, owing to different traditions and politics, but the principles would be the same.

      I have a far better understanding now of the US system, but I couldn’t describe it satisfactorily if asked in detail. Beowulf keeps throwing in monkey wrenches. 🙂

      There is still a lot of mystery in my mind about the EZ. It would also be nice to have a comparison of the US, UK, Japan, Canada, Australia, and the EZ regarding operational differences.

      1. Moi? Seeing as an awful lot of what I’ve learned is from reading your comments, that’s unfortunate. Too bad zanon’s not here. He’d sort it out. :o)

        And I don’t mean to throw in monkey wrenches to be disruptive, I’m a lawyer and twisting words are, as the Welsh say, my cakes and ale. what monkey wrenches, in particular, do you mean?

      2. Beowulf, didn’t you see the smiley?

        You are continually with finding the most interesting things in the fine print that change everything we thought. Platinum coins? Well, OK. Bronze medals? Who would have guessed?

      3. I don’t know. i think winterspeak put it best when he spoke about formal and informal realities.

        take anon’s overdraft rule. if push come to shove, what happens with overdraft depends on who is in charge, what they think, and context of situation. so, it is judgement call.

      4. Right. Bernanke pushed the limits of emergency powers during the crisis. A lot of people were calling for his head, but nothing ever came of it. You do what you think you have to and get permission later.

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