Why Won’t The Fed Tell Congress the Truth About Our Debt?

By Warren Mosler

33 Responses

  1. As things stand today, the vast majority of people who read CNBC will read your columns and shrug, because they don’t have even a basic understanding of how our financial-monetary system works — not in theory, but in reality.

    It’s so frustrating to see so many otherwise smart and educated people talking and writing about things like government deficits and debt without truly understanding them, that I felt compelled to write a post explaining and demystifying basic macroeconomic and national-accounting concepts.

    Here’s the link:

    Your feedback and suggestions would be sincerely appreciated.

    1. @C. Santiago, well even though it was long it was good enough that i read it all. Appreciate the attention to detail and research you put into this, definitely adds to the body of economic works out there.

    2. @C. Santiago,
      I thought it was well done, but it took me a couple of days to get through it. I will test it for you on my 25 yr. old daughter. Can you put it in PDF format?

    3. I am barely literate in MMT, but one point you make (in an otherwise very clear presentation)seems to contradict this “motto” on Mosler’s website:

      MMT: Taxes function to regulate aggregate demand, and not to raise revenue per se.

      You write:

      “The Role of the Financial System

      Modern market economies don’t use shiny clamshells or ivory beads as money; they use fiat money controlled (to a limited extent) by a central bank whose overriding goal is maintaining monetary and financial stability. This clever political arrangement ensures, among other things, that the parts of a government that spend money can not conjure it out of thin air, as it were; they must raise the money through taxation – or explicitly borrow it.”

      I thought gov’t could conjure money out of thin air since dollars have no material existence tied to gold bars, but are just numbers on the Fed spreadsheet.

      1. @Cathy Mason,

        I wrote that. Please re-read it carefully, because it doesn’t contradict Mosler’s motto: This political arrangement ensures that the *PARTS* of a government that can spend money cannot conjure it out of thin air. (Only the central bank can issue new money.)

  2. Warren, great write up. Wouldn’t it be just great if Ben read it and commented on it, maybe actually support it in some way, say in an interview.

    1. @The Banker (aka brinn),

      Thank you. Please feel free to copy & paste the contents wherever you want and redistribute them however and to whomever you’d like — clearly there is a need for this kind of basic-building-blocks education.

      Otherwise, any suggestions for improving the post you may have would be greatly appreciated.

      1. @C. Santiago,

        This is very good C. Santiago. I likey! It’s long, but easy to read even with all the detail. And I love the links to the source data and additional readings. I don’t have the time to review the post in detail right now, but you have my interest (something to brag about). 🙂 I’ll try to return to it later on in the weekend.

        Thanks for sharing!

  3. Hmm… I still fail to see how “constrained by inflation” instead of “constrained by revenue” is such a game changer that it should be easy to “restore output and employment to desired levels without excess inflation.”

    For instance, even Alan Blinder, a former Fed Vice-Chairman, said on RT’s Capital Account today that the current deficit growth of the U.S. Gov is long-term unsustainable… So maybe the Fed can’t teach Congress what the Fed itself does not understand… Or maybe RT can interview Warren to get a different perspective.

    Iran and India are about to get rid of the dollar as the reserve currency; Russia and China are already doing so. When all those dollars come home to roost, so to speak, the Fed is unlikely to have enough time to sell Tsys (at the pace it must use) to prevent “excess inflation” aka “gold booster.”

    1. @Nick Boyd,


      Re your first paragraph, the point is that politicians THINK they can’t spend more because of the deficit / debt. The reality is they can print and spend any amount: the only constraint is inflation. That is a theoretical point. As to how much of a “game changer” appreciating that point would be – well that just depends on how much extra demand is feasible before inflation goes thru the roof. That’s an empirical or practical point. Perhaps the “game” in practice wouldn’t change all that much. But it would still nice to get politicians to understand basic economics.

      Re your 2nd paragraph, the fact that the deficit is unsustainable in the long term is a poor argument for saying it shouldn’t continue for the MOMENT: at least till full employment is achieved. If one of Warren’s supercars is doing 10 mph and is accelerating at 10mph/sec, that acceleration is not sustainable in the long run because cars cannot do much more than about 150 mph. But the acceleration can perfectly well continue for a few seconds till the 150 mph barrier is reached.

      Re your third para, if China etc sell dollars too fast, they’d be shooting themselves in the foot: the dollar would collapse in value which would mean the rest of their dollar denominated holdings would collapse in value (in terms of their own currencies). In contrast, a slower sell off is no problem. The dollar would fall a bit, demand for US goods from other countries would rise, and that as you say might be inflationary. But that’s not a problem: the US government / Fed would just need to cut the deficit a bit to compensate.

      1. @Ralph Musgrave,
        Yeah, I’ve been pondering over MMT for awhile now and been coming to the same conclusion: it may not be much of a game changer, but it is still useful to have proper perspective. Another implication, of course, is that absolute values of debt, deficits, and other accounting statistics don’t matter per se.

        Haha, as for the second paragraph, the problem is that there never has been (and thus there never will be) a moment when it would be “time for the “acceleration” to be stopped.

        As for the 3rd par, it is true that there would be a lot of “bad” for China in selling $$$, but you’d be surprised how frequently in life people and governments have to choose the lesser of some major-major evils. At some point, keeping the dollar will stop being a lesser evil. A “slower” sell off will simply not make sense. Or what will start “slower” will quickly turn into “faster than the speed of light.”

        The volume of the Tsys will not matter at that point, as they will be dropped faster than the dollar.

    2. @Nick Boyd,

      ” When all those dollars come home to roost, so to speak, the Fed is unlikely to have enough time to sell Tsys….”

      Average daily trading volume in US Treasuries is in excess of $500 billion.

    3. selling tsys doesn’t reduce inflation.

      right now, even with relatively low ‘inflation’ and a high output gap,
      Congress believes it is ‘constrained by revenue’ and therefore won’t cut taxes and/or increase spending.

      1. @WARREN MOSLER,
        Well, even if Congress understood that it is constrained only by inflation, increasing spending wouldn’t work (and would be the fastest path to both real inflation and price inflation), while cutting taxes without reduced spending would result in inflation pretty quickly under the current state of affairs.

      2. @Nick Boyd,

        You jest obviously.

        Have you run into many hairdressers recently who are completely unable to cut another head of hair and are ‘forced’ to put their prices up?

        Are all the bakers so snowed under with demand that they couldn’t possibly bake another loaf of bread?

        In a truly competitive market businesses will quantity expand before price expanding – because price expansion is a risky option (you would lose sales to any of your competitors taking the quantity route).

        So if you start to get price expansion, the competition regulators need to start breaking up the cartels and oligopolies that are preventing competitive markets.

      3. you are entitled to your opinion that we need this much unemployment and excess capacity to meet your inflation desires

        personally, i don’t see it that way, but that’s another story

  4. Seems Soros is going to spill the beans… he is pushing the panic button. NB the phrase “Greece borrowing in foreign currency” seems very MMT-ish.

    From The Guardian:

    “Unfortunately, the European authorities had little understanding of how financial markets really work, and did everything wrong.”

    Soros proposed that Spain and Italy should be allowed to finance their deficits by issuing treasury bills with a 1% interest rate, and warned that the current policies were leaving the weaker eurozone nations “relegated to the status of third world countries that became highly indebted in a foreign currency.

    “The trouble is that the austerity that Germany wants to impose will push Europe into a deflationary debt spiral.”

    “The Greek crisis revealed two defects in the Maastricht treaty [that established the single currency] which could prove fatal. First, that when member countries become heavily indebted they become like third-world countries that have borrowed too much in a foreign currency. Second, that there are no provisions for correcting errors in the euro’s design. There is neither an enforcement mechanism nor an exit mechanism, and member countries cannot resort to printing money.”‘


  5. Hey Warren,

    Alexander Hamilton’s 1790 “Report on Public Credit.”

    “It is a well known fact, that in countries in which the national debt is properly funded, and an object of established confidence, it answers most of the purposes of money. Transfers of stock or public debt are there equivalent to payments in specie; or in other words, stock, in the principal transactions of business, passes current as specie. The same thing would, in all probability happen here, under the like circumstances.”


    I about fell out my chair reading this today. Lots of stuff about public-purpose.

  6. This article is quite interesting if interpreted correctly (I won’t take Anders Aslund’s words at face value). It actually offers a very Marxist-style answer to the question “why won’t the Fed tell Congress the truth” and another one – who may challenge the old order. Just instead of thinking about Ukraine or Egypt, look at who rules the United States of America…

    “The Orange Revolution, [Aslund] told me, was the rebellion of the millionaires against the billionaires. Ukraine’s crony capitalism worked extremely well for the small, well-connected group of oligarchs at the very top, but it was stifling the emerging business class.”


    The following fragment is also interesting. Everyone obviously knows who Peter G. Peterson is and what his “charitable foundation” does in regards to promoting “fiscal discipline”. How can somebody who worked for Richard “We are all Keynesians now” Nixon and later at FRBNY not understand the nature of fiat money?

    ‘Holly Peterson, the daughter of private equity billionaire Pete Peterson – and herself a rather sly and eloquent chronicler of the 1 percent in her essays and fiction – tells a similar story of the tension at the very top. “I think people making five million dollars to 10 million dollars definitely don’t think they are making enough money,” she told me. “Wouldn’t it be nice to fly private? There are so many things you can aspire to, even making five million dollars a year. For the lower rung of this crowd, these people set up lives for themselves they can’t afford. They are broke and maxed out on their credit cards in December, just like middle-class couples living on one hundred thousand dollars. I don’t think the feel that rich. They are trying to play with the high-rollers, and there are things they can’t do, and they feel deprived, which is completely sick and absurd, but that’s the truth of the matter.”‘

    It was the conflict between the old oligarchy (Aristocracy and Clergy) and the new oligarchy (The Third Estate) what triggered the French Revolution. So, “0.1%” beware of the “0.9%”…

    1. @Adam (ak),
      It was the conflict between the old oligarchy (Aristocracy and Clergy) and the new oligarchy (The Third Estate) what triggered the French Revolution. So, “0.1%” beware of the “0.9%”…
      It was the conflict between the old aristocracy and the bourgeoisie, between tradition and the money – the 0.9%, the rest of the people were never in charge, even though we still think we are.

  7. Warren,

    Very nice website!

    Bernanke won’t come clean with CONgress or the public at large because, first and foremost, the Fed represents banks and their credit creation franchises.

    It’s all about maintaining the ruse that Gov’t debt is debt rather than money.

    A Ruse By Any Other Name!

    Expecting accountability without honesty is asinine.

  8. There’s no point in telling Capitol Hill anything. Congress critters rely on threats from whatever source so they can pretend to ride to the rescue of their constituents. Carl Levin got lots of press by “revealing” that Capitol Hill is “owned” by the bankers and Romney is running around crying the bankers are scared. Chris Dodd has managed to shake his reputation of being in cahoots with the bankers by lobbying for private censorship of the internet. Now he’s hired on to secure the revenue stream of another group of middlemen, all champions of free enterprise until someone suggests they be weaned from the public teat.

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