77 Deadly Innocent Misinterpretations (77 DIMs #22 – 28)

Floating above the muddy waters, the lotus flower is a symbol of PURITY. The lotus plant has several meanings in Buddhism. The main one is that a lotus grows from the dirt, rises through muddy waters, bypasses attachment, shuns any desire, and once it has risen above the murk, the lotus flower blooms (it achieves enlightenment).

2018, what a year, and it sure was one for the Modern Monetary Theory books.

The year began with one of the MMT PhDs, telling us that “America was a junk economy” and that was coming from someone with their degree IN ECONOMICS (while we were only 15 months shy of officially entering the Longest Economic Expansion In UNITED STATES HISTORY).

That was followed by other MMT econ scholars insisting that we needed a make-work ‘JG’ program, where the federal gov’t creates ‘jobs’ (during A LABOR SHORTAGE).

In Australia, we had another MMT academic lecturing us that “exports are ‘real’ costs” (while Australia, thanks to the ‘real’ benefits of exports, was entering its 27TH STRAIGHT YEAR WITHOUT A RECESSION).

In 2018 we had MMT admins saying that money in bank accounts is “only acting like money” because it’s “lookalike IOU” (and followers actually bought into that nonsense). We had an unemployed MMT evangelist going to Washington, D.C., explaining to federal policymakers how to run the country and after getting back home, setting up a GoFundMe page for handouts (because he couldn’t even run a household). We had MMT leadership telling us that job-CREATING exports “are a cost” (and that job-DESTROYING imports “are a benefit”). We had an MMT trader telling you to leverage out and go long on oil, go long on gold; to short the dollar, to short the 10yr (and if you actually did all of that, you now know what ‘getting mental game’ actually means). We had those adorable Real Progressives still wearing ‘taxes don’t fund spending’ floaties in their MMT kiddie pool (even though Warren Mosler scolded them at least 117 times not to say that). We had 15 midterm-election candidates: Seale, Bashore, Glover, Mimoun, Wylde, Smith, Ayers, Barragan, Hoffman, Ringelstein, Abrahamson, Baumel, Estrada, Canova and even including Mr. Mosler, who thought that appearing on a Real Progressives broadcast was a good idea (who all then lost their elections); and after those midterms, these Real Progressives goofballs kept reprimanding the rest of us to #learnmmt (when ironically it’s them that are still nowhere near the vicinity of grasping MMT).

In other words, 2018 was a year of peddling fake ‘prescription’ MMT (under the guise of promoting pure ‘description’ MMT); it was a year of waving bye-bye to facts (because it got in the way of pushing dopey narratives); and it was a year when folks mixed their politics with their economics (and diluted both at the same time). In short, 2018 was just more of the same.

You can expect, that in 2019, what you’ll be hearing from political ‘prescription’ MMTers will be them telling you (again) who to blame, and that we need to be deficit spending on more ‘this’, and on more ‘that’; because in their utopia, the Fix-All is always just a ‘keyboard stroke’ away (while here in reality no keyboard can stop a federal gov’t shutdown).

In 2019, rather than cursing and fighting the windmills, you can be silently observing and learning how to properly (read: PURELY) play the cards that are presently being dealt (even if they’re ancient cards from a bygone, gold-standard era).

You can be blooming above the muddy waters (above the MMT kiddie pool), relying solely on facts, math & data (relying on the writing of God).

In the new year you could rise above the ideologies, bypass the pet theories, shun the narratives, and achieve pure MMT enlightenment.


Deadly Innocent Misinterpretation #22: Taxes ‘create unemployment’.

Fact: Taxes create another bill to pay.

Sure, those locals in 1800’s Ghana (where the ‘taxes create unemployment’ yarn is derived) became ‘unemployed’ the day a ‘Hut Tax’ was enforced on them, but that doesn’t mean that they were not working before that!

They weren’t just sitting around doing nothing before the British showed up—they were hunting and gathering the things they needed. All that hut tax did was give them another new thing they needed to hunt and gather (the money to pay the new tax).

Fast forward to the 20th century, before US federal income tax became the law of our land (with the ratification of the 16th Amendment in 1913), citizens were employed—because they had bills to pay—and after those taxes were imposed, the only change was just that citizens had another bill to pay.

‘Taxes create unemployment’ is a catchphrase, using easy-to-remember, bumper-sticker logic to help grasp a simple ‘description’ MMT insight; but once again, the political ‘prescription’ MMTers take yet another analogy or meme too literally.

We can read in ‘The Seven Deadly Innocent Frauds’ (7DIF#1 pg 25) why—even though the federal gov’t is the issuer of fiat dollars and spends in its own fiat dollars—the federal gov’t still needs to collect tax dollars from us, that “taxes create an ongoing need in the economy to get dollars”. Mr. Mosler (correctly) explains that the financing function of federal taxation took the backseat to more important functions. One of those functions, an MMT pillar, is that in the post-gold-standard, modern monetary system, the federal gov’t no longer needs to collect dollars to spend, but YOU still need to collect dollars to spend—and to pay taxes.

In other words, one function of federal taxes today is to maintain demand for the currency. The other function is to maintain price stability, or as Mr. Mosler puts it, “leaving room for the government to spend without causing inflation”.

The only reason ‘taxes create unemployment’ keeps getting regurgitated is to push a narrative that Thy Federal Gov’t Giveth You Unemployment And Thy Federal Gov’t Can Taketh Unemployment Away, so if in charge, that’s another thing the almighty ‘prescription’ MMTers will do—they’ll also get the federal gov’t to guarantee a ‘job’, for poor little mortal you.

In other words, when the political MMT Party folks distract you by pointing at those ‘Evil’, ‘Neoliberal’, ‘Racist Murderers By Proxy’, they pull the oldest trick in the book (the never-ending finger pointing) when they say that taxes (and other ‘intentional’ federal gov’t policies) ‘create’ unemployment.

Taxes don’t actually create unemployment, but saying it does create a ‘problem’ (that ‘prescription’ MMTers will always be gainfully employed at ‘solving’).


Deadly Innocent Misinterpretation #23: Taxes ‘value’ the currency.

Fact: Production, not taxes, values the currency.

“All Innes, an amateur journalist, was saying in his ‘Credit theory’, was the same point that Knapp was making in his ‘State theory’, which is, that in opposition to the ‘Metallic theory’, what gives money the value, is its acceptability for payment of taxes.”—Michael Hudson, American economist, professor of economics at the University of Missouri in Kansas City and a researcher at the Levy Economics Institute at Bard College

What Mr. Hudson is saying there is simply pointing out the obvious in those Credit / State / Circuit / Debt theories of money. Which is that the monetary sovereign’s taxing power is the magical reason why today’s ordinary pieces of paper that we call fiat currency, are valuable (compared to yesteryear’s hard currency that needed to be literally made out of, or backed by, a precious metal like gold or silver, in order to be valuable).

MMTers routinely misinterpret that quote as meaning ‘taxes value the currency’ without realizing that they are putting the cart before the horse. Today’s US dollar, a ‘soft’ currency, is still ‘valuable’, like a ‘hard’ currency used to be, because the dollar, like any legal-tender sovereign currency, can settle debts—with taxes being one of many debts. The fact that taxes must be paid in dollars gives dollars some initial ‘velocity’ (it kick-starts the currency into first gear), sure, but that only goes so far—and that’s exactly where MMTers who say ‘taxes value the currency’ stay stuck in first gear.

For example, let’s again take that analogy about the Ghana Hut Tax in #22 above. That tax ‘creates value’ at first, sure, but Ghana would then need PRODUCTION to keep the currency ‘valuable’. Ghana would need to start actually producing goods & services and making things of ‘value’ available for sale. In addition, they would also need to avoid severe economic shocks, like gov’t corruption, that would affect production, or else the actual value of the currency—regardless of taxation—goes poof. The MMT takeaway is that once you change from a fixed-currency regime to a floating-currency regime (once you take off those ‘golden training wheels’), the currency’s value changes from only being whatever it’s *literally* made of; over to many other moving pieces (over to multiple sophisticated variables), including the production of that country and the full faith (real and perceived) of that monetarily-sovereign issuer.

“Taxes do not ‘drive the currency’ / ‘value the currency’. Look at the Middle East countries that do not tax. Here in the US, which does tax, the Fed mandate is maximum employment, or how I see it, maximum PRODUCTION. That’s what mostly values the currency—not the taxes. No matter how much taxes you collect, if the production collapses to nothing, then what is the currency valuing? A) Nothing! The further an economy is from its full productive output, the less the currency is worth. Anytime there is a large collapse in production, the currency devalues, which causes mild inflation at best, or severe inflation with possible hyperinflation at worse. Take hyperinflation, which is very poorly understood by most traditional economists. The widely held belief is that an increase in government ‘debt’ (aka too much ‘money printing’) causes hyperinflation. But research shows that hyperinflation is not merely the result of ‘money printing’ (an expansion of the money supply). In fact, it tends to occur around very specific and very severe economic circumstances (too much foreign debt, loss of a war, rampant corruption, regime change, collapse in confidence) that resulted in a severe collapse in PRODUCTION, which led to ‘money printing’ (which led to an increase in the money supply)—which ultimately led to hyperinflation. The correlation of ‘money printing’ was not causation.”—Jim ‘MineThis1’ Boukis

“Saying ‘taxes gives value to money’ is sloppy language, sloppy thinking, and just plain wrong. What matters is the obligation against your productive capacity. It can be said that taxes are a predicate condition in order to require work / production to get the money to pay the tax. The corollary is that the value of money is defined as the amount of work / resources needed to produce goods & services for sale either to the Government or within the Private Economy. Then a portion of the money is returned as taxes to make sure you keep using the currency to buy the real goods & services available (which makes money relevant to the economy). Miss the distinction between the predicate and the corollary and all the money and all the taxes in the world will not give currency value if there is little or nothing produced available to purchase (which makes money irrelevant to the economy).”—Charles ‘Kondy’ Kondak

“What is money? It stores value, measured by productivity, at par. In other words, an airline pilot’s dollars aren’t worth more than a sidewalk gum-scraper’s dollars—the pilot just earns more dollars. Money exists in two frames at the same time: Liability = Asset, as well as, Debit = Credit. Analyzing money flows is as simple, and as complex, as tracing which balance sheet shrinks vs. which balance sheet expands. Understanding is found in the awareness of the productivity swap. You’re not trading paper or keystrokes, you’re trading productivity-based value. You’re investing in production. The value is the production in economies, in firms, and in people.”—Mike Morris

“There’s a reason why the MMT people are usually wrong and the technical, non-ideological people are usually right.”—Logan Mohtashami


Deadly Innocent Misinterpretation #24: The federal gov’t is the sole monopoly ‘supplier’ of dollars.

Fact: The federal gov’t is not the sole monopoly ‘supplier’ of dollars.

The federal gov’t is the sole monopoly ‘issuer’ of dollars (the origin source of dollars), yes; but the sole monopoly ‘supplier’ of dollars (the only source of dollars), no. The federal gov’t supplies dollars, and the federal gov’t also delegates the function of money creation to their banking agents (to also ‘supply’ dollars into the banking system).

When Warren Mosler uses the analogy (one of my favorites) that the federal gov’t is ‘The Center of the Universe’, what that means is that the federal gov’t, the issuer of dollars, has the sole monopoly POWER over dollars. One example, the federal gov’t (via the Fed) has power to manipulate, to literally set, the ‘price’ (the short-term interest rate), of money—to influence long-term rates, spending decisions, etc. Another example, the federal gov’t (via Congress) has the Power of the Purse to authorize federal-gov’t deficit spending (to create money). Furthermore, the federal gov’t delegates the banks (under strict federal-gov’t supervision and regulation) to also create money—or more specifically, to facilitate the rest of us in the private sector to create money.

MMTers routinely get this confused because they are less concerned with the monetary ‘description’ and more interested in pushing a political ‘prescription’. They need listeners to believe that ‘federal gov’t money’ is ‘higher’ in a ‘hierarchy’ of money—that only federal-gov’t deficits can solve the ‘problems’. Try not to let ‘prescription’ MMTers drag you down their ‘banks don’t create money’ rabbit hole, or up into their ivory-tower echo chambers to peddle their pseudo-intellectual ‘exogenous’ creation is ‘superior’ to ‘endogenous’ creation NONSENSE.

There is a reason why you will never, EVER, see any bill in your lifetime quoted in ‘exo’ or ‘endo’; or any statement quoted in ‘federal gov’t money’ or ‘bank credit’.

That’s because all money is money.



Deadly Innocent Misinterpretation #25: Only private-bank money creation ‘nets-out’.

Fact: All money creation ‘nets-out’.

Just like you, me, any household, or any business (just like the nonfederal gov’t) can pay back their debt, so can the federal gov’t—even though the federal gov’t hasn’t done so since the gold-standard era officially ended in 1971. However, MMTers routinely misinterpret that as there being some perceived differences between federal-gov’t-sector money creation and nonfederal-gov’t (private) sector money creation. They usually do this to propagate a narrative that only more Almighty federal-gov’t money creation—that only more Almighty federal-gov’t deficits—is the Fix-all (to their perceived problems).

Those that are fully-grasping MMT know that issuer solvency is basically the main difference between any money creation. For example, you are more likely to get your dollars back if you gave it to the issuer of dollars—like when investing in an interest-bearing term deposit at the Federal Reserve Bank (aka ‘buying a Treasury bond’):

“If one wants to put the finest of points between the two, perhaps the only difference is the default risk on the money created by each. Sure, the federal gov’t has much more capacity to roll over its debt; but in the end, the most overzealous exo/endo MMTers want to eliminate private bank credit. Forgive them for they know not what they say, comrade.”—Charles ‘Kondy’ Kondak

MMTers like to say that ‘bank credit’ (their pet name for private-sector money creation) ‘nets-out’ as if to imply that federal-gov’t money creation can’t. They are misinterpreting the difference between federal-gov’t money creation and private-sector money creation, which is, simply that, one creates ‘risk-free’ bonds, and the other, doesn’t.

Another reason why MMTers (deadly and innocently) get so mixed up with all this is that they are confusing Assets with Capital. When thinking about private-sector money creation (deficit spending) that ‘nets-out’, keep in mind that, just like federal-gov’t money creation that adds Net Financial ASSETS, private-sector money creation is an addition of ASSETS going into the banking system—but neither is talking about an addition of CAPITAL. Assets minus liabilities equal capital. A newly-created private-sector ‘bond’ (your personal promise to pay back the money with interest) adds dollars (ADDS ASSETS) into the banking system (but NOT Capital). For example, when you buy a new car on credit, with no money down, your net worth (your Capital) doesn’t go up because that car (your Asset) and your ‘bond’ at the dealership (your Liability) ‘nets-out’, but the assets sitting in your driveway (the total assets posted on your balance sheet) absolutely do up.

The same goes for the federal gov’t. If a new battleship is built and paid for on credit, the amount of ASSETS (the amount of NFAs) goes up, but the amount of the federal government’s net worth (Capital) doesn’t go up because that brand-new USS BONDHOLDER (Asset) ‘nets-out’ with that brand-new Treasury bond (Liability).

The opposite of ANY money creation is paying off the liability (the ‘destruction’). In the post-gold standard, modern monetary era, another paradigm difference between public-money creation and private-money creation is that (since there hasn’t been a lowering of the national debt since 1957) no Treasury bonds have been paid back (no Treasury bonds have been put ‘in the shredder’ since 1957). In other words, when the federal gov’t creates money, of course there is an attached quote ‘debt’ unquote that CAN (just like private-sector money creation) ‘net-zero’; however, unlike *actual* private-sector debt that serves as a financing function, federal debt is not intended to ‘net-out’ because Treasury bond issuance serves other functions.

“It is *technically* debt, but it’s a debt that is never expected to be repaid.”—Michael Hudson

The pure ‘description’ MMT insight is that unlike private-sector money creation, federal gov’t ‘debt’ is never expected to ‘net-out’—not that it doesn’t at all.


Deadly Innocent Misinterpretation #26: There is no such thing as a ‘Fractional Reserve System’—it does not exist.

Fact: There is such a thing as a fractional reserve system—it still does exist.

“On January 18, 2018, the Fed updated its reserve requirement table. It required that all banks with more than $122.3 million on deposit maintain a reserve of 10 percent of deposits. Banks with $16 million to $122.3 million must reserve 3 percent of all deposits. Banks with deposits of $16 million or less don’t have a reserve requirement. In order to give banks an incentive to grow, the Fed changes the deposit level that is subject to the different ratios each year.”—Reserve Requirement and How It Affects Interest Rates

In other words, here on planet earth, US banks are required to have a ‘fraction’ of their total deposits on ‘reserve’ (called the cash reserve ratio). These $$$ are deposited at the Fed (called ‘required reserves’). Banks also have $$$ on deposit at the Fed that is above the required amount (called ‘excess reserves’). Just like the financing function of federal taxation, the traditional function of the fractional reserve system is no longer needed—but it still exists. It’s still the Modern Monetary Formality, like those pesky accounting rules and appropriations laws that, albeit unnecessary, never cease to frustrate the political ‘prescription’ MMTers.

The pure MMT insight is that, operationally, the federal fractional-reserve system is NOT NEEDED to create deposits—not that there is no fractional reserve system at all. That’s fake MMT, and anyone saying ‘there is no fractional reserve system’ has no idea how ridiculous they sound to experts in the field. Good luck telling the person that just got a costly margin call, or had their f/x account blown out (because their losses exceeded their required fractional reserve), that ‘there is no fractional reserve system’.

H/T to Steven Witcher who was keeping the MMT pure in an online discussion over at the Intro To MMT site on Facebook. He nails it on the head here—that MMTers are confusing ‘unlimited’ fiat $ creation with ‘unrestricted’ fiat $ creation:

“Banks still use the fractional reserve system in the US as a holdover. The difference is, since ’71, there’s no limits on reserves [but there’s still restrictions]. The key dates are 1913 (end of wildcat banking & establishment of the Fed); 1934 (gold became reserves rather than money); and 1971 (gold then becomes just a market commodity & reserves then just become a number). We [the United States] didn’t have any semblance of federal fractional reserve [like other countries did] until the Federal Reserve Act [of 1913]. Exchanging money for gold [domestic convertibility] ended in the 30s. In essence, before 1934, we had a ‘floating’ [a ‘partial’ or ‘managed’] conversion rate and banks were limited in their lending based on reserves—that’s your traditional fractional reserve system. 1934 [The Gold Reserve Act of 1934 changed the convertibility from $20.67 to $35, a 41% devaluation, which also outlawed private possession of gold and ordered all gold held by the Fed to be surrendered then transferred to the Treasury; BUT] changed nothing about the fractional reserve system, it just added reserves. 1934 was a massive increase in that reserve part of the fractional reserve system [by design to ‘inflate’ the money supply to get more dollars into the hands of consumers]. We maintained a fixed exchange rate [international convertibility] to gold afterwards, but because of that, the money supply was still limited by gold until ’71. Post 1971, [private] banks have no limit on how much it can lend, and neither does the [federal] discount window, because the entire system is based on risk assessment—but with no limit [restrictions, yes; a limit ‘ceiling’, no]”—Steven Witcher


Deadly Innocent Misinterpretation #27: Paying federal taxes is a destruction of dollars.

Fact: Paying federal taxes has not been a destruction of dollars since 1957.

MMTers, even The Great Ones, are still not fully-grasping the subtle differences between a ‘dollar drain’ and a ‘dollar destruction’—and are misinterpreting these two main levers in our modern monetary system.

For example, in a debate about trade differentials, Professor Steve Keen was (incorrectly) saying a trade surplus was a “third source of money creation”. The reason why he was wrong is because, counter-intuitively, a trade ‘deficit’ does not mean a creation of dollars like a budget deficit would mean. A trade deficit only means a drain of dollars to the nonfederal gov’t / international (aka foreign sector) from your nonfederal gov’t / domestic (aka private sector). Rather than a trade ‘deficit’ being ‘financed’ with a ‘creation’ of dollars (as Mr. Keen thought), or being a ‘destruction’ of dollars (as many others think), the amount of the trade deficit is instead only telling you how many dollars that just DRAINED from one nonfederal gov’t sector to another.

In the modern monetary system, using a free-floating currency (using f/x markets), US dollars never ‘leave’ the US banking system in a US trade deficit; however, that trade deficit is telling you exactly how many dollars worth of potential aggregate-demand from factories, salaried employees, surrounding businesses, neighborhood real-estate values, etc etc, that just drained from the US private sector to a foreign country.

It was Warren Mosler who corrected Steve Keen in that 05/07/18 debate (who graciously walked back his ‘third source of money creation’ posit); yet recently, it was Mr. Mosler himself, saying ‘old tax dollars are shredded’ who is now seemingly not seeing that subtle difference between a ‘dollar drain’ and a ‘dollar destruction’. This was overheard in a 12/20/18 post at the Intro to MMT site on Facebook (asking if anyone has worked at the IRS and has first-hand experience with shredding cash tax-payments):

“Warren Mosler, your language here is quite misleading. It’s old cash which is shredded, not tax payments. You probably mean this symbolically, but it’s quite misleading to the lay people we are trying to educate.”—Ken Otwell

“Ken Otwell, any payments made to Gov with old cash, including tax payments, etc., are shredded.”—Warren Mosler

Even the great ones swing and miss sometimes. Ken Otwell is correct. Saying that ‘tax dollars are shredded’ (no matter whether it is meant to be taken literally or metaphorically) is quite misleading and is causing deadly and innocent misinterpretations throughout the MMT community. Can we pinpoint to where this misrepresentation of taxes being ‘destroyed’ is happening? Yes we can, and let’s call it a subset to #27:

Deadly Innocent Misinterpretation #27a: “Federal tax remittance is subtracted from the US national debt on that big spreadsheet the gov’t runs.”

Fact: Federal tax remittance has NOT subtracted US national debt on the consolidated balance sheets of the federal gov’t since 1957.

“In recent years, as federal budget deficits have narrowed and even disappeared…they tend to be short-lived. When the federal government’s fiscal condition improves…do budget surpluses induce increases in federal spending? Or…reductions in taxes? Or, some combination with other possibilities, e.g., reducing the national debt? Consequently, only a small portion of surpluses in the modern era typically goes for debt reduction.”—Budget Surpluses, Deficits and Gov’t Spending, prepared by Vedder & Gallaway, Professors of Economics, for the Chairman of the Joint Economic Committee, December 1998

In other words, what these economists knew two decades ago is what many in the MMT community today haven’t yet grasped—that Congress not only has to approve federal-gov’t money creation (addition of NFAs), but its destruction (subtraction of NFAs) as well. MMTers, especially the ones talking from the political ‘prescription’ side of their mouths, are either letting facts get in the way of a good ‘taxes are a destruction’ story, at best; OR these MMTers are confusing the payment of federal taxes lowering the budget DEFICIT, with taxes lowering the national DEBT, at worst. Federal taxation does pay for debt SERVICE, yes; but do taxes pay for debt REDUCTION, no—not since 1957—the last time the national debt decreased. Political MMTers (that want their ‘prescriptions’ to be taken seriously) need to stop getting their ‘descriptions’ wrong.

Stephanie Kelton once replied “No” to the question “Do taxes fund federal spending.” As a result of that SINGLE Tweet, her entire choir instantly accepted that as gospel and started saying ‘federal taxes don’t fund spending because federal taxes are a destruction’ (sending them over a cliff).

Warren Mosler implies that federal ‘taxes are a destruction’ in 7DIF, based on a SINGLE fact that old cash bills are being shredded by the federal gov’t—but he left out the part where those tax amounts are credited to the Daily Treasury Statement account because he doesn’t consider that asset (that ‘soft currency’) in the DTS, as the Treasury getting, quote, a ‘thing’, unquote—YIKES (try telling the federal taxpayer—who votes—that just sent a check payable to the ‘US Department of the Treasury‘ for federal taxes due that ‘the Treasury isn’t getting a *thing*’)!

Just like Mr. Mosler, Randy Wray also argues that federal ‘taxes are a destruction’ based on a SINGLE instance from 260 years ago. In this case, a time in US colonial history that tax receipts were, indeed, destroyed—but causation is not correlation. Professor Wray (deadly and innocently) misinterprets the ‘burning’ of tax receipts by the Commonwealth of Virginia in the eighteenth century as meaning ‘taxes are a destruction’ today. What actually happened then, was akin to what we now call an Open Market Operation (that executes a dollar add or a dollar drain to maintain price stability). During The Seven Years War (1756–63), Virginia colonists needed to pay more taxes to help finance our then-mother-country’s war effort. Paying more taxes to Britain meant more ‘hard-currency’ dollars leaving Virginia and being shipped to England. In order to counter the deflationary effects of this decrease in the Virginia money supply, the Virginia Commonwealth would (wisely) introduce legal-tender ‘notes’ (do a ‘dollar add’). When the war ended, and the notes had served their purpose and were no longer needed (because the overseas war was no longer needed to be funded), Virginia would simply burn any of these notes received as tax payments (do a ‘dollar drain’) until the notes were out of circulation.

Note that this misinterpretation is similar to any other garden-variety ‘financial helper’ on the airwaves today, who easily (but not as innocently) snake-charms folks by constantly pointing to the tiniest part, to the SINGLE instance and saying ‘See, look right there, I told you so’. Rather than heed any of that ‘financial advice’, you should instead be standing way back from the picture, watching all the moving pieces and tuning out the noise. Which is again the reason why I loved Mr. Mosler’s ‘Center of the Universe’ analogy, because it personally helped me to bypass attachment—meaning to not consider MMT as being chiseled (attached) in stone—and attain pure MMT enlightenment.

What the ‘taxes are a destruction’ mentality is still not (deadly and innocently) grasping is the ever-so-slight difference between a ‘drain’ of dollars (a SWAP of dollars), like paying federal gov’t taxes / like federal gov’t surplus spending / like trade differentials; and a ‘destruction’ of dollars, like when Treasury bonds are paid off / like when corporate bonds are paid off / like when credit-card balances (a personal ‘bond’) are paid off in full. When you pay off your entire credit-card balance at the end of the month, you destroy dollars that you previously created (that you previously ‘conjured up’ during the month). Even more complex, is a Fed operation, where you can have a dollar drain (from savers to borrowers) with a simultaneous dollar creation into the banking system (to buy bonds on credit), and then followed by a dollar destruction (to return back to ‘normal’)—both a $$$ drain and a $$$ destruction happening discreetly out of money-supply-circulation sight (like QE and QE unwind).

It’s better to think of all money creation as being the newly-created BOND being created—and not the ‘money’ being created—because sometimes the ‘money’ being created is something you can’t always see. That’s a big reason why many MMTers keep struggling with putting different labels on the ‘money’ that the private sector creates (instead of just calling them $$$)—because they’re trying to wrap their hands around something you can’t always see. Rather than getting sidetracked concentrating on different ‘kinds’ of money, different ‘kinds’ of money creation, and different ‘kinds’ of money hierarchies, MMTers should instead be pinpointing the paramount part of all money creation—the bond creation. Whether the federal gov’t is deficit spending (creating a bond) to put a rover on Mars; or you are deficit spending (created a bond) to drink a cup of Starbucks, that is the exact moment it becomes a net creation of assets.

That newly-created bond is first and foremost. That bond represents the net addition of newly-created $$$ into the banking system (as opposed to not paying on credit and using already-existing $$$ in your pocket). If there is only a single thing that readers takeaway from this entire post, let it be this: Newly-created bonds create loans create deposits.

Here’s a quick story that is both relevant and quite interesting. In medieval England days, when you wanted to pay on credit, a notched tally stick was created (‘dollar creation’). To represent the newly-created asset with an attached liability of debt incurred, the stick was broken in two and the distinct grain-structure of the wood made the pieces ‘carbon copies’. The creditor (let’s say the King of England) got the asset side, the larger piece; and the debtor (let’s say a poor English subject) got the liability side, the shorter piece (and that’s where the phrase ‘getting the short end of the stick’ comes from). When the debt was paid back (when the subject paid the King back), the sticks were destroyed (‘dollar destruction’ aka ‘net-zero’).

Think about how innovative that was. This tally stick basically worked like money (one side was effectively a note-receivable; and the other side was the offsetting note-payable). As Real Macro instructor Mike Morris likes to say about money, the tally stick was ‘liquid production’—and in multiple ways: 1) People could now easily buy on credit (meaning more purchasing power in the hands of consumers); 2) the creditor side of the stick was essentially a note-receivable in bearer form (what we today call a ‘bearer-bond’) so shop owners holding the asset side of the tally stick could make capital with capital along with making money on their sales; 3) when other shops heard about that innovation (shop owners with excess cash, that only needed more sales rather than more cash), they jumped in on this credit action; 4) the more tally sticks created, the more competitive borrowing rates got; and 5) just like the taxing authority today can ‘pump the prime’ and deficit spend to stimulate the economy, the King could do the same by simply spending more ‘legal-tender’ tally sticks, which adds more financial assets into the monetary supply.

If the King was deficit spending (if an English subject provisioned the King on credit), the tally sticks were newly-created with the King as the debtor (the King had the short end of the stick). Here’s why I mentioned tally sticks in the first place: One way to settle that debt that the King owed to that English subject, the King could accept the offsetting piece of the stick as settlement of taxes due to England—and then those particular tally sticks were destroyed. Meaning in that one SINGLE instance of a payment of taxes, yes, that was a destruction, sure; but not to be misinterpreted and to be concluded that ‘tax payments are a destruction’. You can trust me on this, the English subject next in line settling his ‘federal’ taxes due by paying with gold, with bales of tobacco or cotton, with animals or their fur, or whatever else was legal tender—those weren’t ‘shredded’ (those taxes weren’t ‘destroyed’).

Just like deficit spending then, deficit spending today is a dual creation (two pieces). A creation of a newly-created bond (a newly-created Asset); PLUS, what ‘nets-out’ that asset, that other piece, the debt (the Liability). Even to this day, if you use a credit card, you are creating a tally stick, which is your promise to pay the vendor back (which is your ‘bond’). The seller (the creditor) keeps one part of that little piece of wood that you marked (that little piece of paper that you signed); and you the buyer-on-credit (the debtor) gets handed the other piece of wood (the paper receipt)—just like 500 years ago.

In other words, when you borrow / deficit spend / pay for something on credit today, you are creating both an asset and a liability (that ‘nets-out’ the asset). For instance, if you buy a new car on credit / no cash down / borrow the full price, then you are creating the ‘bond’ (your promise to pay back the money with interest) that the dealership gets. The car dealership (creditor) swaps out of a car on the lot and into your newly-created bond (asset). You (debtor) get that car, which doesn’t increase your net worth (capital) because it ‘nets-out’ with other half of the tally stick (liability) that you also get. (Note: The dealership’s net worth doesn’t change either, not until you, or a third counter party, makes good on your loan and only then the dealership collects the mark up, aka ‘profit’—otherwise the dealership’s net worth goes down if you default on your loan). The insight is that unlike an all-cash deal where you hand the dealership money from your pocket (with existing assets in the banking system), you instead, OUT OF THIN AIR, CONJURED UP and entered your ‘bond’, a newly-created financial asset denominated in dollars (a net addition of $$$) into the banking system.

Warren Mosler writes in 7DIF that tax dollars paid in ‘old’ bills are ‘shredded’ by the federal gov’t, so now MMTers (taking that SINGLE analogy too literally) are saying ‘taxes are a destruction’ (wrong), ‘taxes don’t fund anything’ (wrong), and ‘blah blah blah’ (wrong wrong wrong).

The proper interpretation of the 7DIF ‘tax dollars are shredded’ thing is that it’s just an example of one of the many paradigm differences between the issuer of dollars and the user of dollars. The issuer can shred an old $20 bill received, and replace it with a new one; while a user uses the $20 bill received no matter how old and worn it is. That’s all. If you want to take the shredder thing to mean that ‘taxes are a destruction’ to push your preferred politics and peddle your pet prescriptions, that’s fine, then go ahead, and good luck with all that—because you’re going to need it.

Paying federal taxes is not a destruction of dollars. Running a federal gov’t surplus is not a destruction of dollars, either. Taxes are a drain of dollars from the 5% (approx) that drain to the 95% (approx)—an example of Jim ‘MineThis1’ Boukis’s “eco-feedback loop” insight from unproductive capital (from the ‘financial’ economy) draining to productive capital (to the ‘functional’ economy). The payment of federal taxes nor the federal gov’t running a surplus DOES NOT reduce the national ‘debt’. The national ‘debt’ DID NOT go down during the Clinton Administration surpluses. The national ‘debt’ has never gone down since President Nixon severed the final link between the US dollar and gold (when closing the gold window for good) in 1971. The last time the national debt went down was in 1957; and that’s why tons of anti-central bank loons love to say that the Clinton surpluses ‘were a myth’—because they too are also misinterpreting and confusing a dollar drain (collecting taxes / running a surplus) with a dollar destruction (collecting taxes / running a surplus / PLUS paying off debt).

Paying federal taxes is just a series of dollar drains. Draining from one person (from the money supply), to the Treasury Daily Statement account at the Fed (not the money supply), and then right back to another person (back into the money supply).

Think about a circle, call that circle ‘the money supply circulation’; and then picture that circle is inside another bigger circle called ‘the entire banking system’. Paying federal taxes is only a dollar drain to and from the money supply circle (but still within the banking system circle). Since 1958, taxes have never been both a dollar drain PLUS a dollar destruction from the entire banking system:

Scenario #1) Fiscal year ending with a federal-budget surplus but does NOT pay off any Treasury bonds (does NOT lower the national ‘debt’): In this scenario the federal gov’t spent $$$ (dollar add) and collected a bigger amount of $$$ back in taxation (dollar drain). The private sector ended the year in deficit (which equals the amount of the gov’t surplus which is the same amount left unspent—still remaining—in the Daily Treasury Statement account). NOTE: No dollar creation or destruction.

Scenario #2) Fiscal year ending with a federal-budget surplus but also DOES pay off some Treasury bonds (also DOES lower the national ‘debt’): In this scenario the federal gov’t spent $$$ (dollar add) and collected a bigger amount of $$$ back in taxation (dollar drain). The private sector ended the year in deficit (which equals the amount of the gov’t surplus that was then spent on paying off some Treasury bonds—for good—meaning those bonds are not rolled over (the gov’t surplus was also ‘spent’ on lowering some of the national ‘debt’). NOTE: This is dollar destruction.

Scenario #3) Fiscal year ending with a balanced budget: In this scenario the federal gov’t spent $$$ (dollar add) and also collected the EXACT same amount of $$$ in taxation back (dollar drain). The private sector ended the year balanced. NOTE: No dollar creation or destruction.

Scenario #4) Fiscal year ending with a federal-budget deficit which adds newly-created Treasury bonds (which adds to the national ‘debt’): In this scenario, the federal gov’t spent $$$ (dollar add) and collected the exact same amount of $$$ in taxation back (dollar drain). The federal gov’t then spent even more $$$ (dollar add) and collected that exact same amount of $$$ back in Treasury bond sales (dollar drain). The federal gov’t then ALSO issued newly-created bonds, which raises the national ‘debt’, which is a net addition of financial assets (additions of NFAs), going into the banking system. The private sector ended the year in surplus (which equals the amount of the added bonds denominated in dollars). NOTE: This is dollar creation.

Bottom line:

Scenario #1) All of the Clinton Administration surplus years…

Scenario #2) The last time that happened (the last time ‘taxes were a destruction’), was in 1957…

Scenario #3) There were moments when expenditures were exactly equal to receipts during all the Clinton Administration surplus years…

Scenario #4) Every year since 1958…

(Source: TreasuryDirect’s ‘Historical Debt Outstanding—Annual’)

Simply put, the opposite of dollar creation is destruction. Federal gov’t deficit spending is an example of dollar creation, of newly-created Treasury bonds, a net addition of financial assets, denominated in $$$, being added into the banking system. Paying off those Treasury bonds for good is the dollar destruction—and the same goes for the private sector when we destroy any personal debts (when we pay off any ‘bonds’ that we created).

To summarize, We The People paying US federal taxes are dollar drains (are ebbs & flows) out from parts of the banking system, yes; but out from the banking system / out from the entire dollar dominion, no. Those $$$s go out of the banking system (are destroyed) only if INSTEAD of being spent on people provisioning the gov’t, those $$$ are ‘spent’ on paying off bonds—on CANCELLING DEBT. When those $$$s are given to people that are bondholders—that lowers The National ‘Debt’—THAT IS THE DESTRUCTION OF $$$ (the opposite of the creation of $$$).

In other words, dollar creation for both the federal gov’t and the nonfederal gov’t sectors is when the bonds (promises to pay a counter party the money back with interest) are newly-created out of thin air; and dollar destruction is when the bonds are paid off.

It is only a destruction when putting those bonds in the shredder.


Deadly Innocent Misinterpretation #28: “The public debt is nothing more than the $ spent by gov’t that haven’t yet been used to pay taxes, sitting in the economy as cash, as $ in reserve accounts and as securities accounts…It functions as the net money supply.”

Fact: The public debt is nothing more than the $ spent by gov’t that haven’t yet been used to PAY OFF THAT PUBLIC DEBT, sitting in the economy as cash, as $ in reserve accounts and as securities accounts…It functions as the net money supply.

Even the great ones swing and miss sometimes. Every time that Warren Mosler or Stephanie Kelton says the above DIF#28 (and the entire MMT community repeats it), they confuse a dollar ‘drain’ with a dollar ‘destruction’. As explained previously in DIF#27A, there’s a difference between federal taxes that lower the deficit (a drain of $$$ in & out of money-supply circulation) and federal taxes that lower the debt (a destruction of $$$ out from the banking system entirely). In other words, the MMT community is perfectly understanding the creation of Net Financial Assets being added into the banking system (when Treasury bonds are issued); but they aren’t yet grasping the opposite of that creation (when Treasury bonds are paid off). Taxes lower the amount of deficits (lower the amount of Treasury bonds that needs to be issued), but the last time that taxes lowered the debt (paid off existing Treasury bonds) was in 1957—when Congress last approved that a surplus of tax dollars were to be spent paying down the public debt. Counter-intuitive as it may seem, the US National Debt did not go down during the Clinton surplus years. In 2001, after a vigorous debate over how best to use the unanticipated windfall of dollars draining into the Daily Treasury Statement account—where all federal spending is drawn—Congress decided NOT to pay off Treasury bonds (NOT to lower the national debt), but to cut taxes instead. Meaning that ever since 1957, all tax dollars getting collected have only been credited towards federal spending—lowering the amount of annual deficit spending—and NOT used to lower the amount of the cumulative federal debt. So what MMTers should be saying (which makes way more sense) is that the public debt is the $$$ spent into existence by gov’t that haven’t yet been used to pay off that public debt.

In addition to modifying the part in 7DIF to say that the federal gov’t is destroying ‘old’ cash bills, Warren Mosler may consider also modifying “the public debt is nothing more than the $ spent by gov’t that haven’t yet been used to pay taxes” for the same reason: It also doesn’t make sense because paying federal taxes is only a dollar drain and not a ‘net’ change to anything—unless taxes are both draining dollars AND destroying dollars (paying off public debt).

MMTers understand that federal gov’t deficit-spending creates dollars, but MMTers (deadly and innocently) misinterpret federal taxation as destroying dollars—and that’s why they (incorrectly) believe that taxes ‘don’t pay for anything’:

“So please stop accepting the bullshit that your taxes are paying for something – they aren’t. In fact the only time your taxes are paying for something is when the government’s budget is in surplus. Think about it – they are in surplus because they are taxing you MORE than they are spending. You are being overcharged!”—Ric Testori, AIM Network, ‘Hey, it’s not Taxpayers’ Money!’

Anyone that grasps the concept of being overcharged can see the contradiction there. You can’t say to a taxpayer that during a gov’t-budget surplus ‘You Are Being Overcharged’ (You are paying too much for something) while positing that the taxpayer’s taxes Aren’t Paying For Anything.

‘Taxes don’t pay for anything’ is fake ‘political’ economics. The actual econ, the pure MMT insight, is that, operationally, the taxes are NOT NEEDED to pay for anything—not that they don’t at all. Sure, taxes are a ‘destruction’ from one ‘scoreboard’ (taxes are ‘shredded’ out from money supply circulation); but at the very same time, taxes are being credited to another ‘scoreboard’ (taxes are added to the Daily Treasury Statement account where all federal spending is drawn). Furthermore, saying that ‘the public debt is the $ spent by gov’t that hasn’t yet been used to pay taxes’ contradicts MMT’s very own focal point—the Sectoral Balance chart. Which shows, by accounting identity, that as the federal gov’t raises its debt, financial wealth in the private sector rises to the penny. The opposite of that, is that the financial wealth (or ‘our savings’ or the ‘net money supply’ or whatever term you prefer) lowers AS THE GOV’T LOWERS ITS DEBT (and NOT as the gov’t taxes its citizens)—by a simple matter of logic.

Rather than misinterpreting the MMT (or more specifically, rather than confusing the modern monetary theory with the modern monetary formality), MMTers would be well-advised to tune out the dopey ‘taxes don’t pay for anything’ noise (ESPECIALLY during a gov’t shutdown that no ‘keyboard stroke’ can stop).

Federal taxes aren’t a net change in the money supply because dollars collected for federal taxes drain right back into circulation—to the penny—from whence they came (aka ‘surplus spending’). The spending, and the subsequent collection of taxes, is a wash.

In addition, dollars collected for Treasury bond sales also drain right back into circulation (aka ‘deficit spending’). That spending, and the subsequent collection of dollars in bond sales, is also a wash. The creation of the Treasury bond is the net creation of financial assets (is the addition of NFAs). The opposite of the creation is the destruction of the bond. So, rather than thinking that taxes are changing the ‘net money supply’, better to know what actually changes it are the expansions and contractions of leveraging and deleveraging (of creation and destruction).

To be fair, Mr. Mosler says “the public debt is nothing more than the $ spent by gov’t that haven’t yet been used to pay taxes” often because he (correctly) thinks that all economists should consider US Treasury bonds (the federal ‘debt’ held by the public) as being included in the definition of ‘money’.

Everybody considers their private money as being the amount of $$$ that is in both their checking account AND their savings account at their bank (not just the checking account)—so why not do the same thing when talking about our public money? As Mr. Mosler explains in 7DIF, $$$ are sitting in a Fed ‘checking account’ (aka the Fed’s Reserve Account) and also in a Fed ‘savings account’ (aka the Fed’s Securities Account). So why does the federal gov’t only consider the ‘checking account’ as being money and not the ‘savings account’?

“Why do they do that, because back in 1933, the reserve accounts were convertible to gold, and the securities accounts were not.”—Warren Mosler

So my interpretation of what Mr. Mosler is saying, is that, what is called ‘money’ (what is called the ‘money supply’), should include the Securities Account (aka Treasury bonds) and the ‘Net Money Supply’ would be the money supply minus those T-bonds.

That’s a great idea—it’s a superb ‘prescription’. What is considered being the money supply should be updated as per Mr. Mosler’s suggestion because ‘it’s about price, not quantity’. Policymakers should have done this the day that money supply figures became useless information on Wall Street trading floors in the mid 1980s. Which was around the same time Milton Friedman’s ‘Quantity Theory’ of money was debunked—when folks starting grasping that it’s more about the Fed controlling interest rates and less about the Fed controlling the money supply. I vividly remember those days, I was working for a brokerage called RMJ Securities near Wall Street in the mid 80s. As a junior Treasury bond broker, I would get pencils throw at my head if I input bond Bid and Ask prices incorrectly after money supply figures were announced every Thursday morning at 8:30AM sharp. A couple years later, ‘the street’ didn’t care about the money supply figures at all (and I would instead get pencils thrown at me when I entered bad prices on FOMC rate decision days).

Mr. Mosler’s idea could be one of the many steps (desperately needed to be taken) by policymakers to help wean the mainstream off that unnecessary fear of federal ‘debt’. Then everyone could start to relax about all those Treasury bonds—because all they really are, is just the part of the ‘money’ in existence that is earning more interest in the ‘savings account’ than the ‘money’ in the ‘checking account’, that’s all.

The national ‘debt’ is nothing more than the newly-created fiat $$$ spent into the banking system by the gov’t that haven’t yet been used to pay off the outstanding Treasury bonds.

The Net Money Supply (the checking account) is the Gross Money Supply (the checking & the savings account) minus the T-bonds (the savings account) that haven’t been paid off (that haven’t been destroyed).

Said another way, Treasury bonds are just an accounting entry of the $$$ that were deficit spent into existence by the gov’t that haven’t yet ‘net-out’ (that haven’t yet been ‘shredded’).

Thanks for reading and HAPPY NEW YEAR to the 100%,

Pure MMT for the 100%

If you want to know how money works, it helps to know how money trades. Follow MineThis1 and his Real Macro instructors at https://www.facebook.com/InvestingMMT/



Fake MMT: “The national government creates money every time it spends. It never spends your ‘tax dollars’, because ‘tax dollars’ do not exist at the national level.”

Pure MMT: What part of those dollar signs and the word ‘taxes’ on yesterday’s DTS is confusing you?

Fake MMT: “Show me incontrovertible evidence that a dollar, once deleted from a reserve account in the banking system, is the very same dollar that appears in Treasury’s spending account at the central bank afterwards.” 
Pure MMT: Here you go:


FAKE MMT: “Yeah, when the national government taxes, treasury uses a very delicate instrument designed based on quantum mechanics to isolate the photons that make up the number 100 on the computer screen so they cannot escape. Then treasury spends the very same photons by using the rubber mallet to hammer them into some bank’s computer monitor where they appear in someone’s account. This ensures that they are your tax dollars being spent. The government doesn’t need to do this, but it does anyway.” 

PURE MMT: Your last sentence is perfect, you’re getting closer. The pure ‘description’ MMT insight is that, operationally, the federal gov’t DOESN’T NEED taxes to fund spending in its own fiat $$$—not that they don’t at all (because those pesky accounting rules and appropriations laws, albeit unnecessary, still exist). Regarding the rest, that’s funny, but that’s your problem, this is where you and all the fake MMT academics fail, because you are all trying (unsuccessfully) to take basic ACCT 101—to take simple credits & debits to and from the Daily Treasury Statement (the same account where all federal spending is drawn)—and make it into quantum mechanics. 

Do try to understand, whenever there is a gov’t shutdown, it’s ALWAYS for the same reason—because there’s not enough revenues (taxes) to cover (fund) expenditures (surplus spending) so policymakers have to agree on raising the debt limit, meaning give authorization for further deficit spending (the spending that taxes don’t fund); and until then, no keyboard can stop a gov’t shutdown.


FAKE MMT: “Nuh uh, US taxpayers do not fund the US government. The US government funds US taxpayers. All dollars used by the US private sector to pay federal taxes come from the US federal government.”

PURE MMT: Deadly Innocent Misinterpretation #29: Under the Taxpayer Relief Act of 1997, federal taxpayers can pay with a credit card (meaning ALL dollars used by the private sector to pay federal taxes DO NOT necessarily come from federal-gov’t money creation).

The MMT insight is that the order of operations switched. The US government now funds the US taxpayers first and then the US taxpayers fund the US government back. 

As the issuer of dollars, the federal gov’t doesn’t actually have to get those tax dollars—not that it doesn’t get those dollars at all.


FAKE MMT: “Nuh uh, you pay your federal taxes, then your bank account is debited and reserves are deleted from your bank’s reserve account. Deletion means destruction. The reserves exit the banking system for good. The Treasury’s spending account is held at the Fed, it sits outside of the banking system.”

PURE MMT: You started well and then your wheels came off (which is ok, we were all there once). You pay your taxes & your $$$ are debited from your bank account, that’s correct; however, debited means a ‘$ drain’ not a ‘$ destruction’. Only Congress can approve federal creation of $$$ and only Congress can destroy those $$$ (federal taxation has not been a ‘$ destruction’ since before you were born). Taxation only means $$$ exiting money supply circulation (NOT the banking system). 

Treasury’s spending account (the DTS) is held at the Fed, it is outside of money supply circulation, YES; but outside of the banking system (outside of the US dollar dominion), No.


Flustered Fake MMTer to bank teller: Show me incontrovertible evidence that this $20 bill that I just withdrew from the ATM is the very same dollar that I deposited into my account last week. I dare you to do this.

Bank Teller: I won’t.

Fake MMTer: [Leaving bank in a huff] You won’t because you can’t.

Bank Teller to co-worker: They’re so adorable when they’re going through their MMT phase.



The reality (the #WSJ): “There has been at least one beneficiary of trade tariffs: the U.S. Treasury. As of June 30, the U.S. government has collected $63 billion in tariffs over the preceding 12 months, according to the latest Treasury data. What’s more, the tariff bounty is on the rise.”

The fantasies (the #FakeMMTers): ‘Tariffs aren’t the same as federal taxes.’

Wrong…Pull out that Sectoral Balances Chart (you know, the one that you love to wave around when saying ‘Red Ink Black Ink’). US Customs Duties—an import TAX on the nonfederal gov’t (foreign) sector—now on a pace to generate $72 billion annually, are paid to the US Dept of the Treasury, the same place that folks in the nonfederal gov’t (private) sector make their checks payable to when paying their federal taxes.

‘Federal taxes don’t fund spending.’

Wrong…Same as any surplus spending funded by income taxes, for every dollar brought in by these federal taxes, a dollar has been authorized to fund any federal spending on rescue programs for farmers who have been harmed by retaliation from China and other countries. The pure MMT insight is that those tariffs ARE NOT NEEDED for the sovereign issuer doing that spending in its own fiat—not that those tariffs aren’t funding that spending at all.

‘The national debt is nothing more than a historical record of all of the dollars that the government spent into the economy and didn’t tax back that are currently being held in the form of safe U.S. Treasurys. That’s what the national debt is.’

Wrong…Q) Is the national debt ALSO all the dollars that the gov’t spent into the economy and didn’t TARIFF back yet? A) Of course not, because it depends on what the federal gov’t does with those tariffs, with taxes or any money it collects. The national ‘debt’ is the record of all the dollars that the gov’t spent into existence that weren’t yet used to PAY OFF that ‘debt’ (to LOWER the national ‘debt’)—which hasn’t happened since 1957.


The Job Guarantee: A Series of Contradictions

By Charles ‘Kondy’ Kondak

This analysis (it may turn out to be the first of my own series) will be based on the latest Proposal from the Levy Institute (4/18/18) entitled: “Public Service Employment: A Path to Full Employment” (PSE) which is linked below.

Let me begin with a little background. The “Public Service Employment: A Path to Full Employment” is the third re-branding of the Job Guarantee (JG) of which I’m aware. I have seen some formal academic work on it dating back to the mid-90s and beyond, chiefly by Paul Davidson of the University of Tennessee.

The first popularization of a guaranteed Federally funded job I saw was in 2011 during the depths of the Great Recession. It was called the Federal Government as the “Employer of Last Resort (ELR)”. It had a more transitional and temporary flavor to it. The suggested wage for the ELR was a very modest $8/hr in 2011, with some minimal benefits. At $8/hr most would likely have qualified for existing Federal Social Safety Net Programs, like Medicaid. We could have loosened the income restrictions for other Federal programs like food assistance, and increased the amount, but in my opinion we should be doing that anyway.

For a 40hr work week $8/hr amounts to Gross Earnings of $320/wk and would not be a huge threat to the current Unemployment Insurance program as the ELR wage is quite substantially lower than the maximum unemployment benefit in my State ($400/wk).

Actually, this incarnation is quite good and doesn’t come with many of drawbacks of the later more robust Job Guarantee proposal, especially if the temporary nature of the ELR is emphasized. This ELR proposal actually augments the current Social Safety Net, not threaten it. One has to wonder if the author who wrote the proposal, Warren Mosler, had this in mind when outlining his ELR proposal.

The next incarnation was a massive expansion of the ELR. It became known as the Job Guarantee. I won’t get into much detail as the link to the new rebranding of the JG called: “Public Service Employment: A Path to Full Employment (PSE)” report covers it. Briefly though, the JG wage is set at a “living wage” with liberal benefits. A person could stay in the Job Guarantee Program as long as they wanted, selecting from a smorgasbord of jobs at the one stop Employment Office. To quote the Eagles, “You could check in and never leave”. And if you didn’t like your JG assignment or grew tired of it you could select another.

This brings us to the first contradiction of the study. It begins right off the bat with the title: “”Public Service Employment: A Path to Full Employment (PSE)”. I spent almost my entire career working in State Government in Public Service Employment, it’s called a Civil job. Why are we talking about creating a second sub-class of Civil Service Worker with the PSE. A sub-class second rate Civil Servant. Current Civil Servants get little or no respect by some already. Who wants to be a clerk at the DMV? A job funded by Government is a Civil Service job, period!

Anyone hired temporarily or not should be hired into the existing Civil Service System at the current wage scale. That is to say a Civil Engineer hired temporarily should be paid the existing wage scale for that position. The State does have some Temporary CE positions left, but not nearly as many as in the past. Goodness knows my State and the country could use Temporary Civil Engineers working for the Public Purpose. This goes all the way down the Civil Service job skill and pay scale, like teacher aides. Don’t freaking insult Private sector workers Civil Workers with your 15/hr, $600/wk JG job. Which by the way is higher than the maximum Unemployment Benefit in my State. Say Good-bye to the Unemployment Insurance Program so don’t claim the PSE will not replace the current Social Safety Net, but be an add-on.

To think otherwise is living in a fantasy world!

Follow Charles ‘Kondy’ Kondak and his Pure MMT for the 100% co-Admins at https://www.facebook.com/PureMMT/

Source: PUBLIC SERVICE EMPLOYMENT A PATH TO FULL EMPLOYMENThttp://www.levyinstitute.org/pubs/rpr_4_18.pdf?fbclid=IwAR3Zmp2KDI3GxcwDCB-GveQ-zJNJxU0w0a3RnQ9oGfy16jQy0J50iG0qGB8



“The ability of the Job Guarantee as a permanent program to control inflation is often misinterpreted as having no downside to workers. There are serious downsides as I will explain.

In the advent of inflation, without the Job Guarantee people drop from employment to unemployment thereby reducing demand and inflationary pressure, simple enough. With the buffer stock Job Guarantee idea, people will drop from employment to buffer stock employment. Consider the case where the Job Guarantee wage is higher than that of current automatic stabilizers such as unemployment insurance. This means that more people will have to fall into the Job Guarantee buffer stock to achieve the same inflation reduction as currently the case. The results of a Job Guarantee buffer stock results in more workers losing their jobs and suffering a reduction in pay to allow demand to fall the same amount to control inflation. In essence you’ve penalized one group of workers to benefit another.

Is this something I see as a knock on the Job Guarantee? Yes! Of course, and the cry from the #FakeMMT ‘Keystroke To Every Need’ crowd is: ‘You’re saying let some people starve so other people can keep their jobs!’ No, what I propose is bringing the PureMMT for the 100% prescriptive pen. Currently, unemployment and inflation are low—all we have to do is increase the automatic stabilizers now such that they would equal the proposed income from a Job Guarantee. Increasing automatic stabilizers now would add 0 inflationary pressure and then under the Job Guarantee we wouldn’t be issuing $500 billion into the Economy to set up a program that would trigger at least some garbage inflation.”—Charles ‘Kondy’ Kondak



“Recently, I outlined an aggressive series of proposals to reduce hours worked to die-hard members of the Job Guarantee cult as something we could do for workers without pumping $500 billion into the Economy that comes with the risk of at least some inflation. I went with every worker earning 1 hour paid time off for every 8 hours worked, lowering the OT threshold to 35 hrs, and requiring Employers to provide 90 days of paid Family Medical leave.

The JG cultists replied that big business could do it more easily but that would drive out small businesses. Oh, so a guaranteed job at $31K / yr with benefits wouldn’t be even worse in that regard? Then they shifted the ground yammering on about non-profits like Habitat for Humanity as a solution to affordable housing. Don’t they understand how many income based affordable housing units we could build with $500 billion in Govt seed money, we could even outfit the units with state of the art ‘Greener’ technology. No matter how one moves these folks around the chess board they sound like Charlton Heston, ‘You’ll have to pry the JG out of my cold dead hands.’ The JG is an endless loop of ‘capitalism relies on a reserve army of the unemployed to survive’.

Instead, let’s roll up our sleeves, get to work, and actually use the power of Government-directed MMT spending into the Private Sector to produce things that actually make a difference, like affordable housing. Of course, we’ll need a boatload of skilled trades people which we are short of right now (and that inconvenient truth really jolts their reality).”—Charles ‘Kondy’ Kondak



“One has to ask several questions about this Government sponsored Job Guarantee, as outlined in the announcement below. Who is eligible to participate? The 16 million unemployed/underemployed or wherever they conjured up that number Job Guarantee advocates cite? Why only 16 million? How many privately employed workers will resign into the ranks of the Job Guarantee?

Wages for 40% of the workforce are below $15/hr, and the benefit package almost certainly far more spartan. Likely we would see about 50% of the workforce migrate into the Job Guarantee right off the bat, until Private business sorted out the “micro-economic” effects and what it took to lure workers out of the Job Guarantee. That’s around 75 million workers, which makes sense if one considers the current Median Household income is around $62K/year. A two income Household working in the Job Guarantee Full Time puts them at the current Median Income.

Please don’t tell me that will only marginally add to inflation. Proponents of a Job Guarantee say the Private Sector would have to offer better to attract workers. How much better? If a worker can make $15/hr. with liberal benefits picking from a smorgasbord of jobs located in their community how much would it take to lure a worker to be a roofer sweating in the hot sun?

Of course, now I’ll be called a Neo-liberal bastard. There are other prescriptive approaches to lift wages and the living standards for workers without some Employer of first resort Government Job Guarantee where the money would be ‘pried’ out of the Private Sector and leave it intact.”
—Charles ‘Kondy’ Kondak



OVERHEARD: During a discussion on the Libertarians + MMT page on Facebook:

Charles Kondak: Employers are somewhat hesitant to hire the unemployed when labor is plentiful. As labor markets tighten, they begin to become less picky. Using various fiscal levers to foster increased employment can be of great help to stabilize employment levels. Beyond that, use federal funding—at all levels of government (federal, state and municipal)—according to economic conditions; and hire those wanting to be temporarily or permanently hired into the existing Civil Service system at the wage/benefit set by the relevant Civil Service system that would provide a reasonable alternative to involuntary unemployment. Would it not be better for the worker to list a bona-fide Civil Service job on their work history rather than a Job Guarantee ‘job’ (which likely would be viewed as inferior by employers)?

Warren Mosler: Charles Kondak The employed transition buffer stock is a lot more ‘liquid’ than today’s unemployment, which means it functions as a superior price anchor, and likewise the transition job pool can be kept much smaller than the pool of unemployed for any given level of price stability, which is another way of saying that private sector employment can be that much larger. Just saying its a superior price anchor vs unemployment and a lot of the negative ‘externalities’ of unemployment are avoided as well. In a sense, the state has damaged the workers by creating excess unemployed by overly tight fiscal, and a transition job helps repair that damage as it facilitates a return to private sector employment.

Charles Kondak: Civil Servants are already government-paid employees working for the public purpose and hiring ‘excess’ workers into existing civil service systems as needed with federal dollars to get at involuntary unemployment does not require creating a second sub-class of government-paid employee working for the public purpose.



This was also overheard:

“Right now I see approx $3T spent on healthcare and out of that approx $1T is private-sector administration, meaning people who are like, digging one hole and filling in another. What they are doing, the administrative work, is valuable in its context, but the context has no value, that pretty much goes away if we go M4A.”—Warren Mosler, Discussion of Progressive Resource Allocation during a 2017 Real Progressives broadcast, explaining why the implementation of Medicare For All would be a highly deflationary event.

So right there, in Mr. Mosler’s very own words, is yet another problem with a federal Job Guarantee program. By design, the JG does not compete with the private sector (by design the federal program initially spends $500B to create ‘jobs’ that are unproductive and ‘have no value in context’).

Meaning that the same garbage inflation (that caused a $1T increase in medical costs) will also happen with other prices in the economy once a JG (that has people ‘digging one hole and filling in another’), is implemented.

Which will punish the very people who listened to all that MMT pillow talk (that ‘guaranteed’ them job security with a ‘living’ wage and are now stuck in a Job Gulag watching the world go by).

Not to worry though, because when that day comes, the political ‘prescription’ MMTers will whisper more sweet nothings into their ears and ‘solve’ that problem too.



“The proposed MMT Job Guarantee (JG) pays a fixed wage with benefits. The most quoted wage is $15/hr.. All workers in the JG are paid the same in all areas of the country. Aficionados of the JG are fond of comparing it to New Deal style work programs.

The Work Progress Administration (WPA) was the main program that was responsible for building the infrastructure, some of which is still in use today. Job Guarantee advocates will make sure to point that out to prove the overwhelming success of the New Deal 1930s Work Progress Administration. Yes, it did some excellent work in its time and place in history.

Job Guarantee supporters leave out one small detail. The Work Progress Administration (WPA) did not set a fixed Nationwide wage and the wage varied based on skills of the worker. The WPA Division of Employment selected the worker’s placement to WPA projects based on previous experience or training. Worker pay was based on three factors: the region of the country, the degree of urbanization, and the individual’s skill. It varied from $19 per month to $94 per month, with the average wage being about $52.50—$934.00 in present-day terms. The goal was to pay the local prevailing wage. Basically, the Job Guarantee is not like the WPA of yesteryear.”—Charles ‘Kondy’ Kondak

Agreed…To play along with proponents of the $500B federal Job Guarantee program, not only do you have to pretend that these fake ‘jobs’ would be like the WPA, one must also ignore all facts, math & data regarding record-breaking jobs figures (and only see 1930’s depression-era black & white images of *actual* involuntarily unemployed people standing in soup lines).

P.S.S.S.S.S.S.S. “Bad news for MMT’s Job Guarantee: The future is not more working hours, but fewer working hours. People want happy lives. Minimum wage jobs are not the road to happy lives. Working for money is seldom the goal. The real goal is what money can buy. Ask any retired person.”—Rodger Malcolm Mitchell



“The battle rages on between Political Populist MMTers on the merits of a Job Guarantee (JG) as opposed to an Universal Basic Income. Some propose an unholy marriage of the two – the Job Guarantee and a Basic Income. Putting aside the fact that the Economy is in the midst of the longest Job expansion in our history, let’s take a look at the mechanics of each and how each scheme have more in common than each side realizes.

JGers are very fond of saying that an UBI is inflationary and provides no check on inflation should it arise and the JG is far superior in curbing inflation. Really? OK, let’s assume the Job Guarantee (JG) wage and the Universal Basic Income (UBI) stipend are equal. If inflation surfaces consumers begin to cut back on consumption and employment declines. Simple enough.

Under a JG workers fall into “buffer stock” warehouse Employment at a fixed wage as Employment in the Private Sector declines. With an UBI displaced workers lose their Employment Income and fall back on their UBI “fixed benefit” Government stipend. Since the fixed JG wage equals the fixed UBI stipend, inflation would be controlled to the same degree. You guys are arguing about identities.

Of course, I just committed heresy and I am bombarded with links on the JG (like I’ve never seen or given any thought to the 16 reasons) http://neweconomicperspectives.org/…/16-reasons-matt-yglesi…

I get no rebuttal on the Economic analysis from the Political Populist MMTers, only “guru” links, and some goobly-gook about we need a JG, the Green New Deal and the WPA (all of which has been covered here in various other posts). I’m pretty certain at least one or two of the Political Populist MMT gurus have seen it or been notified. Either I’m being dismissed as a crackpot or my Economic argument has at least some teeth in it.

As far as one being more inflationary than the other at the outset of the respective Programs the inflationary impact is larger with a UBI since it is a far larger injection of money into the Economy on the demand side than a JG. The benefit of an UBI is that as one travels up the Income distribution some of it might be saved, the JG has no such meaningful benefit in this area.

The main criticism of the JG faithful of the UBI is that the UBI produces nothing directly. However, the JG is subject to the same criticism, only it’s less obvious (likely because it contains the word JOB). A JG job produces no goods or services that are not currently being offered for consumption by the Private Sector or Public Service Employees beyond some ill defined Public Purpose (this is where the Green New Deal is brought up, like Mr Davis Bacon or the IBEW doesn’t exist). Inflation wise under a JG there is a distinct possibility we’d end up near or at the same place as we would with an UBI, only it might take a bit longer.

I hear the term “one time price adjustment” thrown around a lot. Why would it be a one time adjustment? Public pressure to increase the UBI or the JG wage would be immense. Looking at the JG inflation effect JG experts say the maximum inflation premium of the JG would peak somewhere between .63% to .74% in 2020 and decline over 7 years to around .1%). Of course, Politicians would run around pledging to raise the UBI or the JG wage, promising us the sun, moon and the stars along with it such that Politics almost certainly would add a greater inflation premium to the JG than expert forecasts predict, the same holds true for the UBI.

This would be especially true if the General Public accepts the simplified Political Populist MMT mantra that Federal Government is not constrained by anything except the very inflation which is devastating them. Might the overriding temptation be to print (OK keystroke) money into the teeth of inflation. After all poor people are dying in the street because of the lack of keystrokes that a Monetary Sovereign can create at will. History does indicate that this is more likely than increasing taxes or cutting spending in the face of inflation.

The JG looks back to the political heyday of the 1930s Democratic Party. The UBI is a bit newer. It was born in the backwaters of libertarian free market thought in the 50s and 60s and has seeped more into Republican solutions (Earned Income Tax Credit (EITC) – Negative Income Tax was Milton Friedman’s term). IMO, the EITC is a rather elegant application of the Negative Income Tax). Now I’m a Koch Brother Fascist in the eyes of Political Populist MMTers. I just call it like I see it. It doesn’t mean I vote a certain way.

How about we do something a bit different this time? Increase paid time off, preferably in a way that has Employers pay for it (or at least part of it). If this technological takeover of the Economy really does occur this time making jobs scarcer (one of the big reasons both JGers and UBIers cite for their need) everybody works fewer hours at the remaining jobs, with no loss of pay (balances the scales of work and leisure).

Hell, machines were perceived as a threat to jobs all the way back to the very early 19th Century (Luddites), perhaps further back. I was told by my Elementary School teachers back in the mid-60s that when we got older the biggest “problem” we’d have is how to spend our leisure time, because the robots are coming. I’m still waiting…”—Charles Kondak



“On CNBC (3/1/19) Stephanie Kelton certainly ‘tailored’ the Job Guarantee message to fit the audience. However, her interview finally outlines the true impact of a Job Guarantee on the entire workforce. This is one aspect where the JG benefits one group of workers while penalizing another.

Kelton argues that ‘what MMT would do is actually use full employment to fight inflation’ by giving companies that want to hire a better option. ‘They don’t have to bid wages up trying compete with one another for employed workers. They can hire from this pool, this ready-pool of skilled workers who are employed in public service jobs,’ she adds. That sounds awful neo-liberal to me.

The quote describes wage suppression to benefit Employers anchoring the price of the entire labor force wage scale downwards towards the lower bound of $15/hr. I have said it many times, here and elsewhere, that the JG is one giant Temp Agency that will be used to suppress wages. Now one of the ‘gurus’ says it.

Further, the JG sets up the Government as ‘chief negotiator’ of wage/benefit packages nationwide, and will likely have a chilling effect on the existence of remaining Unions.

Can’t these #FakeMMTists read and understand what she is actually saying. The #FakeMMTist followers are goose-stepping their way back into the 1930s!”— Charles Kondak

Agreed Kondy…they are goose-stepping their way back into the 1930s:

“First they came for the socialists,* and I did not speak out—
Because I was not a socialist.
Then they came for the trade unionists,** and I did not speak out—
Because I was not a trade unionist.
Then they came for the Jews,*** and I did not speak out—
Because I was not a Jew.
Then they came for me and there was no one left to speak for me.”—German Lutheran pastor Martin Niemöller on his opposition of the Nazi Party during the 1930s

*Under the guise of promoting pure MMT, the reason why Professor Mitchell ‘billy-blogged’ that ‘Progressives Are Neoliberals In Disguise’ and called The Greens ‘neoliberals on bikes’ is because he feels that progressives (left-leaning socialists) aren’t Far Left (radical extremist) enough…

**The advocates of a fake ‘job’ guarantee program suggest creating more ‘Public Service Employee’ jobs (like Division of Motor Vehicle positions that are already permanent Civil Service jobs) to achieve utopian ‘full employment’…

***Using the same-old class-warfare tactic in a different bottle, fake MMTers want to pitchfork the rich while insisting that it’s not ‘to pay for anything’ but only because the rich ‘have way too much money’ and that we need to make the rich ‘pay their fair share’ to ‘solve’ wealth inequality.



When I first encountered the Job Guarantee (JG) in 2011 my first response to it was quite favorable. The proposed wage was $8/hour with “some benefits”. I immediately saw that at this wage level many participants in the Job Guarantee (JG) would still qualify for current Social Safety Net Programs and if we adjusted the notoriously low Poverty level definition just a bit from $11,000/year to $16,000/year the rest of the workers in the JG would also be covered. At this level the Job Guarantee would be an add on not a subtraction to current Social Safety Net Programs, not like the current incarnation of the Job Guarantee.

Even with two people working Full-Time in Job Guarantee at $8/hour their combined income would be $32,000/year which was substantially below the Median Household Income in 2011 of $50,054/year. Today, two people working in the JG at $8.00/hour ($32,000/year) would put them just a touch below the Median Household Income of $63,688 in January 2019 . Paying a JG wage of $8.00/hour would become the effective minimum wage which is not a steep increase from $7.25 and should have been done at the time anyway. Of course, some States and Municipalities have since increased the minimum wage above the Federal minimum wage and the Job Guarantee would have to be higher. Basically, the JG wage should track the Minimum wage not set it.

The 2011 version of the JG listed the benefits as getting people used to show up on time, take a shower, learn how to work well with others, and remedial Education. Job Guarantee participants would join the ranks of workers at the bottom of the wage scale and it would be up to them to use these basic work skills to take it from there. Those benefits of a Job Guarantee are enough for me and any “productive” work a bonus, not the goal. The aforementioned benefits of the scaled back 2011 JG would be targeting at the proper portion of the population, those who have dropped out of the workforce, deteriorated into such a state that they have given up, many of whom are functionally illiterate. I could live, even support this type of Job Guarantee as it is clearly a transitional work program targeted at those who could be termed as unemployable.

I still don’t like the Federal Government effectively setting up a one stop Temporary Agency. Setting up a one stop Temp Agency concentrates workers into one place where Employers would have “perfect knowledge” to recruit the person willing to work at the lowest wage above the Job Guarantee wage, but that downside is manageable and very easy to greatly mitigate by increasing Unemployment Insurance benefits upwards when the Economy is doing well, like it is now. For example, in my State the maximum benefit is $400/week, and if we increased the maximum Unemployment Insurance Benefit a bit there would be few if any, higher skilled workers in the JG for Employers to poach as very few, if any, would take such a cut in Income by participating in the JG willing and give up their Unemployment Benefit Income. In this case the Job Guarantee would not compete with current Unemployment Benefits for higher wage more skilled workers. The temptation and very real risk of the elimination of Unemployment Benefits would not exist as with the current $15/hour “living wage” proposal.

The more robust Job Guarantee is something far different. It sets a wage floor and a price anchor. When I heard Professor Randall Wray say the phrase “wage floor and price anchor” coupled with the application of the buffer stock idea from Agricultural Economics I interpreted price anchor to mean a way to suppress and compress the price of labor wages. After all that is what an Agricultural buffer stock does. The concept of the Agricultual buffer stock is If there is a good harvest the Government buys up the “excess” of an agricultural product to keep the price artificially high that allows farmers to stay in business and when there is a bad crop the buffer stock is released to the market to prevent shortages and prices lower than they would have been otherwise. An agricultural buffer stock smooths out the price of commodities. In agricultural Economics it’s a solution to what is called “The Farm Problem”.

A robust Job Guarantee at the proposed wage/benefit package would almost certainty cause Unemployment Insurance to be abolished and higher skilled workers would fall into buffer stock Job Guarantee employment and be able to be poached by Employers at a flatter wage scale than would otherwise be the case (remember the effect on farm prices of an Agricultural buffer stock). Further, why wouldn’t Employers avail themselves of the JG option to find the worker that would accept the lowest wage above the JG wage? For example, might the owner of an apartment building scour the JG for a doorman willing to work for $43,000/year rather than the current $49,000/year.

Proponents of the current Job Guarantee incarnation might be able to bamboozle most people by saying: “No, the phrase price anchor as it concerns the Job Guarantee refers to the price of goods and services in response to inflation”. We here at Pure MMT for the 100% aren’t as stupid as not to ask questions. Why would Employers only hire from the Job Guarantee worker pool when there is inflation? Why would a buffer stock of workers work any different than an Agricultural buffer stock? How does a JG control inflation? I’ll tell you by suppressing/compressing wages.

The Job Guarantee is a wolf in sheeps clothing that shears workers not empowers them, but try to warn brain washed #FakeMMTers. I’ve been accused of using twisted logic quite a few times. They have no knowledge and don’t understand the the true implications of using the Agricultural buffer stock concept in labor markets. They cannot begin the fathom the following quote buried under the flowery language of a JG :

On 3/1/19 on CNBC Professor Stephanie Kelton argued that MMT would use ‘full employment to fight inflation’ by giving companies that want to hire a better option. ‘They don’t have to bid wages up trying compete with one another for employed workers. They can hire from this pool, this ready-pool of skilled workers who are employed in public service jobs.’

Perhaps, the #FakeMMTist are not fake and want to have people to slowly turn to the Government for their sustenance as the Government can print (OK, keystroke) to every basic need. Basic need? Is that like everybody gets a Voltswagen, the Peoples electric car.”— Charles Kondak



“The Federal Job Guarantee cannot be used for large scale Federally funded construction projects of over $2,000 lest it run afoul of prevailing wage Legislation (the Davis/Bacon Act). The MMT political polemic sheep have been sheered by their own words.”—Charles Kondak

AGREED…and that’s why Charles Kondak remains the ‘go-to’ guy for pure MMTers on the Job Guarantee—and not anyone peddling ‘prescription’ MMT (under the guise of promoting ‘description’ MMT). Case in point:

“I think MMT economists would see the ELR [the job guarantee] as providing a superior anchor to prices and as a more effective means of controlling inflation than today’s policy of using unemployment for that purpose.”—Warren Mosler’s response to the Thomas Palley critique of MMT [of the job guarantee]. 

Hmmm…Mr. Mosler (and all MMT ‘academics’ like Stephanie Kelton) keep repeating that ‘anti-Fed’ yarn that plays well with their listeners; however, the facts, math and data doesn’t fit that ‘policy of using unemployment’ narrative.

The Fed’s mandate is price stability and MAXIMUM employment. The Fed is mandated by Congress. Do MMTers regurgitating this ‘evil Fed policy of using unemployment’ think all of Congress is also in on this Fed conspiracy to throw people out of work?

The Fed does not ‘use unemployment’ to ‘control inflation’. The Fed uses adjustments in short-term overnight interest rates to attempt to INFLUENCE inflation. In other words, the Fed is the automatic ‘price’ stabilizer that REACTS (that is counter-cyclical) to incoming inflation readings. It is actually the many moving pieces of a dynamic economy—it is capitalism—that ‘controls’ inflation. So whenever you hear the MMT political polemic say they want to replace ‘the Fed’ from controlling inflation, what they are really saying is that they want to replace capitalism from controlling inflation.

The MMT political polemic sheep are indeed being sheered by their own words (and what the world is now seeing in 2019) is that under their wool was a radical plan to dismantle capitalism and replace it with a Utopian cradle-to-grave neomarxist welfare state. A plan that calls for a society where individuals have their needs met NOT by the person in the mirror, but instead by willingly subordinating themselves more and more to the state.

Meanwhile, outside of the MMT academic lecture halls, a federal job-apprentice guarantee program, that actually solves the nation’s current jobs problem (addressing a skills mismatch so that unemployed Americans can get trained and then get hired at one those record-breaking amounts of available job openings) continues to take shape:



“When the Government as Employer of Last Resort (ELR) ‘for 5 million or 10 million or 1 million low skilled workers’ morphs into a diversified pool of workers of various skill sets (including various ’employability’ / ‘marketability’), then serious implications for the wage structure will arise.

Stephanie Kelton either knowingly or unknowingly outlined the harmful effects of a differentiated pool of workers in buffer stock Employment:

Kelton argues that MMT would use ‘full employment to fight inflation’ by giving companies that want to hire a better option. ‘They don’t have to bid wages up trying compete with one another for employed workers. They can hire from this pool, this ready-pool of skilled workers who are employed in public service jobs,’ she adds. I would call that wage suppression for workers higher up the Employment ladder that keeps wages lower than they would have otherwise been.

Once the Employer of Last Resort wage exceeds Unemployment Benefit payments, then Unemployment Insurance ceases to exist de-facto; thereby swelling the ranks of skilled workers in the Employer of Last Resort Program. The ELR then becomes the Employment Agency of first resort for Employers rather than bid up wages among themselves—just as Kelton points out.

The Employment Buffer Stock—borrowed from Agricultural Economics—begins to fall apart the more varied the work force in buffer stock Employment becomes. Wool is wool, and workers in a Job Guarantee who are above the lowest rung of the wage structure are not.”—Charles Kondak



Pure ‘prescription’ MMT proposal


H/T Charles ‘Kondy’ Kondak

“The Federal Job Guarantee (FJG) is considered by most in the Modern Monetary Theory (MMT) community to be an integral part of MMT. The Federal Job Guarantee is said to provide ‘Price Stability at Full Employment’.

One favorite throwaway line of #FakeMMT is that the Federal Job Guarantee will improve the ‘well-being of all workers’ by providing a wage/benefit floor such that Employers would have to offer better wages to lure workers away from Government Employment.

Some prominent Economists disagree on that effect of a Federal Job Guarantee and argue it will have a dampening effect on wages for workers higher up the Income ladder. One Economist says MMT would use ‘full employment [FJG] to fight inflation’ by giving companies that want to hire a better option:

‘They don’t have to bid wages up trying compete with one another for employed workers. They can hire from this pool, this ready-pool of skilled workers who are employed in public service jobs.’ (MMT Economist Professor Stephanie Kelton).

Based on this statement we’ve established the wage suppression effect of a FJG, at least for skilled workers—with Kelton’s commentary. Two other Economists write:

‘Would the incumbent workers use the decreased threat of unemployment to pursue higher wage demands? That is unlikely. … [T]here might be little perceived difference between unemployment and a JG job for a highly-paid worker, which means that they will still be cautious in making wage demands.’ (MMT Economists Professors L. Randall Wray and William Mitchell).

Who are these highly-paid workers that would still be cautious in making wage demands?

We are not only talking about a highly-paid (higher educated and higher-skilled) worker, but also a highly-paid (but not so higher-educated nor higher-skilled) worker like a doorman in NYC making $49K. To hire a NYC doorman, Employers ‘would not have to bid wages up trying to compete with one another’ according to Kelton; and the employed doorman on Union scale ‘would still be cautious in making wage demands’ according to Wray and Mitchell.

In other words, according to Kelton, the FJG compresses wages towards the FJG wage (rather than having ‘to bid wages up’ an employer simply combs the FJG pool for a person willing to work at $45K as a NYC doorman); and in addition, according to Mitchell/Wray, to at least some degree, the FJG compresses wages immediately above the FJG wage (the NYC doorman making $49K ‘will still be cautious in making wage demands’) as well.

Simply put, there is no other way to describe the effects of a Federal Job Guarantee as alluded to here: Wage suppression further up the Income ladder. The part the macroeconomic role the FJG plays here is more in the interest of price stability and less in the interest of worker well-being. Now I can see how some early MMT advocates broke from the herd based on this issue.

Further, it is also said by #FakeMMT that the Federal Job Guarantee would be ‘Federally Funded but Locally Administered’. Here at this juncture, one group of MMT Economists describe their proposal this way:

‘The PSE [Public Service Employment Program, aka FJG] would be under the jurisdiction of the DOL [Department of Labor], as UI [Unemployment Insurance] is today. Similar to UI, states will participate in the program’s administration. Congress would appropriate funding for the PSE program through the DOL. The DOL budget would fluctuate countercyclically in a manner consistent with hiring anyone who wants work over the course of the business cycle. The DOL would supply the general guidelines for the kinds of projects authorized under the PSE program. Municipalities would conduct assessment surveys, cataloguing community needs and available resources. In consultation with the DOL, states, and municipalities, One-Stop Job Centers (discussed below) create Community Jobs Banks—a repository of work projects and employers that offer employment opportunities.’

Thus, without the flowery language of serving the priorities of the State (sic Public Purpose), it sure does sound like the FJG is marshalling labor.

In conclusion, it is my contention that only with very strong trade unions can the Federal Job Guarantee system be given some consideration but this is certainly not the case in the USA.

Perhaps the beginning point could become changing US Labor Laws that gives workers countervailing power (like in Northern Europe), another possible Pure MMT for the 100% PRESCRIPTIVE proposal? Meaning that unlike the current FJG proposal, this would be a proposal that would be taken seriously by policymakers because it doesn’t need a single deficit-money keystroke.”—Charles Kondak



“The problem the JG aims to solve is that, when labor markets gets too tight, workers’ wage demand can become too excessive, setting off a wage-price spiral. The JG solution to this problem is to use macro policy levers to induce mass layoffs and then funnel those laid off into a minimum wage public jobs program (conventionally known as ‘workfare’). The reason this solution is supposed to work is that the workers who are laid off into the JG program will be desperate to escape that program for better jobs and will therefore bid down the wages of those better jobs.”—Matt Bruenig, 06/16/19



KONDY: “Many advocates of the Job Guarantee are too busy popping champagne corks about who got Federal Reserve Chairman Jerome Powell to say the Phillips Curve the trade-off between employment and inflation and the Non-Accelerating Inflation Rate of Unemployment (NAIRU) is very weak, if the connection even exists, to even think of asking the following question.

Now that the Phillips Curve and the NAIRU have officially been declared dead what remains of the ‘philosophical’ and ‘Macro-Economic’ underpinnings of a Job Guarantee whose primary purpose was to provide for Full Employment with Price Stability?

Advocates of the Job Guarantee maintained that a reserve army of the unemployed was the way inflation was controlled. The Job Guarantee is/was to be used to control inflation through Labor Markets by tempering wage demands and increases by creating a buffer stock of workers employed in it. The Achilles heel of the Job Guarantee always has been the suppression of wages the mechanism by which it prevents inflation by penalizing one group of workers (those that would be getting wage increases) for another as the cost of controlling inflation. The need for a reserve army of the unemployed to anchor inflation is now unnecessary and the theoretical reason of anchoring wages to a fixed wage Job Guarantee buffer stock of the employed has vaporized before their eyes.

Of course, Job Guarantee advocates will come up with another reason for it. They are like gun nuts saying ‘you’ll have to pry it from my cold dead hands.’ They’ll yammer on about the Job Guarantee being a wage floor not understanding the real purpose behind it. The minimum wage is a floor the JG anchors wages to prevent inflation the same as the now defunct Phillips Curve was supposedly doing.”—Charles Kondak

AGREED…Advocates of the Job Guarantee maintained that a ‘reserve army of the unemployed’ was ‘the way inflation was controlled’, yet the Fed just agreed with Rep. Alexandria Ocasio-Cortez that it’s just not so—not anymore. More specifically, Fed Chair Powell testified to Congress last week that “The connection between slack in the economy—the unemployment levels—and inflation was very strong if you go back 50 years, back to the 1960s when we had a very different economy.”

Also agreed that their need to have a FJG ‘to anchor inflation’ is unnecessary—it has vaporized before their eyes with the rest of Powell’s answer to AOC: 

“I think we learned that downward pressure on inflation around the globe and here is stronger than we have thought. One reason why there has been this decoupling of the unemployment and inflation rates is that inflation expectations are so settled…so you don’t see inflation reacting to unemployment the way it has because inflation just seems to be very anchored.”—Chair Jerome H. Powell, Semiannual Monetary Policy Report to the Congress before the Committee on Financial Services, U.S. House of Representatives, Washington, D.C., July 10, 2019

When there’s no inflation and no jobs shortage and no importance whatsoever to NAIRU modeling, you don’t go around saying that right now we need the federal gov’t to spend $500B to anchor ‘inflation’ and create ‘jobs’ and replace NAIRU with ‘NAIBER’ (if you want to be taken seriously).

‘Heads’ (gov’t deficits), the top 5% wins; ‘Tails’ (gov’t surpluses), the 95% loses.

Jim ‘MineThis1’ Boukis: “In an attempt for the Political FAKEMMT Party to promise people free stuff from gov’t for a vote, these ‘academics’ take that 7DIF ‘Gov’t Deficit = Private Surplus’ (or private assets or private savings which all mean the same) and twist it in such a way so as to fool people into believing that we can just print print print, which will stuff us all with savings.

Maybe these economists went to university, jumped through hoops, got a Masters, or even a PhD, but they never understood a damn thing of what they were supposed to learn. For example, I have never once seen any of these PhDs ever forecasting the economy properly other than just to say it is a ‘junk economy’ and something bad will happen eventually. In other words, the typical Useless Information like the Peter Schiff, Max Kieser bullschit.

That is like a fireman not knowing how to put out a fire but telling people how to put out a fire. A very strange bunch of people these MMT ‘scholars’, who were trained to forecast the economy and can’t do it but can tell you something bad will happen or is happening and can offer you the Fix All solution. How can that be? It can’t! Because that’s Twilight zone schitt! A dimension of their imagination where they still confuse their political economics with the actual economics; and peddle their fake ‘prescription’ MMT under the guise of promoting the pure ‘description’ MMT. Then they get all pissed off when exposed for the con artists that they are.

Federal gov’t deficits, if not productive, devalues the currency (like in Venezuela).

The only time printing is valuable is during a crisis which caused fear in the economy and the govt has to step in for a period of time until the economy gets going again. But not forever and the economy has to be strong enough prior to the crisis to be able to afford such deficits. If not, deficits are a problem. Ie Argentina.

If deficits create productivity, then debt to GDP should not be rising, debt to GDP should be falling. If debt to GDP is rising either we are in a crisis or we are stuffing the top 5% with more $ savings with no production.

70% of GDP is consumption, 20% is gov’t and 10% is investment.

Consumption is households spending 100% of income plus credit to produce profit/savings for businesses. Vast majority of those savings end up in asset speculation stocks bonds commodities real estate.

In a perfect economy those profits would be invested back into the functional economy in a feedback loop within the private sector of the sectoral balances (pvt sector = households & businesses) and produce income/savings or income/debt reduction for the 95%. This real wealth would increase GDP, unemployment would be at it’s natural rate 2 to 3%, wages would be growing, deficits would be appropriate to economic growth and no monetary inflation would follow. If anything a strong currency for the 100% would be the problem relative to other currencies and trade would be effected as a result. In other words a rich mans problem that can be easily remedied. This is the goal that MMT and all economists should be striving for. Instead we get incoherent PhDs telling people just PRINT PRINT PRINT, we can all be rich, have free ponies, and vote for us. Laughable voodoo economics.

The FAKETMMT Party fix all ideological solution is that we increase gov’t from 20% of GDP, while shrinking or even removing all the burden of business investment currently at 10% of GDP. This voodoo economic trickery will provide a ‘Neo Liberal’ solution to the top 5% with infinite Profit/savings to businesses. In other words the same old tired trickle down economics flipped on its head to make it seem it’s for the 95%. Trickle up economics. That is why they always appeal to morality and compassion to push this agenda, because it cannot hold its weight with pure economics alone.

Lastly the quote [the Tweet above] is idiotic for the following reasons. Money flows one way with deficits starting from Govt, then private bank $ creation, = Household income/debt, = household dissavings, = profit/savings for Businesses & the Top 5%, = inflation, = higher asset prices like for stocks, bonds, real estate and commodities. Essentially, savings is the graveyard of $$$, never to see the light of day in the functional economy (the 95%). Thus…

Gov’t Deficits = private profit/savings for the top 5%

Now lets run it backwards.

Gov’t Surpluses = private deficits

Just like gov’t deficits only help the top 5%, gov’t surpluses only hurt the 95% (‘Heads’ the top 5% wins; ‘Tails’, the 95% loses). The top 5%, the savers, they have savings. Savings which can be easily moved out of assets denominated in local currency and reinvested into other global investments with more favorable tax benefits (and better prospects for those other currencies). The 95%, the borrowers, they pay taxes, they need tax breaks too, they are worried about their currency too, but they don’t enjoy that luxury, they don’t have a savings cushion because they live paycheck to paycheck relying on income/debt to survive every month.

The results are very clear in the EU in economies such as Greece, Cypress where the 95% got stuck paying for their gov’t surpluses from their € savings and the 5% not only took the 95%’s €, the 5% also sold their own € bonds, converted out of the € currency and bought German bonds…American bonds…etc etc…resulting in a collapsing € economy. Even if these countries could print their own currency and not force govt surpluses as in the case we are talking about now, the massive printing would collapse the value of the currency. Except the top 5%’s savings of course, which would be invested elsewhere prior.

Thus Steven Hail saying yeah Govt surplus = private deficits. Meaning that just like he thinks Gov’t Deficits = Our Savings, he also thinks Gov’t Surplus = Our Deficits, the 100%, equally. That is fallacy too.

The reality is that Gov’t Surpluses = the 95%’s Deficits. The 95%, the borrowers, the one with debt burdens (unlike the 5%) will have to pay off their debt with no excess savings (with no ‘dollar add’ from gov’t deficits). To make matters worse, the foreign sector keeps getting theirs while the 95% fall further behind and then the 95% (unlike the 5%) start getting cut off from credit. Welcome to a collapsing economy thx to MMT.

Why MMT? because MMT is very clear that we must print to inflation. When inflation hits then what? What is the MMT solution? Not an economic solution but rather a political one. Which is, to solve the problem, just do austerity. Meaning raise taxes, run gov’t surpluses and pitch fork the already-fled-out-the-barn-doors top 5%. In short Voodoo Economics. By FAKEMMT logic, Venezuela, Argentina, Egypt, all they have to do is increase taxes, cut & govt spending, pitch fork the none existing top 5% and problems solved. Clearly a laughable, ridiculous economic political assertion.

Richard Feynman hated pseudo-intellectual philosophers trying to do physics. In the same way, I hate pseudo-intellectual philosophers trying to do economics.

We can achieve most if not all economic goals without without a ‘Neo Liberal’ agenda (printing and stuffing the top 5% with endless $ savings). Don’t be fooled by #FAKEMMTERS promising you a world of free stuff under the guise of being a ‘prescription’ MMT agenda.

Keep MMT pure. See it as what it is. The ‘description’ that CAN be used as an economic tool LIKE IT HAS BEEN USED for decades now!”— Jim ‘MineThis1’ Boukis

Thanks for reading,

If you want to know how money works, you need to know how money trades. Follow MINETHIS1 at https://www.facebook.com/InvestingMMT/




(…and Logan’s take on why the ‘prescription’ MMT people keep getting the economy wrong):

Logan Mohtashami: “The yield on the 5-year Treasury note fell below the yield on the 3-year note today [12/03/18] the first yield inversion of this cycle [of this economic expansion]. We are only 15 basis points away from a 2yr/10yr inversion and also another major one [with as much recession-predictive power as the 2yr/10yr] is the 1yr/10yr [or the 3MO /10yr] inversion, but that doesn’t get as much media play.

So this inversion [this inflation-expectation drop—even though it is not an entire full-curve inversion like a 2yr/10yr inversion] is the third signal [out of a total of six recession signals] that has happened so far. Only 3 of my 6 recession flags are up—and we have never once had a recession post 1960 until all 6 are up. So the 3 recession flags that are already up are, #1) the Fed started raising rates, and #2) was when lower unemployment rates reached a certain ratio, and #3) is this inversion.

The other three signals that haven’t happened yet are: #4 Over-Investment like tech in 90s, housing in the 00s and then all those oil rigs [in 2014 that preceded a manufacturing slowdown]. Student debt is NOT over-investment. Average student debt is 9k. That is not over-investment, that is just another ideological extreme-left theory like the extreme-right’s trade deficit theory.

#5 is when Housing Starts fall; and the sixth recession signal, this is the simplest signal, #6 is when Leading Economic Indicators fall. LEI historically fall for 4 – 6 months before recessions.

I am shocked that MMT people with Econ PhDs were calling for a recession while LEI was rising. They just don’t know how to read data. They still don’t realize that understanding actual economics comes from outputs on a much higher level than ideological beliefs and their political economics.

For example, they actually thought that the Labor Force Participation rates were bad, but they were not bad, they looked perfectly normal. They were just reflecting a demographic shift, not people ‘sitting at home because there are no jobs’—or only ‘crappy jobs’.

If these recession bears, using their political economics, only knew how to read data they would understand that people age 23-29 are the biggest labor group right now so 2019 will be the first Prime Age Labor Force growth (25- to 54-year-old) we’ve had since 2007.

So we are on track for continued economic expansion.

Remember that job growth numbers come down due to wage growth inflation and we are still nowhere near that. This year has been the best job creation in my 22 years following the data. We have seen 97 straight months of job growth, the lowest unemployment rates, the lowest civilian labor force unemployment claims, the highest job openings, and our job growth is THREE TIMES more than our population growth.

America has never done this before.

Regarding the Fed, when job creation starts to fall, it’s not because there are no jobs opportunities out there, it’s because of wage growth pressures. That’s what the Fed is seeing, they see full employment, they see wage growth rising, so only until you see wage growth pressures lowering job growth, that’s when (and why) you’ll see the Fed wanting to start hiking more.”—Logan Mohtashami, 2019 Economic & Housing Predictions

Thanks for reading,

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P.S. Also note that there’s a difference between (Monday’s 3yr Treasury note / 5yr Treasury note) “discrete part” yield curve inversion (what spooked the markets Tuesday) and “the most closely watched” yield curve inversion. A 3s/5s inversion is the ‘short-end’ and the ‘belly’ of the curve, but if it’s an inversion of 2s/10s, meaning if it is including the ‘long-end’, then it’s an ‘entire’ yield curve inversion, “thought to be the best predictors of recession.” —FRED, regarding the 10-year Treasury Constant Maturity Minus the 2-year Treasury Constant Maturity