#monetarily non-sovereign

[rodgermalcolmmitchell]

Gift to Johns Hopkins. Why doesn't the government do this.

We’ll introduce this short article with a few facts:   1. The U.S. federal government has infinitely more dollars than does Michael Bloomberg and the Bloomberg Philanthropies. 2. Unlike state/local taxes, which fund state/local spending, federal taxes do not fund federal spending. The federal government creates new dollars, ad hoc, to fund all its spending. 3. When Bloomberg and/or his…

[mostlysignssomeportents]

How the IMF loan-sharks the global south

When you take out a loan or get a credit card, the headline figure is the “APR” —��the annual percentage rate of interest. But anyone who’s ever borrowed because they were poor and needed money has learned the hard way that APRs are pure fiction.

To get the true APR (what economists politely call the “effective” APR) you have to factor in the fees, penalties and other gotchas that turn reasonable seeming interest rates into perennial, inescapable debt-traps.

Take student debt. During the 2020 presidential campaign, we had a debate about student debt forgiveness, whose opponents frequently cited the “unfairness” of allowing people to “escape their responsibilities.”

https://pluralistic.net/2020/12/04/kawaski-trawick/#strike-debt

In their telling, student debt forgiveness would reward fecklessness, allowing people who got the benefit of an expensive education to duck the costs.

Now, even if you ignore the farcical inflation in university tuition and expenses (for example, the 1000%+ hike in textbooks driven by ed-tech monopolists), that’s still a highly selective account of how student debt works.

Student debt is negotiated from a position of weakness and naiveté, which allows lenders to attack the poorest grads with incredible fees and penalties. “Chris” took out $79k in student loans in 1982. He’s paid back $190k. He still owes $236k.

https://taibbi.substack.com/p/student-loan-horror-stories-borrowed

That’s not the magic of compound interest. It’s the magic of loan-sharking. If you’ve ever used a payday lender (aka a “fintech startup” AKA a “loan shark”), none of this will be the least bit surprising. This form of usury is as old as Christ casting out the money-changers.

The payday lending industry didn’t invent these tactics, but they refined, automated and industrialized them, then they spent millions at Trump hotels and (in a stunning coincidence) all those tactics were blessed by the US finance regulators.

https://www.propublica.org/article/trump-inc-podcast-payday-lenders-spent-1-million-at-a-trump-resort-and-cashed-in

The normalization of loan-sharking sent the entire finance sector into a race to the bottom. America’s largest banks saw their profits soar during the pandemic due to record overdraft and other fees — in other words, collecting fines for being poor.

https://pluralistic.net/2021/04/22/ihor-kolomoisky/#usurers

The sums are jaw-dropping. In 2020, Jpmorganchase made $1.5b on overdraft fees, Bank of America made $1.1b and Wells Fargo made $1.3b. The biggest rake came from the worst months of the pandemic.

https://prospect.org/economy/big-banks-charged-billions-in-overdraft-fees-during-pandemic/

78.3% of all overdraft fees come from just 9.2% of bank customers. At $35 a pop, these fees turn the banks’ overdraft facilities into loans with an “effective APR” of 3,500%.

Three thousand.

Five hundred.

Percent.

These are the cold, bloodless numbers of the debt trap. They conceal a vicious cycle in which those with the least pay the most, a cycled that can’t even be outrun in death.

https://pluralistic.net/2021/05/19/zombie-debt/#damnation

Take a moment to (re)read Molly McGhee’s Paris Review essay from May 2021, “America’s Dead Souls,” about her mother’s death. McGhee’s mom made less than $10k/year and suffered “debilitating depression while caring for aging parents.”

https://www.theparisreview.org/blog/2021/05/17/americas-dead-souls/

Her mother was haunted by two warring clans of ghouls: debt collectors who harassed her through legal and illegal means, and con artists who located her through databases of struggling debtors and tried to sell her predatory consolidation loans.

48 hours after her mother’s death, these blood-suckers switched to harassing McGhee, as she grieved her loss. Unlike her mother, McGhee had the resiliency and wherewithal (a credit card) to hire a lawyer, whose boilerplate letter reduced the debt by 90%, over $250k, poof.

If you can afford a lawyer, your parents’ debts don’t become yours. If you can’t, you enter a cycle of intergenerational poverty, with each generation sinking deeper into debt.

When you have nothing and owe everything, debt collectors know that they have to terrorize you into putting their bills ahead of the others. The cruelty is literally the point — without it, you might pay your rent ahead of your mother’s old credit-card bills.

To quote Umair Haque, “America is the the world’s first poor rich country.” an “advanced economy” where a sizable portion of the population lives in conditions typical of the global south.

https://eand.co/the-worlds-first-poor-rich-country-c411afc68539

Not for nothing. The same tactics that impoverish the vast American underclass also work to keep the world’s poorest countries — rich in resources and talent — poor. The loan shark here is far more powerful than a payday lender or even JP Morgan — it’s the IMF.

A new report from the Center for Economic and Policy Research dissects the way the IMF uses fees and penalties to trap the poorest countries in the world in unbreakable cycles of debt — fees that drive up the IMF’s notional APR to dizzying, usurious heights.

https://cepr.net/wp-content/uploads/2021/09/IMF-Surcharge-Report-2.pdf

Like any predatory loan, these “surcharges” are levied against the countries that have the least ability to repay. They target countries whose debt:GDP ratio passes an arbitrary line. For the poorest IMF debtors, surcharges account for 45% of all non-principle repayment.

These numbers add up. In Egypt, surcharges gobbled up $1.8b between 2019–24 — triple the cost of fully vaccinating the whole country. Small wonder that the world’s 64 poorest countries spend more on external debt payment than they do on their own health care.

In its defense, the IMF offers the same tissue-thin responses that any arm-breaker offers. The claim that penalties and fees are a way to “incentivize” debtor nations not to overborrow, and to seek their credit from the private finance sector.

But these countries are borrowing to pay off their debts — often debts that date back to colonial times, in which the rich (white) world mercilessly looted their resources and fomented destabilizing political divisions.

This undermined domestic resistance to imperialism and allowed kleptocratic, corrupt leaders to thrive — leaders who borrowed heavily to finance vanity projects, corrupt enrichment of domestic elites, and militarized suppression of opposition movements.

All of that was funded by debts, often from the IMF, who tied lending to the dismantling and sell-off of state enterprises, from power to water to sanitation — which is how the world’s poorest get gouged by the world’s richest to drink their own water.

These countries don’t borrow because they want to live outside their means — they borrow because they want to live. They don’t borrow from the IMF because they’re too lazy to ask a multinational bank for credit — they borrow because they can’t get credit elsewhere.

But the IMF has another excuse for this: they claim that the fees they extract allow them to originate more loans, creating a virtuous cycle. But as the report makes clear, this is absurd on its face.

The IMF went into the pandemic boasting about $1 trillion in “firepower” (that’s creepy-cutesey IMFspeak for “cash reserves”). Meanwhile, the annual revenues from these fees is $1b — that’s three orders of magnitude less than that “firepower.”

That means that the IMF could simply give up on these punitive fees, levied against the poorest people in the world, at an annual cost of 0.01% of its reserves. Literally, the cruelty is the point.

The point of all of this? The victims of usury are all in the same boat — in the USA and around the world. The same tactics, the same excuses, the same misery, from Cairo to the Caribbean to Cleveland.

Not all debt is created equal, of course. If you’re Elon Musk or Peter Thiel, you can get sweetheart loans and roll overs that let you avoid almost all taxation through the fiction that you earn no income, even as you amass hundreds of billions.

https://pluralistic.net/2021/06/08/leona-helmsley-was-a-pioneer/#eat-the-rich

And of course, if you’re a government with debts denominated in the currency you issue, it’s not really “debt” at all — the only way the US government can run out of dollars is by ordering its employees not to type more dollars into existence in a central bank spreadsheet.

Indeed, you couldn’t ask for a starker example of the difference between monetarily sovereign nations and postcolonial countries that owe debts in the currencies of their former conquerors. Venezuela can’t spend its way out of US dollar debt by creating bolivars.

Like McGhee’s mother, whose debts turned out to be fictions that disappeared as soon as a professional with credentials and access to the levers of power printed out a boilerplate letter, these countries’ debts are cruel fictions.

The powerful and wealthy can indulge these fictions or ignore them, as they choose. For example, finance-friendly politicians can insist that the “debt ceiling” must not be raised, for political purposes.

When the US declines to do the trivial data-entry that would make the money to pay its sovereign “debts,” the consumption that the money would have funded still takes place — financed not by the democratic state, but rather by a loan-shark.

National financial “prudence” interrupts the normal and benign process of sovereign money-creation, opening space for usury — private borrowing from the vampires and ghouls whose 3,500% APRs are redeemed through terror.

The cruelty is the point.

Image: Sbw01f (modified) https://commons.wikimedia.org/wiki/File:Developed_and_developing_countries.PNG

CC BY: https://creativecommons.org/licenses/by/3.0/deed.en

Image: А. Н. Миронов https://en.wikipedia.org/wiki/File:%D0%98%D0%B7%D0%B3%D0%BD%D0%B0%D0%BD%D0%B8%D0%B5_%D1%82%D0%BE%D1%80%D0%B3%D1%83%D1%8E%D1%89%D0%B8%D1%85_%D0%B8%D0%B7_%D1%85%D1%80%D0%B0%D0%BC%D0%B0._XXI_%D0%B2%D0%B5%D0%BA.jpg

CC BY-SA: https://creativecommons.org/licenses/by-sa/4.0/deed.en

[georgecmatthews]

Post-crisis, the economic and political climate will likely be quite different

The world is changing. Investors can sense it. Pontificators are out, well, pontificating. While very few things are entirely certain, there are dominant threads emerging. The old world of the past decade is drawing to an end (thankfully). The next decade will be dominated by a few powerful secular themes:

A shift from deflationary threats to the resurfacing of inflation

Even more unruly, myopic and volatile international competition (with low collaboration)

A further retreat of liberal, meritocratic capitalism

The recent past (post Global Financial Crisis) was characterized by a financial world with:

low inflation and central banks’ fears of deflation

low (negative) interest rates as central banks employed unconventional tools to address deflationary fears

financial asset price inflation, elevated by such unconventional monetary policy

exacerbating inequality within countries as a result of concentration of asset ownership

weak growth, low bank returns (low asset yields and significant regulatory capital/liquidity burdens)

the failure of interest rates to boost capital formation, but instead an excessive amount of leverage placed on speculative assets (private equity, venture capital) and incentives to leverage corporate balance sheets (buybacks and debt)

capitalism struggles with low interest rates (and a speculative temperament) restraining “creative destruction,”, or players with real competitive advantages in terms of technologies, channels and others, while simultaneously funding “disrupters” with no clear path to profitability, but addicted to growth for growth’s sake

weakness in developing market (ex-China) currencies and economies as imbalances that are both external (volatile commodities, weak global trade) and internal (fiscal and credit) destroy the promises of growth

a significant outperformance of the dollar and US assets versus everything else

This all occurred against the backdrop of a social-political world of:

growing national chauvinism (read “populism”)

heightened sensitivities to inequality and the perception that the “rich are different than us”

an absence of global cooperation on existential issues (trade, immigration/refugees, nuclear proliferation, failed states, climate change, and obviously pandemics)

the retreat of an increasingly bellicose USA leadership

cultural/social civil war issues that distract presidents from delivering historical leadership

growing rivalries among great powers, particularly between the US and China

The new world dawning has been accelerated by this dreaded virus and its economic aftermath.

The new financial world will likely be characterized by:

the return of inflation led by unprecedented fiscal expansion during non-war eras

financial repression (regulation, exchange rates) designed to mitigate pressures

political intervention to address frustrations over “quality of opportunity” in liberal, “meritocratic” capitalism, with a retreat to post-war efforts to repair physical infrastructure and improve the quality of public services such as health care and education

a shift in policy focus from the spear of Quantitative Easing (monetary) to the club of MMT [Modern Monetary Theory] 1(fiscal), including the seductive possibility of universal basic income as a means to address deep frustrations with inequality and the falling real wages of the majority of the population in developed economies

a weaker dollar and a derating of US equities as interest rates (and potentially taxes) rise and corporate deleveraging responds to the bad last experience (illiquidity)

initial confusion over emerging market (EM) equities given fiscal/external frailties (Latam America, Sub-Saharan Africa) in risk-off drawdowns

eventual separation between China and “everything else” in the EM world

what we believe could be a major bull market developing in Chinese equities (and all assets)

This new world will exist against the backdrop of the social-political world characterized by:

the return of the Leviathan2, with a focus on greater equality in the developed world and an unwinding of the 30-40 year of “meritocratic capitalism,” amplified by perceptions of “socialism” for the rich (bailouts, monetary stimulus)

ever more turbulence in global cooperation as fading hegemony turns even more insular

the gap between global “commons” problems (climate, health, weak/failed states, nuclear proliferation) and global willingness and capacity to address these issues rises to a boil

the great power discord between China and the US is irresolvable, remaining an open wound

the European project hits the rocks again, like a failed marriage, over unwillingness to create a common fiscal framework and the inability of Southern European economies to rebalance through necessary devaluation

frustrations build around the US dollar as the reserve currency, while the US Federal Reserve does not have the political support to act responsibly as the lender of last resort in a volatile world of global capital flows and a result of the “weaponization” of the dollar during the Obama and Trump administrations, and its perceived violation of sovereignty by the victims (such as Iran, Russia, China, Turkey and others)

China emerges as THE singular growth engine and an equal with the US

China real growth over the next decade is led by powerful structural reform, improved capital allocation (higher returns, greater productivity) and consistent urbanization (the “hukou” reform seems to have not been appropriately digested by markets this past week3)

China’s currency, the renminbi, appreciates and brings much of Asia into its orbit

Figure 1: Investment themes have shifted drastically throughout past decades

Source: GaveKal, as of 06/30/2019. Investment conclusions for 2020 onwards are made by the blog’s author.

Conclusions to be drawn from these changed conditions

We believe the investment conclusions that can be drawn from these new circumstances are intuitive:

non-dollar assets will likely outperform US dollar assets

China could be the next BIG equity market story. (See Figure 1 for investment themes we believe have characterized recent decades and what could be the key theme over the next 10 years.)

EM economies ex-China will likely muddle through (as they always have done), but winners may have to contend with weak global trade growth and be committed to deep structural reform. (We anticipate Indonesia, Philippines, Peru, and Russia will be the leaders in this.)

The survivors will likely thrive as the economic crisis diminishes competition and presents opportunities for non-organic growth (benefiting companies like Kering, China Lodging, Yum China, Kotak Bank, Novatek).

Definitions

Modern Monetary Theory is a macroeconomic theory that says monetarily sovereign countries like the US are not operationally constrained by revenues when it comes to federal government spending.

Leviathan is a metaphor for state capitalism, or the widespread influence of the government in the economy.

Hukou is a system of household registration used in mainland China. The reforms are designed to allow people to move more freely inside the country. Specifically, on 4/9/2020, China’s Communist Party Central Committee and the State Council published new policy guidelines to further liberalize its economy in terms of land, labor and capital markets.

HOLDINGS DISCLOSURES:

As of 12/31/19, Kering SA, represented 5.09% of Invesco Oppenheimer Developing Market Fund’s Holdings; China Lodging, 0.0 %;  Yum China Holdings, 2.57%; Kotak Mahindra Bank, 2.83%; Novatek, 4.54%; IBM, 0.0%; AT&T, 0.0%; NTT, 0.0%; Bank of Tokyo-Mitsubushi, 0.0%, Industrial Bank of Japan, 0.0%, Microsoft, 0.0%, Exxon Mobil, 0.0%; General Electric, 0.0, NTTDocoMo; 0.0%; Petro China, X.X%; Apple, 0.0%; and Amazon, 0.0%.

As of 12/31/19, Kering SA, represented 0.00% of Invesco Oppenheimer Emerging Markets Innovators Fund’s Holdings; China Lodging, 0.0%;  Yum China Holdings, 3.25 %; Kotak Bank, 0.0%; Novatek, 0.0%; IBM, 0.0%; AT&T, 0.0%; NTT, 0.0%; Bank of Tokyo-Mitsubishi, 0.0%, Industrial Bank of Japan, 0.0%, Microsoft, 0.0%, Exxon Mobil, 0.0%; General Electric, 0.0%, NTTDocoMo; 0.0%; Petro China, 0.0%; Apple, 0.0%; Amazon, 0.0%.

Important information

Blog header image: Joseph Choi/ Stocksy

Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes, regulatory and geopolitical risks. Investments in securities of growth companies may be volatile. Emerging and developing market investments may be especially volatile. Eurozone investments may be subject to volatility and liquidity issues. Investing significantly in a particular region, industry, sector or issuer may increase volatility and risk.

The opinions expressed are those of the author as of April 14, 2020, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial advisor/financial consultant before making any investment decisions. Invesco does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state tax laws are complex and constantly changing. Investors should always consult their own legal or tax professional for information concerning their individual situation. The opinions expressed are those of the authors, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.

Holdings are subject to change and are for illustrative purposes only and should not be construed as buy/sell recommendations.

from Expert Investment Views: Invesco Blog https://www.blog.invesco.us.com/post-crisis-the-economic-and-political-climate-will-likely-be-quite-different/

[artist-tyrant]

Monetarily sovereign government is the monopoly supplier of its currency and can issue currency of any denomination in physical or non-physical forms. As such the government has an unlimited capacity to pay for the things it wishes to purchase and to fulfill promised future payments, and has an unlimited ability to provide funds to the other sectors. Thus, insolvency and bankruptcy of this government is not possible. It can always pay."

Éric Tymoigne and L. Randall Wray, "Modern Money Theory 101: A Reply to Critics" 

[rodgermalcolmmitchell]

Is the cost of the White House unsustainable?

The federal government has more than a thousand departments and agencies, including The White House, the House of Representatives, the Senate, the Supreme Court, the Central Intelligence Agency (CIA), Medicare (CMS), and the Social Security Administration (SSA). Contrary to popular myth, all federal agencies and departments are funded in precisely the same way: Congress votes, and dollars are…

[rodgermalcolmmitchell]

Believe it or not, the government lies to you.

I’m sure you will find this difficult to believe, but the U.S. government lies to you about many things, this time about its finances. The following is from the government Bureau of the Fiscal Service: Executive Summary of the Fiscal Year 2022 Financial Report of the U.S. Government An Unsustainable Fiscal Path An important purpose of this Financial Report is to help citizens understand current…

[rodgermalcolmmitchell]

Dollars exist, but in what form; who created them, and how?

Dollars exist, but in what form; who created them, and how? The uninformed may respond that dollars are pieces of green paper printed by the U.S. Treasury. That answer would be incorrect on every level. Those green pieces of paper are not dollars. Rather they are bearer titles to dollars. They are official recognition that the bearer owns a dollar. These are not dollars. They are bearer titles to…

[rodgermalcolmmitchell]

When a belief is ingrained, no evidence is wanted

It is widely believed, especially among conservatives, that: Federal finances are like state/local government finances, business finances, and personal finances. It makes no difference whether a government is Monetarily Sovereign or monetarily non-sovereign. The “federal debt” is a debt of the federal government. The federal debt is owed by, and will be paid by, taxpayers. The federal debt and…

[rodgermalcolmmitchell]

How you completely can misunderstand Social Security

How you completely can misunderstand Social Security

Twitter: @rodgermitchell; Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell ………………………………………………………………………………………………………………………………………………………………………….. It takes only two things to keep people in chains: The ignorance of the oppressed and the treachery of their leaders.. ………………………………………………………………………………………………………………………………………………………………………………

In the unlikely event you hope to be clueless about Social…

[rodgermalcolmmitchell]

Can there be a "Theory of Everything" in economics?

Can there be a “Theory of Everything” in economics?

Twitter: @rodgermitchell; Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell ………………………………………………………………………………………………………………………………………………………………………….. It takes only two things to keep people in chains: The ignorance of the oppressed and the treachery of their leaders.. ………………………………………………………………………………………………………………………………………………………………………………

The term “Theory of Everything” has been related to physics.

[rodgermalcolmmitchell]

What do you call a lie that is constructed from another lie?

What do you call a lie that is constructed from another lie?

Twitter: @rodgermitchell; Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell ………………………………………………………………………………………………………………………………………………………………………….. It takes only two things to keep people in chains: The ignorance of the oppressed and the treachery of their leaders.. ……………………………………………………………………………………………………………………………………………………………………………… A lie is a lie is a lie. But what do you call a lie about…

[rodgermalcolmmitchell]

What do you call a lie that is constructed of another lie?

What do you call a lie that is constructed of another lie?

Twitter: @rodgermitchell; Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell ………………………………………………………………………………………………………………………………………………………………………….. It takes only two things to keep people in chains: The ignorance of the oppressed and the treachery of their leaders.. ………………………………………………………………………………………………………………………………………………………………………………

A lie is a lie is a lie. But what do you call a lie about…

[rodgermalcolmmitchell]

What do you call a lie that is constructed from another lie?

What do you call a lie that is constructed from another lie?

Twitter: @rodgermitchell; Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell ………………………………………………………………………………………………………………………………………………………………………….. It takes only two things to keep people in chains: The ignorance of the oppressed and the treachery of their leaders.. ……………………………………………………………………………………………………………………………………………………………………………… A lie is a lie is a lie. But what do you call a lie about…

[mostlysignssomeportents]

Where money comes from

Accounting prof and GND cofounder Richard Murphy wrote an astounding thread over the weekend explaining where money comes from and what purpose taxation serves.

https://twitter.com/RichardJMurphy/status/1337737606688333826

He's since published an edited version under the title "Macroeconomics, money and post-Brexit recovery, all in one Twitter thread," saying it "took four hours and 40 years of thinking to write."

https://www.taxresearch.org.uk/Blog/2020/12/12/macroeconomics-money-and-post-brexit-recovery-all-in-one-twitter-thread/

It's a masterclass in the real world of money creation and taxation, beyond simplistic - and ahistorical - stories about money emerging from barter, followed by confiscation of our money by governments.

The reality is obviously that money comes from government spending. That's how money gets into the economy, because only governments are allowed to create money, so all money starts with government spending.

But what is money? Modern money - money over the past 50 years - is "just a promise to pay." When you borrow £1000 from the bank, you promise to pay it back. The bank opens a loan account and credits your savings account £1000 - a promise to give you that money on demand.

"Two promises. Two accounts. And as a result we get new money. That is how all money is created. It is as simple as that. There is no one else’s money involved in this process. The bank does not lend out the money saved with them."

"There are no notes and coin moved from one pile to another pile to back this all up either. There are just two promises. And then there is new money."

Money is a promise. It's easier for some people than others to get money is that their promises are more credible.

If the government wants to borrow money, it can do so very cheaply because its promise to repay that money is very credible. They have their own bank, and they issue their own money. The government can always repay its debts.*

(*Note we're talking about "monetarily sovereign" governments: governments that borrow in a free-floating currency that they themselves issue - not Venezuela, Zimbabwe, pre-crisis Argentina, or eurozone countries)

When the bank loans you money, you make a promise to repay it. When you put money in the bank, it makes a promise to repay you. Governments - whose promises to repay are credible - back banks' promises through deposit insurance (a promise to create more money if needed).

Murphy asks, why do we even need a government in this picture? Why can't we all just make promises to each other and issue IOUs? Because we need a backstop: an entity that creates currency and can always repay any debt.

It's not just the government's ability to issue currency makes its promises better than everyone else's - it's also the ability to tax. Spending creates money, and taxing destroys it.

Tax is not collected *before* the government spends. The government spends money into existence. It doesn't need to tax us before it can spend money. But taxing limits how much money circulates.

If the government creates money without destroying it, eventually there will be too much money in circulation and prices will go up - inflation. Governments aren't households and they don't need balanced books.

A balanced budget (in which the government taxes as much as it spends) leaves no money to circulate. If there's too much money in circulation - if there's an inflation problem - we might want that, but if governments net-remove money every year, the economy collapses.

But how do you know how much money should be taken out or put into the economy? Right now, we control inflation by targeting a certain unemployment rate, AKA the NAIRU (non-accelerating inflation rate of unemployment).

The theory of the NAIRU is that if a certain percentage of your neighbors are unemployed, there's just enough money in circulation. If there was more, someone would offer them a job (and inflation would kick in). If there was less, there's be more people looking for work.

The NAIRU is supposed to be the sweet spot, but for people whose unemployment is deliberately cultivated in order to prevent inflation, it's not sweet at all. These people must be miserable, scared and precarious or we all suffer from inflation.

It's not just unemployed people: all precarious, low-paid work, all withholding of benefits like childcare and healthcare and retirement and eldercare are there in the name of fighting inflation.

Murphy: "There has to be a better way to manage the value of money than this."

There is. A job guarantee: a job at a socially inclusive wage with good benefits - not paid for with taxes, but with new money creation (as with all government spending).

The new money would then be taken out of circulation by taxing the people earning these good wages at the same rate as their non-jobs-guarantee peers. If this created inflation, we could raise taxes to reduce the money supply (not to pay for the program!).

Finally, Murphy asks why governments bother to borrow at all? Why not just use spending and taxation to manage the economy. The answer is that government debt - bonds - aren't borrowing at all.

They're a way for the government to offer a safe interest-bearing savings account for sums that exceed deposit insurance at your local bank. In the USA, the FDIC guarantees up to $250,000 per depositor. If you've got more than that in the bank when it fails, you're screwed.

So if you're a pension fund or a corporation, you can buy treasury bonds and be guaranteed a small rate of return on them - but, more importantly, you can get the government's promise to pay you back, a promise backed by the ability to create money at will.

It's an important point: not only would "eliminating government debt" take all the money out of circulation, it would also eliminate T-bills, the bedrock of all institutional savings.

Murphy closes by explaining what this all means:

Money comes from governments

Banks wouldn't exist without the government's promises to pay

Taxes don't fund government spending

Taxation happens *after* spending, not before

Governments spend their own money, not taxpayers' money

Taxes control inflation, they don't fund programs

Governments borrow because they choose to (in order to create a safe savings account), but they don't need to

Governments need not ever have debt crises; monetarily sovereign governments can always pay debts in the currencies they issue

Governments set interest rates

Interest rates don't control inflation - taxes do

Full employment at fair wages pays for itself

There is no need for austerity

And finally: "By really understanding something as simple as how money is created - and by being aware that it is never in short supply as a result - we can rebuild from the mess that we are in. We can have the sustainable world we want."

Image: Eluveitie https://commons.wikimedia.org/wiki/File:Bank_of_England,_London.JPG

CC BY-SA 3.0: https://creativecommons.org/licenses/by-sa/3.0/deed.en

[rodgermalcolmmitchell]

Sally Yates, American hero. There will be more.

Sally Yates, American hero. There will be more.

Twitter: @rodgermitchell; Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell

…………………………………………………………………………………………………………………………………………………………………………..

It takes only two things to keep people in chains: The ignorance of the oppressed and the treachery of their leaders.

………………………………………………………………………………………………………………………………………….

In the wars to protect the American dream of a righteous, compassionate…

[rodgermalcolmmitchell]

Evaluating lies: Harm vs. benefits

Evaluating lies: Harm vs. benefits

It takes only two things to keep people in chains: The ignorance of the oppressed and the treachery of their leaders. ………………………………………………………………………………………………………………………………………………………………………………

Humans lie.  Even animals lie.

Lies have many advantages. The so-called “white lie” is a social method that is welcome and considered courteous. On many occasions, it would be rude to tell someone the truth. (“Your…