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Hi, I just found your article, Modern Monetary Theory (MMT) Critique

“However, after I learned more about the theory, I realized that MMT, much like most other economic theories, has some significant flaws.”

A passing question to begin with, should we be forcing people into a belief system (such as the one we use today which basically says we all must compete to meet our basic human needs) which is based on theories? Are not all the laws which govern our ability to meet our needs based on economic theories?

As for economic theories regarding taxation, government spending etc, in the end, there must be some law which proves exactly what it happening, which if taken to a court would prove one way or another exactly how it works. I am dead serious about this. People are struggling today, not only those who wish to pursue wealth, but even those who have absolutely no interest in wealth at all are being forced into a belief system against their will and having to do something they are not biologically designed to do all because our handling of resources is operating under theories and not actual fact. Maybe many people want it this way, I don’t know, but I would like to consider this whole subject from a legal perspective. In other words, I would like to consider from a legal perspective whether or not a tax-payer/property owner has any legal standing to deny another the right to access to basic human needs on grounds that the latter does not wish to compete nor treat their labours as a commodity to be exploited.

I do not wish to put you in a position where you might think I am asking for legal advice, because I am not. So instead I would like to pose my question this way:

“Would a tax-payer/property owner have any legal standing, and could they so prove in a court of law, that if a member of the community was given complete access to all those needs they would be required to have access to in order not to put them at risk of breaking the law (land, dwelling, clothing, food, utilities, education, health etc) for their whole life, but on the condition they were not allowed to own any of it or treat any of it as a commodity (i.e. the community would own all of it, the person would just act as a custodian), that this would cause the tax-payer/property owner economic loss or otherwise diminish their ability to earn money and/or own property? And if so, on what grounds, or, how would they prove it without theory?”

I would also like to state, I am not against the pursuit of wealth and in fact embrace it as a calling, I embrace it on grounds that it is based on free-will, it motivates great ideas, inventions, and technologies, and it can, if done properly, make the ability to meet basic needs easier and allow people to pursue more meaningful pursuits and callings which are not based on profit. I just do not agree with the concept that we all must pursue it and we all must treat everything as a commodity, and if anything, my research has suggested that the worst thing for capitalism itself is that it is simply over-crowded.

Further, I am dead against socialism for the very reasons that it stifles these very positives I just mentioned, and instead of helping people who are not good at competing, selling, bargaining etc, it turns them into perceived weaklings, sticks them into programs and/or jobs which are soul destroying, and thereby completely cuts off any real possibility of developing any true craft and skills.

I am attempting to prove that the only solution to any economic question which attempts to address poverty, inequality, etc, must have absolutely nothing to do with the redistribution of wealth at all because 100% solvency is in fact mathematically impossible and it never will be possible if we all treat resources as commodities. That poverty exists only because those who are poor are attempting, or being forced, into seeing the treating of human needs as commodities as the only avenue.

My solution is not socialism, communism, but in fact a co-existence of both capitalism and a type of feudalism (and socialism also if we must, I guess those who inevitably fail at capitalism will need something to soften their fall), where the feudalism model is primarily for those who would prefer to act as custodians over the land, dwelling, and all implements they use, and whereby the community as a whole is the owner. These people will be set up with the assistance of the government accessing goods and services from the private sector on their behalf, and whatever surpluses these custodians create is given back to the government and private sector (as an example, if they were set up with solar panels, if they grow food etc). There is a lot more detail to this model (as it would also embrace artists, musicians, scientists, and just about any field of study one would wish to pursue for purposes outside of money), but I can’t explain it in this short manner.

The most probable argument against such a model (and probably why it get’s ignored by most I show it to) is that the tax-payers/property owners will think and assume that the custodians are living off their hard work and are getting nothing in return. It is this which I intent to prove wrong by way of factual evidence instead of theories; although I might add, I firmly believe if you asked a true capitalist (and one who truly understands what the legal definition of wealth is) they would embrace this model on account of the fact that it would reduce the level of competition for wealth thereby reducing the need to treat every possible resource as a commodity. It would be like, if you had 20 people who decide to play a game of monopoly, and then 5 decided right at the beginning, you know what, I’ve changed my mind and don’t want to play, I’m going to go do something else, then all of sudden the other 15 have just had their odds of winning improved.

Of course, many also argue that competition is good because it reduces prices, and although I can not argue with this, there is no evidence which suggests that this is only true if every single member of a community competes.

Anyway, I am now going to read the rest of your piece and see if I can pick up any facts which would stand the test of legal reasoning.

cheers
Dean

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Posted by ANC Driver
Posted on 08/26/2017 1:02 AM
258 views
Private answer

Dean, your model: “is primarily for those who would prefer to act as custodians over the land, dwelling, and all implements they use, and whereby the community as a whole is the owner. These people will be set up with the assistance of the government accessing goods and services from the private sector on their behalf, and whatever surpluses these custodians create is given back to the government and private sector (as an example, if they were set up with solar panels, if they grow food etc).”

I think there is data on this type of life style. A Native American tribe living on a reservation or a commune living on their own territory, surrounded by a capitalist democratic society made up of taxpayer/property owners, would generally fit your model. However, these tribal groups require capable individuals that can work together and enjoy each other’s company.

There will still be homeless, incapacitated, and others mentally incapable of holding or getting a job, that fall into a very troublesome part of our society that is non-productive. Complicating helping these people in need are others that choose to be “non-productive on purpose” in order to gain the “benefits” of the generosity from the society.

If one could select the non-productive from the “non-productive on purpose” and only help them, would that democratic society be wealthier on the whole, or be draining their hard earned funds? I submit that helping the non-productive economically will be a benefit to all since with that directed help they will at least become consumers using less of the society’s funds than they otherwise would consume as beggars, street urchins, imprisoned or crowding hospital emergency rooms.

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Posted by Dennis
Answered on 08/26/2017 8:24 PM
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    Hi Dennis,
    Thanks for taking the time to read my post.

    Regarding the model, what you describe regarding Native Americans or living on reserves is different to what my vision is. My vision sees people operating under this model who exist just like everyone else, i.e your neighbour might be someone operating it, you just wouldn’t know it nor would it be yours or anyone else’s business. I also have spent the last 6 years on this model, trying to ‘disprove’ it, by this I mean, that by employing it the user would cause the tax-payer economic loss or diminish their ability to earn money and own property, and the more I try to disprove it, the more I find I can’t. This is the real question I am trying to answer, and whenever I ask it, I am always met with theories and never hard facts which would stand up in court.

    But if we get into a discussion on what a true definition of productive and non-productive is, it will be obvious that no one will ever agree on what this is. I simply do not accept that the only way to be productive is to sell my labours, unless of course my goal is to own property, then it is the only way to be productive. I agree that the problem regarding those who are “non-productive on purpose” will still exist, but are they still not property wanna-be’s? In other words, if you gave these people a million dollars would they refuse it? The answer is no, and so to me they demonstrate that they envy the rewards of free enterprise but aren’t willing to take the risks involved nor do the work. And so for me, these people need to be put into jobs or some programs. My model is aimed at those who are not envious of the free-enterprise system and have no desire to own property, but who are none the less still productive (in a different sense to what you are describing as productive), and who have skills, talents, strengths which do not fit into the economic model, but which none the less are still beneficial and valuable, they just can’t be measured in money. The problem with our system is that these benefits are not coming out and are being suppressed. Hard work today has nothing to do with toil or labour. I can dig 100 holes in the ground but it aint worth a squirt of goat urine unless I can convince someone they need to buy them from me.

    My brother is an example of someone who spent years living on the street who struggles (due to his biological type) to conform to the discipline which is economic pursuits, but none the less excels in the discipline which is arts and music and also martial arts (and his discipline in these fields far exceeds many in the area of economic discipline). The problem is, from an economic perspective his art and musicianship is not valuable enough – he can’t sell enough of it to make ends meet (nor does he possess the skills to sell), and although he is good at martial arts, he is not good at teaching so this is not an option either. Now all I am suggesting with what I explained previously, is that instead of trying to force him to produce more ‘economic value’, why not reduce the need for him to produce economic value to begin with? We only have to produce economic value because we have economic property which needs maintaining. For example, if you rent or own a house (i.e. the house is owned by the private sector), you must by definition produce economic value to feed the economic property of the house. If you insure all your possessions because you have a lot of them, you will need to produce economic value to protect the economic nature of your possessions. In other words, it is because we pursue economic aims that we must continue to pursue economic aims. If your neighbour does not own the house, the car, the possessions, etc, and instead the community as whole owns it (thus making all of it unalienable) then on what grounds does this same person need to produce economic value? What actually requires feeding in the economic sense? We must remember that governments which release land for non-profit or charitable reasons do not force these organizations to pay taxes or rent because it would cause a conflict of law. Tax exemptions exist for non-profits because of the fact that the non-profit has reduced the need to create economic value because it has reduced the amount of resources requiring economic feeding.

    Anyway, I apologize because I always find when I try to explain my model it inevitably gets misconstrued, and so it creates an issue in trying to get my primary burning question answered.

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    Posted by ANC Driver
    Answered on 08/26/2017 9:56 PM
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      Upon further reflection, I have realized that my question will not get answered because I have tried to explain and justify why I am asking the question to begin with, which means the attention is drawn away from the question and to the ‘why’.

      So with that said, I’d like to offer the question differently:

      Can anyone demonstrate factually, that if a government purchases any resource from the private sector, that this purchase causes economic loss to the tax-payers and/or otherwise diminishes their ability to exercise their earnings capacity?

      Maybe the question can’t be answered because it may pivot on how much resources are in question. I can see that if the government purchased everything that was for sale the economy would probably freeze up, so I will restate the question as thus:

      Can anyone demonstrate factually, that if a government purchases any resource from the private sector, and provided that the total resources in the hands of the private sector always exceeds that in the public sector, that this purchase causes economic loss to the tax-payers and/or otherwise diminishes their ability to exercise their earnings capacity?

      Cheers

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      Posted by ANC Driver
      Answered on 08/27/2017 12:13 AM
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        Upon further reflection, I have realized that my question will not get answered because I have tried to explain and justify why I am asking the question to begin with, which means the attention is drawn away from the question and to the ‘why’.

        So with that said, I’d like to offer the question differently:

        Can anyone demonstrate factually, that if a government purchases any resource from the private sector, that this purchase causes economic loss to the tax-payers and/or otherwise diminishes their ability to exercise their earnings capacity?

        Maybe the question can’t be answered because it may pivot on how much resources are in question. I can see that if the government purchased everything that was for sale the economy would probably freeze up, so I will restate the question as thus:

        Can anyone demonstrate factually, that if a government purchases any resource from the private sector, and provided that the total resources in the hands of the private sector always exceeds that in the public sector, that this purchase causes economic loss to the tax-payers and/or otherwise diminishes their ability to exercise their earnings capacity?

        Cheers

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        Posted by ANC Driver
        Answered on 08/27/2017 12:13 AM
          Private answer

          Yeah, govt buys dirt from you for $1,000,000 a bag. What is the outcome?

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          Cullen Roche Posted by Cullen Roche
          Answered on 08/27/2017 4:50 AM
            Private answer

            If govt buys dirt from you for $1,000,000 a bag, then GDP =+ $1,000,000. Is it called paradox of broken window in economics?

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            Posted by pliu412
            Answered on 08/27/2017 2:24 PM
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              For this, Net Worth =+ $0 assuming dirt is nothing useful in this parable of purchasing dirt.

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              Posted by pliu412
              Answered on 08/27/2017 3:01 PM
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                Well, think about the long term impact. If a govt offered free money for worthless output then it is very likely that actual production declines. This almost certainly creates inflation and destroys the economy.

                Yeah, it’s a silly example, but govt spending is not always good.

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                Cullen Roche Posted by Cullen Roche
                Answered on 08/27/2017 3:03 PM
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                  Cullen,
                  Yes, that’s exactly the point mentioned in this interesting book: Economics in One Lesson by Henry Hazlitt.

                  “The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups

                  https://en.wikipedia.org/wiki/Economics_in_One_Lesson

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                  Posted by pliu412
                  Answered on 08/27/2017 3:19 PM
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                    Hi Cullen,
                    I have just finished reading your 45 page piece on Understanding the Modern Monetary system and Money Realism. That has certainly brought a little more clarity on the subject.

                    Based on what I read in there, the answer to my question would seem to depend on first of all how we measure economic loss, and second of all, for what purpose the govt would spend or otherwise increase domestic money supply.

                    Just to make sure I have this correct, based on what you said:

                    1. All inside money (bank money) only ever comes because someone asked the bank to create a loan (i.e. accept their liability)?
                    2. All taxes are primarily paid in inside money because most of the money is inside money therefore most taxes are the result of privately created debt?
                    3. Therefore what the govt is taxing is primarily our ability to utilize what we created in purchasing power by the mechanism of bank loans?
                    4. When the govt spends, it first spends what it has taxed, and after that, it spends what it raises from bond sales, which is again inside money?

                    If the answer to all these are yes, then the answer to my question regarding economic loss would depend on what purpose the govt spent.

                    For instance, if the govt spent inside money for inside money purposes (for example, upgraded roads to help bring in more investment), then the tax-payer could not say they suffered economic loss because the money spent would really be like an investment, and therefore the govt used inside money to help the economy make more inside money. Correct?

                    If the govt spent the inside money for outside purposes, for example, to erect some statue of a President or something, then although it would create a temporary increase in jobs, it would not have long term benefit for the economy itself and so the tax-payer could have grounds to complain they suffered economic loss. Would you agree with this also?

                    If the govt spent the inside money for welfare purposes, then there is no long term benefit to the tax-payer, only short term benefit in the sense that the welfare recipient will spend this money back into the economy. Correct?

                    So ultimately, because it is inside money which the govt spends, it really should be restricted to those purposes which benefit the tax-payer because it is their money which they took on the risk to create. I would agree with this.

                    Also based on what you said:

                    5. The central bank only creates outside money as reserves, therefore, it never injects inside money into the private system, it only increases the ability for banks to create more inside money?
                    6. The treasury creates notes and coins but only ever swaps them for reserves?
                    7. Therefore the govt never “prints money” although it still can if it wanted to?
                    8. The reason the govt doesn’t just “print money” is because it is inflationary, i.e. it creates an imbalance in money supply vs goods and services produced?
                    9. The central bank only increases the ability for banks to create more inside money as a response to trying to spur more economic growth?

                    I am confused by #5 because I still don’t understand how a govt is not constrained if it’s only way to spend is inside money. How is a central bank creation of ‘reserves’ converted into inside money, if all inside money must come from privately created bank loans?

                    Cheers

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                    Posted by ANC Driver
                    Answered on 08/27/2017 7:17 PM
                      Private answer

                      There’s several major issues with MMT. I’ve listed several below that first come to my head.

                      One of the biggest problems with MMT is the way they look at current account deficits and external debt in relation to fiscal deficits. They just assume government running fiscal deficits expands net saving of private sector when it can just expand current account deficits instead. If you expand fiscal deficits for consumption or for investment, there’s no reason why private sector savings has to rise $1 for $1 with fiscal deficits. Hell, certain things like infrastructure are VERY import intensive.

                      Then, MMT claims current account deficits are good and that persistent current account deficits are healthy. This makes absolutely no sense whatsoever. A persistent current account deficit means rising external debt. External debt is, by definition, a claim on future exports cuz the opportunity cost of payments on external debt are lost out imports (either for consumption or for re-export). Large payments on external debt taking up more and more of the current account deficit are nothing more than a loss of purchasing power. This is not an accounting argument. This is a *real resources* argument.

                      Another error of MMT is that it claims higher fiscal deficits mean less private debt. This is utterly nonsense. Higher fiscal deficits in boom times expand liquidity, which will EXACERBATE bubbles. How does issuing highly liquid assets that get spent immediately on the liability side of government balance sheet, especially if used for consumption, gonna cool down a consumption bubble driven by private sector debt? You’re literally putting in assets for which the private sector can use as money to borrow even more. MMT effectively claims pro-cyclical behavior is anti-cyclical, which’s nonsense.

                      Another issue with MMT is the way in which they deal with currencies. They claim high fiscal deficits and high CA deficits are no problem, but those are both policies which weaken currency strength. Why? High current account deficits necessarily imply a capital account surplus, which means you’re increasing the supply of net USD assets for RoW to have access to. When combining a high CAD with high fiscal deficits, you’re providing a lot of safe liquid net USD assets for RoW to have access to so USD will naturally weaken. A shrinking to small CAD with a relatively small fiscal deficit (or fiscal surplus) yields a stronger USD. A weaker USD is basically equivalent to making American households poorer.

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                      Posted by Suvy Boyina
                      Answered on 08/27/2017 9:58 PM
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                        There’s A LOT of fundamental issues with MMT, but my biggest issue with it is that it makes it seem like we can all take something by using the state as a tool without any cost. That is, from a very essential and fundamental standpoint, economically bogus.

                        The biggest issue we face in the OECD is the lack of productivity growth. Why is productivity growth slow? I have several reasons ranging from demographic reasons (retirees sucking up more resources which have a negative ROI) to excess capacity. What does MMT do to fix any of these problems? Large fiscal deficits, ZIRP, and central bank balance sheet expansion let companies roll over cheap financing to no end and prevent bad companies from going bust. Then, they say we can finance endless benefits for whomever we want with no cost. It is NONSENSE!

                        What MMT does is that it gives a BS rationalization that we can get something for nothing when we cannot do so.

                        “If debt ever becomes a problem, inflation will fix it.”< ----Ignores inflation is a tax and puts downward pressure on currency, which's basically a way of confiscating household wealth. Inflation is a HIGHLY REGRESSIVE tax that hurts the poor and those that behave responsibly. It is not a fun constraint to run up against.Capitalist economies should be deflationary. Hell, all inflation in the US today is being driven by healthcare costs, education costs, and higher housing rents. All of those are rent-seeking. In other words, we're in a macro environment where HIGHER GROWTH IS DEFLATIONARY (ditto with higher productivity growth). How do policies seeking to create inflation and currency weakness create higher growth when inflation is driven from rents? It is nonsensical and beyond absurd. What's happening is really a slow confiscation of wealth cuz "equality".Same people who argue for a $15/hr minimum wage are the same ones pushing for more inflation. Inflation is designed to help minimum wage employers and doesn't hurt those who live off indexed pensions (like Social Security). I've had MMTers use Argentina as an example of how a JG can work well. LOLOLOLOL!!! Argentina has >15% inflation. Then, these same people claim to look out for workers. You cannot make this stuff up.

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                        Posted by Suvy Boyina
                        Answered on 08/27/2017 10:16 PM
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                          Hi Suvy,
                          I want it on record that I dont support Mmt or am defending it. In fact I wrote to Randall Wray and asked him if he can prove any of his claims from legal sources and which would hold up in court. He told me to buy his book. Made me question if his real intent is to fix the problem regarding 100% solvency or if its just to make money selling books on something that cant actually be legally proven.

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                          Posted by ANC Driver
                          Answered on 08/27/2017 10:54 PM
                            Private answer

                            ANC,

                            See this piece on where money comes from. It is fairly straight forward:

                            https://www.pragcap.com/where-does-money-come-from/

                            I would add that it really depends on many factors whether govt spending is good or bad. For instance, during a deep deflation like the environment in 2008/9 govt spending on almost anything is good because it has a big multiplier since people aren’t being as productive as they could be. However, in a boom unproductive govt spending induces inflation and can be exacerbated by incentivizing unproductive private sector spending. It really depends and there’s no easy way to quantify the impacts. The system is just too dynamic to establish a simple causation….

                            I think MMT is a fine theory. It has some serious inconsistencies, but it’s an interesting theory to learn and can be quite eye opening. I also think the MMT people are well intentioned. But I think they get too bogged down in politics and theory which leads to all of these inconsistencies.

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                            Cullen Roche Posted by Cullen Roche
                            Answered on 08/27/2017 11:03 PM
                              Private answer

                              Hi Cullen.
                              I read your link. I guess im missing something because in section 4 of that link where it talks about central banks swapping t-bonds for reserves I still cant see how that reserve is then converted into inside money? Have you got anything which explains that process?

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                              Posted by ANC Driver
                              Answered on 08/27/2017 11:52 PM
                                Private answer

                                Reserves don’t really get converted into inside money. The quantity of reserves in the system is set by the Central Bank and banks hold them basically to settle payments. They can trade them among each other, but they can’t get rid of them. The exception is when a customer draws down cash from their inside money account and the bank will actually debit its reserves to pay the Fed for the extra cash needed. So, in this instance you can say that a bank will convert reserves into cash, but cash generally gets deposited back into the banking system so it’s more like outside money is facilitating the temporary use of inside money.

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                                Cullen Roche Posted by Cullen Roche
                                Answered on 08/28/2017 1:18 AM
                                  Private answer

                                  Hi Cullen,
                                  My apologies..I think I’m not explaining myself properly

                                  Let’s say for arguments sake, I own some T-bonds, and the CB says it will do some QE and purchase them from me. Because the CB only pays in ‘reserves’, and because I am not a bank and therefore can’t receive reserves in exchange for my T-bonds, then how is it that I will end up with money in my account?

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                                  Posted by ANC Driver
                                  Answered on 08/28/2017 2:25 AM
                                    Private answer

                                    When a bank buys assets from the non-bank private sector it does so by crediting deposits. So, during QE a bank is buying your bonds and crediting you with deposits and then it is selling those bonds to the Central Bank and being credited with reserves.

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                                    Cullen Roche Posted by Cullen Roche
                                    Answered on 08/28/2017 11:53 AM
                                      Private answer

                                      Ahh, yes, now I got it thanks.

                                      While I was pondering this question it also made me realize that as it takes inside money to buy any t-bond in the first place, then it matters not whether it be the CB or the Treasury which may then buy t-bonds in the future, the source of t-bonds is always inside money.

                                      Would this be correct?

                                      By definition then, this would mean that the CB would never buy t-bonds direct from the Treasury would it?

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                                      Posted by ANC Driver
                                      Answered on 08/28/2017 6:21 PM
                                        Private answer

                                        It’s ok. I found the answer to my question from an official source:

                                        https://www.federalreserve.gov/faqs/money_12851.htm

                                        The Federal Reserve Act specifies that the Federal Reserve may buy and sell Treasury securities only in the “open market.” The Federal Reserve meets this statutory requirement by conducting its purchases and sales of securities chiefly through transactions with a group of major financial firms–so-called primary dealers–that have an established trading relationship with the Federal Reserve Bank of New York (FRBNY)… Conducting transactions in the open market, rather than directly with the Treasury, supports the independence of the central bank in the conduct of monetary policy.

                                        Although it then goes on to say it does this to maintain independence (suggesting this is the reason the statute exists), it would appear to me that it has to do it this way to ensure the source of all govt borrowing will always be inside money. Would you agree?

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                                        Posted by ANC Driver
                                        Answered on 08/28/2017 6:32 PM
                                          Private answer

                                          MMT is tryna sell you BS IMO. That’s why it’s not logically coherent and clearly nonsense when looked at objectively.

                                          Also, I wasn’t tryna say you were pushing the MMT narrative. All I was tryna say was that the MMT narrative is clearly bunk.

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                                          Posted by Suvy Boyina
                                          Answered on 08/28/2017 6:39 PM
                                            Private answer

                                            MMT considers T-bonds as part of the money supply, even though they’re long-dated, but doesn’t consider ABCP as part of the money supply even though it’s a much shorter time frame. There are many contradictions and non-sensical points in MMT.

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                                            Posted by Suvy Boyina
                                            Answered on 08/29/2017 7:08 PM
                                              Private answer

                                              ANC –
                                              Don’t feel bad regarding your confusion over how the current system is structured – it is deliberately designed to be opaque. Since you seem to have an honest sense of curiosity, I’d suggest looking at some sites espousing monetary reform to get a different perspective. This would include the American Monetary Institute, Positive Money, Greens For Monetary Reform, Prof. Joseph Huber.

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                                              Posted by Common Cents
                                              Answered on 08/31/2017 5:31 PM
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                                                Thx Cullen,
                                                My main motivator is not curiosity, it is more legal if you will.

                                                For instance, if a central bank has a legal mandate which says it is required to achieve full employment and/or it is legally prohibited from purchasing bonds direct from the treasury, then both these are in conflict with the common law principle of personal autonomy.

                                                My questions and research (and I have studied and read a lot of economic theories espousing money reform) always comes back to the same question – can any property owner (including those who plan to own property in the future), claim, that if the government bought human needs from the private sector (and I would add here, using outside money and not inside money to purchase these human needs) and distributed to those who do not desire to own property, on the proviso that those who received these needs were not allowed to treat them as commodities (i.e. as property), and that outside money was destroyed when it returned to the govt by way of taxes, then would this cause the property owners economic loss and/or diminish their ability to earn money (in other words, would this prejudice their ability to exercise their own personal autonomy)?

                                                Most economists I ask never want to answer this question. Instead they always argue beliefs regarding what constitutes ‘contributing to society’. However recently (in fact only a few days ago) one economist did actually tell me that the answer is no but did not elaborate on how he came to that conclusion.

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                                                Posted by ANC Driver
                                                Answered on 08/31/2017 10:11 PM
                                                  Private answer

                                                  ANC,

                                                  The question has no clean answer. For instance, does the govt provide a useful good when it taxes us to engage in national defense? This question has no clean answer. You would certainly agree that taxation during WW2 was a necessary good that provided the USA with tremendous good in the long-run by defeating the Nazis. But what about the Iraq war? What was the gain from that? It’s far less clear.

                                                  I think you’re looking for an answer to a question that has no clean answer….

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                                                  Cullen Roche Posted by Cullen Roche
                                                  Answered on 09/01/2017 12:48 PM
                                                    Private answer

                                                    I think your misinterpreting my question. I’m not asking if govt spending creates economic value or economic gain for everyone. Plus, I am using the legal definition of economic loss.

                                                    The legal definition of economic loss is that type of loss that can only be seen on a balance sheet.

                                                    If the govt taxes you, then yes, obviously you suffer economic loss and it’s a provable fact because it can be seen on your balance sheet. But for the purposes of my question; a) my question only relates to govt spending of outside money, and b) my question is restricted to govt spending on only those instances where the spending is directed to non-economic purposes.

                                                    It’s like this. The govt plans to spend $1000, $800 for economic purposes (like building roads etc) and $200 for non-economic purposes. It decides to tax the $800 from tax-payers and with the other $200 it gets the CB to create outside money (but not with QE or OMO – it just creates it with the proviso that it will be destroyed when it comes back in taxes).

                                                    The overall tax-payers balance sheet may look like this:

                                                    Assets / Liabilities
                                                    ———————

                                                    $10000 / $800 (taxes)

                                                    So, for the $800 in taxes, the tax-payer suffered an economic loss, but, they will see the spending as an investment because it is improving roads and therefore distribution channels.

                                                    If the govt also taxed the other $200 from the tax-payer, then not only would they suffer $1000 economic loss, $200 of that would be toward non-productive uses, a double whammy for the tax-payer.

                                                    But, because the govt chooses to create the $200 as outside money instead, and only channels that spending to non-economic purposes, and then destroys it when it comes back as taxes, I am unable to see how this causes an loss on the balance sheet of the tax-payer. If the tax-payer thinks that any type of spending (even if it is outside money) on non-economic purposes is an immoral thing, then that is a different story, but I am only concerned with what shows up on a balance sheet.

                                                    The fact that we have passed laws which forbid the CB from purchasing bonds etc direct from the Treasury obviously highlights that what I am suggesting is factually illegal, but this does not detract from my question, because as everyone always says, laws can be changed.

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                                                    Posted by ANC Driver
                                                    Answered on 09/01/2017 8:18 PM
                                                      Private answer

                                                      Hi ANC Driver

                                                      You didn’t like Cullen’s answer , you want to look at ” economic loss” as it applies to a tax payer balance sheet.

                                                      Well, in your scenario , there is a economic loss to the tax payer balance sheet. It occurs in your scenario when the outside money is collected in tax and destroyed.
                                                      See the balance sheet. The government spends the $200 of outside money in transaction with the tax payers for services rendered by the tax payers, the tax payer does $200 of work for the government and is recompensed with $200, and so the balance sheet shows $200 asset for the tax payer. Then $200 is collected and destroyed. So overall the tax payer balance sheet is denuded by $200.

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                                                      Posted by Dinero
                                                      Answered on 09/03/2017 11:17 AM
                                                        Private answer

                                                        Yes I see your point Dinero.

                                                        did you mean the whole $200 is taxed and destroyed as soon as it is spent by the govt, or do you mean that the tax-payers are taxed at the normal rate (of say 20%) and therefore it would take 5 years before that $200 made its way back to the treasury?

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                                                        Posted by ANC Driver
                                                        Answered on 09/03/2017 6:52 PM
                                                          Private answer

                                                          We’re not seeing this the same way. The govt does not “destroy” outside money when it taxes you. That is an MMT view. When the govt taxes you they take inside money and redistribute it. If they run a deficit then they actually create T-Bonds (which can be considered a form of outside money).

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                                                          Cullen Roche Posted by Cullen Roche
                                                          Answered on 09/06/2017 12:28 PM
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