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New Currency Theory (NCT)

Cullen -  You are basically using the MMT line that begins with "The government can always...."  Sure the government can pass laws to do anything constitutional ( or not).  There is a big difference between can and will.

If you don't think our infrastructure is in a dismal state, then we have nothing to talk about - we have a different sense of reality.  But if you do, you must ask yourself, if the government has access to the money needed, why don't they?  They cannot tax to get the money since the tax rate is way too low and riddled with loopholes. Those with the power, the wealthy, have set up the system where increased taxation will not happen for decades.  So  your premise that money can be "accessed at anytime" is only true in theory but not from a practical standpoint.

NCT completely sidesteps that political battle.  Taxes are needed for sure, but not as a prerequisite to fixing the infrastructure.  Under NCT the funds would be provided regardless, with no impact on inflation.  The immense benefits to business with a functioning infrastructure would become evident - attitudes would change.

You're just talking about reallocation. The US govt will spend $7T this year. They could easily reallocate $1T from the military and retarget infrastructure if they wanted to. Or, if they just wanted to run a $1T larger deficit they could. That would be almost the exact same thing as what you're proposing except you're just not paying the interest on bonds.

Again, this doesn't fix anything. I am sorry, but there's no "there" there. It's just confused accounting ideas and myths about how the govt needs to "use the money first" or else the banks get to "use it first". It doesn't even make sense.

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche

"You're just talking about reallocation"  Precisely.  But not reallocation within government but within the economy.  For the government, its not a zero sum game as you portrayed it . If we really need $X trillion for the military, that doesn't preclude $3T for infrastructure.  Its not that the government can't issue bonds, its that, under the current political environment, they won't because of the self-imposed debt ceilling.  Interst on the debt is a big deal because it becomes a tax on the majority that goes to the bondholders not the government (only some of which goes back to the majority).

I didn't mean to imply that "the banks get to use it".   Of course the money that banks print is not spent directly by the banks.  But the banks do get to decide where that money goes. (On the other hand, some of that money passes back to bank shareholders in the form of interest).  Those decisions rarely include infrastructure, for example.

So its not about the accounting of money but the distribution within the economy.  If you want to call coins or sovereign money a liability, that's fine - doesn't change the impact of goverment-created money.

Good debate chaps.
I think the biggest disconnect is that Paul thinks the government gets to spend whatever bank deposits end up in their lap (which isn’t enough in his estimation), while Cullen and I think that congress gets to set spending and borrowing levels as they choose. Maybe the truth in that is somewhere in the middle.

But the question about why policy choices are made is pretty clear, the ability for the government to fund spending is never really the decision maker on spending priorities. The government will tax and borrow enough private bank deposits to pay for all of their current spending needs.

I don't agree at all that the debt ceiling has a significant impact on spending choices. Other than a few confused Tea Party types 7 years ago, the US not defaulting on its debt is bipartisan consensus.

Humans really haven't come up with a better system for allocating resources than capital markets and banks operating in a reasonably open market. Some issues require the government, such as inelastic demand in the health care sector, or environmental policy etc. But for normal goods and services, absolutely nothing has come close in delivering higher standards of living to more people, more of the time, than cashflow-interested funding arrangements. That discipline of not issuing non-performing loans is really good at separating the good ideas from the bad, and most of the history of humans deviating from this structure isn’t a pretty one (at least for the bottom 80%). Maybe the government can do a better job, but I’ve never seen convincing evidence.

Also remember when we talk about banks doing this, it’s really a simplification of a much more complicated capital market that also includes angels, VCs, private equity, and several other non-bank structures. We just call them banks for simplicity. I think its also worth noting that in terms of funding the Europeans are far more dependent on bank funding, while the US has a much larger corporate bond market etc.

Paul, if I was making your argument, I would focus a lot more on China in the last 25 years. Just a hint 🙂


I am confused by your first sentence - I don't "believe the gov gets to spend whatever bank deposits end up in their laps" and I do believe spending, borrowing and taxing are set as the gov chooses.  I don't know anyone who believes the government spends enough to fund infrastructure ( do you?)

When the debt ceiling hit and the government shutdown was threatened, as a Federal worker, all expenditures were halted.  When furloughed due to the failure to lift the debt ceiling, people did not get a paycheck.  while, it may have been temporary, the government defaulted on its obligations.

So my cards are on the table here.  The banking system does a very poor job in terms of providing the funds needed for a thriving healthy society.  Much money is siphoned off to the wealthy at the expense of the rest of us and for non-productive uses.  Money needs to be redistributed, not by trying to expropriate from the wealthy but by appropriating more for the rest of society.  The inflation bugaboo applies to Zimbabwe, not a resource rich country like the US.

Paul, everything you're talking about is just a policy constraint. It has nothing to do with changing the monetary system via NCT. If you eliminated the debt ceiling and had politicians with brains then they'd understand that we can afford to spend more on infrastructure without cutting spending elsewhere and that this won't bankrupt the USA. Instead, we have stupid people in charge so that's what we get. It has nothing at all to do with the way the monetary system is constructed.

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche

Well, almost. The part that is not a policy constraint currently is that banks have the privilege to create money.  If both the government and the private banking industry have that capability, the system would be unworkable.  The government's ability to guage the amount of money needed each year would be compromised and the two money systems would be in competition.

It's important not to lump together the private banking industry with private enterprise and industry in general.  No industry, other than banking has the privilege to create US-backed money - that's not capitalism - its an artifact and holdover from the 18th century and before.

So, in a sense we do have a  policy constraint on government money creation.  Remove that constraint on the government, and, instead impose it upon private money creation.  In that sense I'd admit you are 100% correct.

There is literally nothing stopping the US govt from creating 10T tomorrow except for policy. That’s it. It has nothing to do with banks.

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche

Currently creating $10T would be illegal due to current policy.  It would also be unwise without the mechanism to guage just how much the economy could absorb. There was a bill introduced in 2011 to change that policy but, of course, it never got out of committee.  But as I said, doing that without ending the competing power from the banking industry is unworkable.

What would make it illegal? They would just appropriate $10T of deficit spending and blow through the debt ceiling like they always do and then raise it however much they have to.

You just keep saying things that are wrong! Why do you keep doing this?????

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche