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Some thoughts on money

I’ve struggled for some time to find a way to explain the difference between private bank debt and government-issued cash in a way that avoids the mental traps that years of indoctrination in the “standard” economic ideas led to. My feeling has always been that if it can’t be presented in a crystal-clear manner that works logically and fits real-life evidence–it’s probably wrong. So here goes:

Private bank debt you have to pay back.

You borrow it and you have to give all of it back along with extra in interest that the bank didn’t give you. You can, of course, spend it just like government money, so it creates economic activity and GDP. However, the interest has to come from somewhere else, either from government spending or (more often) some poor schmuck that pays it out of his loan instead. Over time the debt accumulates in the system until it’s soaking up all the gains from the investment. Then the music stops and there are a bunch of schmucks left holding the bag and filing for bankruptcy. Debt that can’t be paid won’t be. And then the GDP that was created is destroyed by the amount of the unpaid debt, one way or another. This is the infamous “business cycle.”

The research by Dr. Steve Keen demonstrates this quite convincingly.

Government money is money you purchase with goods and services.

It is not a loan, and you don’t have to give it back. This is the fundamental difference. By purchasing goods, government gives businesses and individuals new contracts to produce more goods, and businesses then hire to meet the new demand, which then generates more demand. Obviously, a downturn is the best time for large infrastructure projects because idle resources are available and the additional demand increases employment instead of prices.

However, if all resources are already in use, then demanding more will drive prices up. This is what Lyndon Johnson did in the 60’s with the Vietnam war. The economy was already at full capacity, so drafting productive men and buying war materiel reduced production capacity and left a surplus of money floating loose that had no goods to land on. Johnson was unwilling to allow the Fed to raise interest rates to pull the excess money into savings, so prices rose instead.

So what about social supports like welfare and food stamps? Isn’t that just free handouts with printed money?

Nope. Welfare is still government purchasing goods and services from the private sector. It’s simply hiring poor people to do the legwork. And this also illustrates another point. The government does not need the goods and services itself. All goes to private citizens in some manner, either directly such as welfare or indirectly as public goods such as roads and parks. Government spending is moving private resources to the public good (of course, some define war as a public good. This is a political problem.)

So, what about the Fed?

People routinely confuse the bank operations of the Fed with printing money. The Fed doesn’t print money. Congress prints when it spends. The Fed moves money into or out of savings and cash by buying and selling Treasuries, which is an attempt to control the liquidity of the private sector. Treasuries are savings accounts, but they aren’t “borrowing” in any sense that the private sector thinks of it. Since the government is the source of the money, it has no need to borrow it’s own creation. What Treasuries do is induce the public not to spend money on current goods by saving. This way it can tweak productivity rates and moderate demand a bit without adding or subtracting money from the system.

The best way to think about it is to firmly focus on real goods. The part that matters is what is possible in the real economy?

If you have an economy where everybody is already working, all factories are going great guns and everybody is selling what they’re making–and then the government buys more from the private sector–it puts a squeeze on supply. Companies can’t increase production to meet the additional demand. Prices rise.

However, if you have less than full utilization of all your resources those government purchases are welcome contracts to companies, and they simply hire more people to fill the orders because they can. Prices need not rise at all, and generally don’t. Employment and production increase instead.

Now, if you have severe distortions such as a large speculative class manipulating markets, you can have price volatility, even if there is nominally enough money in the economy to match demand. Extreme inequality allows one class to manipulate markets by hoarding product to create artificial shortages, and impoverishes the other classes. They may withhold cash from companies that are trying to produce, which suppresses demand and leads to widespread unemployment and business failure. This has the result of simultaneously reducing overall GDP and widening the income gap. It also leads to speculative bubbles as the vast pools of money charge around looking for investments–which are at the same time disappearing from the lack of liquidity. In that case, you’ve got a political problem, not a monetary one.

Government can discourage such behavior in several ways. It can simply increase the amount of money in the economy by the amount being hoarded: bigger welfare checks, increased social security payments, spend on building projects or other maneuvers which add cash to the accounts of the bottom tiers to close the income gap with the top. By reducing inequality and preventing the drop in demand that would cause businesses to cut production, it becomes more difficult to drive prices up by hoarding, and far less attractive.

This is, obviously disappointing for the manipulators, of course, and they may then want to ditch their hoards and cause prices to fall. At this point, it becomes necessary for government to shift to “deficit cutting” and remove the excess currency. It can raise taxes on the rich (so you don’t introduce inequality), buy up product (reducing supply), or raise interest rates to induce people to save money rather than spend it. During the Great Depression, FDR did all three–and then in 1937 demonstrated the folly of cutting spending in a downturn.

Of course, preventing such severe misallocations of resources altogether is much easier to manage. Tax policy is, again, the best approach. Previous administrations knew this and taxed the biggest piles at very high rates so that they could not disrupt the normal flow of money and transactions through the economy.

So, what happens if the demand for goods is high, and government isn’t spending enough money to support the needed expansion in productivity? This happens when people have accumulated savings (such as during a war when goods weren’t available, but everyone was working,) or if population is increasing faster than the infrastructure needed for expansion, etc. Or, as happened in the last couple decades people had savings in the form of equity in their homes built up over the previous half century, while their ability to spend on current goods fell with falling incomes.

Since the prices of imports were falling because the Chinese government was supplying the cash to companies instead (with near slave labor and other incentives,) supply was high, wages were low, and credit became very attractive. People began borrowing and accumulating debt-service costs. Since the government never picked up the slack over that period, it led to the biggest debt crash in history.

7 thoughts on “Some thoughts on money

  1. Den Blickwinkel ändern, Neues bemerken und Alternativen entdecken
    Eigentlich habe ich ja nichts Neues zu berichten, alles ist bekannt, sollte den studierten
    Fachleuten jedenfalls bekannt sein, das Rad muss nicht neu erfunden werden. Und es dürfte
    einem Normalverbraucher keine Schwierigkeiten bereiten, das alles mit gesundem
    Menschenverstand zu verstehen. Aber seltsam, fast keiner will davon etwas wissen. Ob es
    sich dabei um Linke oder Rechte handelt, um Geldfachleute oder -reformer, um studierte
    Ökonomen oder Gewerkschaftler, man will einfach nicht darüber nachdenken. Und
    veröffentlichen will man so etwas auf keinen Fall.
    Bei Ökonomen und Leuten mit gesundem Menschenverstand sind die Grundsätze von
    Buchhaltung und Bilanzierung unbestritten, ebenso die darauf aufbauende
    volkswirtschaftliche Saldenmechanik. Da gibt es immer zwei per def. gleiche Seiten wie Soll
    und Haben, Einnahmen und Ausgaben, Geldvermögen und Geldschulden (wie immer
    abgegrenzt), Exporte und Importe global, die sich immer zu Null addieren. Wenn man die
    Ausgaben an einer Stelle um einen bestimmten Betrag kürzt, dann sinken die Einnahmen an
    anderer Stelle um mindestens denselben Betrag, wenn alle Geldschulden getilgt werden, dann
    gibt es auch keine Geldvermögen mehr, und die Wirtschaft ist kollabiert. In der öffentlichen
    und veröffentlichten Diskussion scheint man solche Banalitäten verdrängt zu haben.
    Bei Ökonomen, jedenfalls solchen ohne ideologische Scheuklappen, gibt es auch keinen
    Streit darüber, dass Wirtschaft nur dann funktionieren kann, wenn alle wirtschaftlich
    relevanten Angelegenheiten gesetzlich geregelt sind (Eigentum, Verträge, Umwelt,
    Geldwesen etc). Und diese gesetzlichen Regelungen werden von Politikern gemacht und
    durchgesetzt. Wenn eine solche gesetzliche Regelung ihren Zweck nicht erfüllt, nicht
    zielführend ist, dann wird ein verantwortungsvoller Politiker sie modifizieren oder kassieren
    und durch ein besseres Gesetz ersetzen. Nebenbei bemerkt: Politiker können und dürfen sich
    nicht wie Theologen oder Juristen verhalten, die Gesetze auslegen und nur für deren
    Einhaltung Sorge tragen, Politiker haben eben diese Gesetze zu verfassen, zu gestalten unter
    dem Gesichtspunkt, dass sie der Wohlfahrt und Nachhaltigkeit der Gesellschaft dienen.
    Oberste Gerichte müssen Politiker von Zeit zu Zeit an diese Pflichten erinnern, sie in
    wichtigen Fällen dazu auffordern, notwendige gesetzliche Regelungen zu beschließen.
    Dieses Primat der Politik wird von allen Politikern in Sonntagsreden beschworen, es wäre zu
    wünschen, dass es auch im Alltag gilt. Jedenfalls sollte der mündige Wahlbürger den
    Politikern nicht erlauben, dass sie sich aus der Verantwortung stehlen, indem sie sich auf
    Sachzwänge berufen. Bei solcher Betrachtung der Lage kann es echte Sachzwänge nämlich
    gar nicht geben.
    Nach der Aufgabe des Goldstandards wurde von Ökonomen zur Kenntnis genommen, dass es
    weltweit nur noch fiat money gibt, dass sich die staatliche Theorie des Geldes in der Realität
    durchgesetzt hat, nach der Geld ein staatliches Konstrukt ohne eigenen Wert ist. Diese
    staatliche Theorie des Geldes (Chartalismus) wurde von Modern Monetary Theory unter
    Einbeziehung der Einsichten von Keynes, Lerner, Minsky u.a. weiterentwickelt und mit dem
    Konzept von Jobgarantie verbunden. MMT kam dabei schlüssig und logisch einwandfrei zu
    der Feststellung: Ein souveräner Staat mit eigener Währung hat bei der Finanzierung seiner
    Ausgaben und Aufgaben keine Schwierigkeiten, wenn er sich nicht in fremder Währung
    verschuldet; als Herausgeber der eigenen Währung durch die staatliche Institution
    Zentralbank ist er im Prinzip nicht auf Einnahmen durch Steuern, Abgaben oder Anleihen
    angewiesen, diese dienen vielmehr politischen Zielen wie der Korrektur von
    Marktergebnissen, der Verhinderung von Inflation usw. Wenn nun ein solcher Staat zwecks
    Bezahlung seiner Ausgaben sein eigenes Geld direkt in den Wirtschaftskreislauf einschleust,
    also die Waren und Dienstleistungen bezahlt, die er im Privatsektor (Privathaushalte und
    Unternehmen des Inlandes) durch Aufträge abgefordert hat, dann kann es keine Forderung
    nach Zinszahlung oder Schuldentilgung seitens des Privatsektors oder Auslandes geben, da
    der Staat ja nur bei sich selbst verschuldet ist. In der Realität und Realwirtschaft verwandeln
    sich diese virtuellen Schulden in öffentliches Vermögen (Staatsvermögen), in Infrastruktur im
    weitesten Sinne. Natürlich lassen sich diese fiktiven Schulden rein theoretisch tilgen, wenn
    der Staat dieses öffentliche Vermögen zu Herstellungspreisen an den Privatsektor verkauft
    (privatisiert) und die dabei erzielten Einnahmen an die Zentralbank zwecks Tilgung der
    “Schulden” weiterreicht. Dann fehlt das Geld allerdings im Privatsektor und in der
    Privatwirtschaft mit unabsehbaren Folgen für die Wirtschaft.
    Um es klar und deutlich zu wiederholen: Es muss klar unterschieden werden zwischen dem
    Staatssektor und dem Privatsektor, es muss demzufolge auch ein wenigstens zweistufiges
    Bankensystem geben: die Zentralbank ist als staatliche Institution dem Staatssektor
    zugeordnet, sie schleust Zentralbankgeld durch Auftragsvergabe des Staates in die Wirtschaft,
    dabei ist dieses Geld durch fiktive Schulden gekennzeichnet; im Privatsektor gibt es ein
    zweites Bankensystem, das mit dem Privileg ausgestattet ist, dass es Geld „schöpfen“ darf
    und Kredite vergeben; im Bankensektor wird die ursprüngliche Menge an Zentralbankgeld
    durch Geldschöpfung (Bilanzverlängerung: Forderung = Schulden) vervielfacht
    (Zentralbankgeld macht nur 5 % der Geldmenge aus); dieses im Bankensektor geschöpfte
    Geld ist „Schuldengeld“ (Kreditgeld), dafür müssen Zinsen gezahlt werden, der Kredit muss
    getilgt werden, das ursprüngliche Zentralbankgeld ist Teil der gesamten Geldmenge,
    gewissermaßen als ein Gemeinschaftsgut darin enthalten. Der Banken- und Finanzsektor
    muss sorgfältig reguliert und beaufsichtigt werden . Man kann dabei an ein
    Trennbankensystem denken, an höheres Eigenkapital, Reserve- und Bewertungsvorschriften,
    Finanzprodukte und Derivate müssen genehmigt werden, nichts darf außerhalb der Bilanz
    versteckt werden, Spielbanken mit ihren Wettgeschäften sind nicht systemrelevant, werden
    nicht vom Staat gerettet, man mag über eine Art Bancor nachdenken, um Spekulation gegen
    Währungen einzudämmen, es gibt im Rahmen von Kartellbetrachtung ein“too big to save“
    usw. .
    Eine staatliche Finanzierung, die zu den oben beschriebenen virtuellen Schulden führt, ist
    bislang verboten, weil so etwas starken wirtschaftlichen Interessen widerspricht und in
    diesem Sinne auch gesetzlich geregelt wurde. Eine andere gesetzliche Regelung ist jedoch
    möglich, wenn die Politik das wirklich will, um sich aus der Gefangenschaft durch die
    Finanzmärkte (Tietmeyer) zu befreien. – Diese virtuellen Schulden müssen gedanklich scharf
    unterschieden werden von den Schulden, die ein Staat macht, wenn er Anleihen auflegt und
    diese an den Privatsektor verkauft zwecks Erzielung von Einnahmen; solche staatlichen
    Anleihen werden im Privatsektor gehandelt, dafür müssen Zinsen gezahlt werden, diese
    Schulden müssen auch getilgt werden.
    Angesichts des riesigen Investitionsstaus gerade im öffentlichen Bereich sollte es an der Zeit
    sein, auf diesem Wege (mittels virtueller Schulden) öffentliches Vermögen aufzubauen, zu
    investieren und mit der Manie von Privatisierung aufzuhören, mit dieser Verschleuderung
    des öffentlichen Vermögens. Denn mangels Gewinnaussichten wird ja von den
    Privatunternehmen seit längerer Zeit nicht mehr in die Realwirtschaft investiert (die
    Privatwirtschaft „investiert“ vielmehr in Finanzprodukte, die höhere Rendite versprechen,
    und produziert dadurch „Blasen“), es entsteht also auch da eine zusätzliche Investitionslücke
    und vergrößert diese in der Volkswirtschaft insgesamt.
    Sicher, ein gewöhnungsbedürftiger Denkansatz, aber das ist kein hinreichender Grund, um
    jede Diskussion darüber zu verweigern. Und mir geht es zunächst einmal darum, dass so
    etwas ernsthaft diskutiert wird. In diesem Falle könnte man nämlich dank besserer Diagnose
    die Banken- und Finanzkrise von ihren Ursachen her angehen und sogar lösen. Und das
    ewige Gerede über die Staatsschulden könnte ad acta gelegt werden, weil es schlichter
    Aberglaube ist. Natürlich ist mir auch klar, dass es erhebliche Schwierigkeiten geben wird bei
    der Regelung des Finanzbereichs im Privatsektor, wo es vornehmlich um Privilegien geht und
    deren Verteidigung. Aber vielleicht würde die Finanzkrise dann nicht mehr alle anderen
    Probleme aus den Blickwinkel verdrängen, könnte sich die Politik ernsthaft mit den wirklich
    wichtigen Themen der Nachhaltigkeit beschäftigen. Ich gebe die Hoffnung jedenfalls nicht
    auf, vielleicht ist der Mensch ja kein Irrläufer der Natur, wie A. Koestler meinte, der scheitert,
    weil er seine Lebensgrundlagen vernichtet. Und ich gehe davon aus, dass der Kapitalismus in
    seiner bisherigen Form nicht überlebensfähig ist, dass er aber im Prinzip reformiert werden
    kann; ich maße mir nicht an, vorauszusagen, wie das Ergebnis solcher Reformen aussieht.
    Falls man übrigens an einer gut lesbaren und mit historischen Fakten gespickten Darstellung
    der gegenwärtigen Wirtschaftslage interessiert ist, dann kann ich ohne Vorbehalt empfehlen
    “Der Sieg des Kapitals” von Ulrike Herrmann; ich habe bei der Lektüre eine Menge gelernt.
    Die Lektüre von „23 Lügen, die sie uns über den Kapitalismus erzählen“ von Ha-Joon Chang
    sowie „66 starke Thesen zum Euro, zur Wirtschaftspolitik und zum deutschen Wesen“ von
    Heiner Flassbeck lassen einen grübeln, ob die von den meinungsbildenden Medien
    verbreiteten Wirtschaftsnachrichten so wirklich stimmen können. Natürlich gibt es viele
    weitere kritische Beiträge zu Fragen der Wirtschaftstheorie und Wirtschaftspolitik.
    Und falls man einen logischen oder sachlich-fachlichen Fehler in meiner Argumentation
    entdeckt, dann teile man mir das bitte mit; ich belästige andere nämlich nicht gern mit Unsinn
    . Dabei kann ich „utopisch“, „nicht realisierbar“ und andere Totschlag“argumente“ nicht
    akzeptieren, weil sie nichts mit Logik oder Fachkenntnis zu tun haben.
    PS 1: Financial debt is a debt, but government debt is financial wealth to the private sector
    (jedenfalls bei keiner Auslandsverschuldung in fremder Währung und außenwirtschaftlichem
    Gleichgewicht; R. Wray, einer der Pioniere von MMT).
    PS 2: Den USA gelingt es bislang immer noch, sich auch im Ausland in eigener Währung zu
    verschulden (Export von Dollar gegen Import von Waren und Diensten aus dem Ausland), so
    dass sie keine Schwierigkeiten bei der Zinszahlung haben; die Staatshaushaltsprobleme und
    die Schuldenobergrenze der USA sind hausgemacht; der Gesetzgeber könnte diese
    gesetzliche und finanzielle Selbstfesselung der Politik per Gesetz auflösen, falls Wall Street
    das erlauben würde, was unwahrscheinlich ist. Es müsste ein mindestens zweistufiges
    Bankensystem installiert werden mit der Zentralbank als staatlicher Institution einerseits, dem
    Bankensektor im Privatsektor andererseits, wie von MMT vorgeschlagen.

    • I ran this through google translate, because, well, I don’t speak german..

      Changing the view, notice new things and explore alternatives
      Actually, I have nothing new to report, everything is known, should the studied
      Professionals in any event be known, the wheel does not need to be reinvented. And it may
      a normal consumer will have no difficulty with all healthy
      To understand common sense. But strangely, almost no one wants to know something. whether it
      this is left or rights to money experts or -reformer to studied
      Economists and trade unionists, you do not want to think about it simply. and
      want to publish something in any case.
      When economists and people with common sense are the principles of
      Bookkeeping and accounting undisputed, as is the based thereon
      macroeconomic balances mechanics. Since there are always two per def. same pages as desired
      and credit, income and expenditure, Financial Assets and Financial Liabilities (as always
      delimited), exports and imports globally, which always add up to zero. If the
      Spending cuts at one point by a certain amount, then sink to the revenue
      elsewhere by at least the same amount when all monetary debts are repaid, then
      there are no more financial wealth, and the economy collapsed. In the public
      and published discussion seems to have displaced such banalities.
      For economists, at least those without ideological blinders, there is no
      Dispute about the fact that economy can function only if all economically
      relevant matters are regulated by law (property, contracts, environmental,
      Finance etc). And these statutory provisions are made by politicians and
      enforced. If such legislation does not fulfill its purpose, not
      is purposeful, then a responsible politician will modify or collect them
      and replace it with a better law. By the way, politicians can and should be
      not as theologians or lawyers behave, interpret laws and only for their
      Ensure compliance, politicians have just to write these laws, designed to be
      the point that they serve the welfare and sustainability of society.
      Supreme courts must remind politicians from time to time to these duties, they in
      ask important cases to decide the necessary legislation.
      This primacy of politics is invoked by all politicians in speeches, it would be
      wish that it also applies in everyday life. In any case, the voters should be empowered to
      Not allow politicians that they can evade responsibility by pointing to itself
      Constraints appointed. In consideration of such a position, it can real constraints namely
      not exist.
      After the abandonment of the gold standard was taken by economists note that it
      only fiat money is worldwide, that the State theory of money in the real world
      has prevailed, after the money is a government construct without its own value. this
      State theory of money (Chartalismus) Modern Monetary Theory was of
      Inclusion of the insights of Keynes, Lerner, Minsky, among others developed and with the
      Concept of job guarantee connected. MMT was thereby conclusively and logically properly to
      noting: A sovereign state with its own currency has in the financing of its
      Issues and tasks no trouble if he is not in a foreign currency
      indebted; as editor of the national currency by the state institution
      Central Bank he is not, in principle, to collect taxes, duties or bonds
      instructed to serve political objectives rather as the correction of
      Market outcomes, the prevention of inflation, etc. Now, if such a state for the purpose of
      Payment of his expenses smuggles his own money directly in the economic cycle,
      so the goods and services paid for that he in the private sector (households and
      Company of inland) has necessitated by orders, then it can not claim
      give to interest payment or debt from the private sector or abroad, because
      the state only to himself is to blame yes. Turn into reality and the real economy
      this virtual debt in public assets (Treasury), in infrastructure
      broadest sense. Of course, this fictitious debt can be repaid in theory, if
      the State Treasury sold this at basic prices to the private sector
      (privatized) and the revenue to the central bank in order to eradicate it achieved the
      “Debt” goes further. Then, however, is not enough money in the private sector and in the
      Private sector with incalculable consequences for the economy.
      To put it clearly to repeat: There must be a clear distinction between the
      Government sector and the private sector, it must therefore also be a two-stage least
      Give the banking system: the central bank as a state institution the government sector
      assigned, they discharged central bank money through procurement of the state in the economy,
      it is this money characterized by fictitious debt; in the private sector there is a
      second banking system, which is equipped with the privilege that it “draw” money may
      and loans forgiven; in the banking sector is the original amount of central bank money
      multiplied: by creating money (debt = debt balance extension)
      (Central bank money accounts for only 5% of the amount of money); this scooped in the banking sector
      Money is “debt money” (credit money), this interest must be paid, the credit must
      be redeemed, the original central bank money is part of the total money supply,
      contain certain extent as a common good in it. The banking and financial sector
      must be carefully regulated and supervised. One can think of a
      Steagall think, to greater equity, reserves and valuation rules
      Financial products and derivatives must be approved, nothing is allowed outside the balance sheet
      be hidden, casinos with their betting shops are not relevant to the system, be
      not rescued by the state, one may consider a kind Bancor to speculation against
      Curb currencies, are in the context of cartel viewing a “too big to save”
      etc.
      State financing, leading to the virtual debt described above,
      been banned because it contradicts something strong economic interests and in
      this sense was also regulated by law. Another legal provision is, however,
      possible if the policy really wants to get out of captivity by the
      Financial markets (Tietmeyer) to free. – These virtual debt must mentally sharp
      be distinguished from the debts made by States when he hangs up bonds and
      those sold to the private sector for the purpose of obtaining income therefrom; such a state
      Bonds are traded in the private sector, this interest must be paid, these
      Debt must be repaid.
      Given the huge investment backlog, particularly in the public sector, it should at the time be set up in this way (using virtual debt) public property, to
      invest and stop the mania of privatization, this squandering
      of public assets. For lack of earnings outlook is indeed of the
      Not invested private enterprise for a long time in the real economy (the
      Private sector “investment” rather in financial products that promise higher returns,
      and thereby produce “bubbles”), so it also arises as an additional investment gap
      and this increases in the total economy.
      Sure, getting used to a way of thinking, but that is not sufficient reason to
      any discussion to refuse it. And to me it is first of all to ensure that this
      is something seriously discussed. In this case, you could in fact due to better diagnosis tackle the banking and financial crisis of its causes forth and even solve. and the eternal talk about the national debt could be shelved because it simple
      But faith is. Of course, I am also aware that there will be considerable difficulties in
      the regulation of the financial sector in the private sector, where it is essentially about privileges and their defense. But perhaps the financial crisis would not then all other Displace problems from the point of view, the policy could really seriously with the deal with important issues of sustainability. I do not give up hope at any rate on, maybe the person is not a misdirected nature, such as A. Koestler said, who fails, because he destroyed his livelihood. And I’m assuming that capitalism in
      its current form is not viable, but that it be reformed in principle can; I do not presume me to predict what the result of such reforms looks.

      If you incidentally spiked to a legible and with historical facts representation
      is interested in the current economic climate, I can without reservation recommend
      “The victory of capital” by Ulrike Herrmann; I’ve learned a lot from reading.
      The reading of “23 lies they tell us about capitalism” by Ha-Joon Chang
      and “66 Theses on strong euro, the economic policy and the German character” of
      Heiner Flassbeck leave a brood, whether of the opinion-forming media
      so can really agree common business news. Of course, there are many
      more critical contributions to issues of economic theory and economic policy.
      And if you have a logical or factual-technical error in my reasoning
      discovered, then you let me please with; I do not bother with nonsense like other namely, And I can “utopian”, “not feasible” and other homicide “arguments” not
      accept, because they have nothing to do with logic or expertise.
      PS 1: Financial debt is a debt, but government debt is financial wealth to the private sector (at least for any external debt in foreign currency and foreign economic
      balance; R. Wray, one of the pioneers of MMT).
      PS 2: the United States succeeds in so far still, also abroad in its own currency to
      debt (export of dollars to import goods and services from abroad), so
      that they have no difficulty in interest payments; the state budget problems and
      the debt ceiling of the United States are home-made; the legislature could this
      resolve legal and financial self bondage politics by law, if Wall Street
      would allow, which is unlikely. It takes at least a two-stage
      Banking system will be installed with the Central Bank as a state institution on the one hand, the Banking sector in the private sector on the other hand, as suggested by MMT.

  2. “However, the interest has to come from somewhere else, either from government spending or (more often) some poor schmuck that pays it out of his loan instead.”

    That is where you go wrong. If you spend some time understanding Steve Keen’s work then you’ll note that interest is an different unit to loans. Confusing the two is like confusing miles and miles per hour.

    Interest is paid from turnover. It is simply the portion of wealth generated that pays bankers and it comes from the same place that profit and wages come from – the circulation of money.

    That’s how Steve came up with the stable state model entirely within the private sector.

    There is no difference between bank money and government money. They are the same thing. If people borrow from a bank the circulation pays the wages of the bank clerks covered with interest payments. If the government borrows from the central bank, the circulation pays the wages of the Treasury clerks covered by taxation payments.

    It’s the circulation that matters.

    • The problem here is that the “wealth” that is generated is not in a form the bank will accept. You can’t pay your loan with widgets. Modern banks don’t barter. The interest debt that must be paid can only be paid in “dollars” from a bank, or “dollars” from the central bank. They will not accept anything else.

      So the collapse comes when the amount of dollars available to pay on loans is insufficient to meet the entire debt burden of the economy. There is plenty of real wealth–houses and cars and widgets–that was created *with* the bank debt. What’s missing is the cash to pay the *extra* money they didn’t issue, the interest. It gradually leads to shrinking incomes and demand loss.

      When too many people are no longer able to exchange their wealth for cash to pay their loans, the economy crashes. Of course, at that point, the bank *will* accept your property…sneaky critters, banks.

      And this is what Steve Keen demonstrates with his simulations. It’s not the wealth. If you build a house with your bank loan, your house continues to exist–but if you lose your income, you must liquidate the wealth you built with the loan to pay it back. In aggregate, the money loaned must be supplemented by money that wasn’t loaned in order to satisfy the bank.

      • And Steve’s stable model was predicated on *all* interest being returned to circulation in the form of new loans. It also didn’t include savings, iirc. After he added it in, it deteriorated quickly. It simply isn’t realistic. The math just doesn’t work in anything but the simplest model where there are no losses of currency in any form.

  3. “However, the interest has to come from somewhere else, either from government spending or (more often) some poor schmuck that pays it out of his loan instead.”

    On the contrary, if I borrow and invest in something that makes sense, e.g. a widget making machine that makes widgets that people want to buy and at a price that pays for the interest, there isn’t a problem.

    • Only if you can get the banks to take widgets instead of dollars. Since the bank didn’t issue any extra dollars to give them to pay the interest–they’ll just have to take the widgets, right?

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