Currency Is An IOU of the Government

[@mcgoombs]

Read Debt the first 5000 years by David Graeber.

[@greattimed]

People say MMT is a fictional cult yet how many people who were firmly entrenched in the establishment coming out and supporting it now?

[@deficitowls5296]

Who are you referring to?

[@paulspring105]

I'm not sure it is very enlightening to claim that referring to the federal debt as misleading since the US Gov't is not a household and then to use a meaningless term, IOU, to fed reserve notes. There is nothing owed and to refer to them as IOU's adds a layer of confusion and obfuscation.

[@deficitowls5296]

There is something owed: the government promises to accept them back to settle payments to the government, such as for taxes. This promise is literally written into the law.

[@deficitowls5296]

Also, from an accounting perspective, it must be true that token money is somebody's liability. Think about it: what is the consolidated net worth of the entire planet? To calculate this, we would obviously sum up all of the real stuff: fridges, cars, homes, factories, computers, farms, etc. But the portions of wealth that exist as claims held against other people cancel out. If I have a claim on you, then you are claimed, and so between us this cancels out to zero. This scales up to the entire planet: all of the financial assets cancel out against the financial liabilities (all the claims cancel out against the claimed) and you are left with just the real assets. If this weren't true, then the government printing money would make humans directly wealthier as a species (as opposed to indirectly through causing humans to produce more real assets), and most people would agree this doesn't make much sense: if money is a token, then it must be intrinsically worthless.

[@PaulLebow]

Thanks for tracking these responses! I do see a serious contradiction and inconsistency in the message which, like it or not, confuses people. If you do want to claim that sovereign gov’t created and issued money is completely different than the private and household IOU’s and “claims” as you put it, then there is no reason whatsoever to carry the private balance sheet paradigm to the sovereign government. In fact, the government IOU is worthless as a claim on the government if one owes no taxes. Taxes only make up a percentage of the balance sheet whereas money IOU's in the private economy covers virtually all transactions (except barter and airline miles, etc). You may see heads nodding in the audience when Wray matter-of-factly asserts that the dollar bill he is holding up is an IOU to the government, but that’s due more to his pedagogical style than the actual understanding of the audience. In fact, money is injected into the economy “out of thin air” with no requirement for anything in return from the government. This can be a good thing if done for the public purpose. It is only limited by the economy’s ability to “produce real assets” as you state. This is not quibbling ,for if the gov’t does have a literal IOU for every dollar it prints, then the whole MMT notion that public debt doesn’t matter, collapses.

[@deficitowls5296]

An IOU which can be used to settle payment with the government might indeed be worthless to somebody who has no payments to settle with the government. But this doesn't change the fact that it's an IOU of the government. Every different sort of liability has different rules about what you can do with them, or whether or not they pay interest, or have maturity dates, or are transferable, or inheritable, or a host of other properties. But this doesn't change their fundamental nature as IOUs: one person holds a claim against another. The government only accepts its own tokens to settle payments. These tokens then clearly *are* claims against the government, to make good on its promise to accept them. (And even in the case of government currency IOUs, there can still be value there for somebody who owes no payments to the government, because they can sell that IOU to somebody who does.) But, as above, it simply must be the case, for logical consistency. Green pieces of paper are inherently worthless. 1's and 0's in electronic accounts are worth even less. The fact that people accept them at far far above their intrinsic value tells you that they must be representing something else, something abstract. Money must therefore a social relation, not an object. "If you do want to claim that sovereign gov’t created and issued money is completely different than the private and household IOU’s and “claims” as you put it, then there is no reason whatsoever to carry the private balance sheet paradigm to the sovereign government" I'm not making that claim at all. In fact, I'd say they are exactly on par. You could issue IOUs exactly like the government does, and stipulate that these IOUs could be used to settle payment owed to you. The only difference here is that not very many people need to make a payment to you, so these IOUs are unlikely to be widely accepted. The situation of the government is only different in that it has, through the power of the gun, imposed taxes on many people, so that there *are* many people who need to make payment to the government, and so its IOUs *are* likely to be widely accepted. Hence Hyman Minsky's quote, "anybody can create money. The problem lies in getting it accepted." "Taxes only make up a percentage of the balance sheet whereas money IOU's in the private economy covers virtually all transactions " I'm not 100% sure which money IOUs you're referring to here (government or bank?) but I will point out that before 2008, the amount of government money in circulation was actually quite a bit *less* than the amount of taxes collected. In 2008, federal tax revenue was around $2.5 Trillion, but the monetary base (and all government transactions are ultimately settled using the monetary base) was only $850 Billion. So, I'm not sure why the percentage of anything would matter.

[@paulspring105]

Before I address your comments - my main beef with the MMT construct is that it unnecessarily maintains an aura that is not intuitive. This is evidenced, among other things, by the dozens of videos needed to make what should be a very simple case. I would like you to address the question I've posed several times without receiving an answer: what specifically is it about the straightforward 2012 NEED act that cannot achieve any of the economic aims and goals of MMT proponents?