Debt Misconceptions: Default Can Mean a Brighter Future [View article]
Dang it, my posts get long. Sorry...I'll try to keep it short.
If you tap your credit line, then you owe someone. We, as users of the currency (the PIIGS and California are perfect examples), are revenue constrained. We (and they) work hard to earn our share of the money out there...too often to pay back our credit line and maybe even default. When a sovereign government taps it's credit line (under a fiat system), it owes nothing to the thin air whence the money came. And it certainly need not tax or borrow to spend, though as I've explained above...the budget constraints kind of force the system to work that way...the way in which you allude, I believe.
"If Canadian banks need no reserves, does the Canadian government still have to spend money into existence?"
I see your point, but I think we're (or just me) using the term money too loosely. Off the cuff, the government probably does not need to spend a thing for banks to lend and create 'bank' money (especially if they are not reserve constrained or rates are zero. This lending form of money creation can be used to buy up our GDP or create personal wealth. However, the government must deficit spend to create a larger supply of deposits, reserves (even if zero), and savings...net wealth, if you will suffer the term as I do...that net to something other than zero in the financial system as a whole and regardless of who has more of the share of that wealth.
I need to think about your last paragraph. Gonna go lay down and think through your post. I am sure the answer lies in the creation of net financial assets. Be back after the inevitable nap. :)
By the way, I am in the classical camp when mentioning wealth. I believe labor and capital are wealth, not equity and (maybe) not currency. The latter are more of a wealth effect (hack! hack! Excuse me while I cough up a fur ball), as is one's credit rating.
Debt Misconceptions: Default Can Mean a Brighter Future [View article]
Mr Kramer, I am not sure where you are going with that or if we're talking on the same page. Yes, banks certainly create money. A loan, for example, becomes both an asset and a liability so, really, as you understand I am sure, in the banking system the sum nets to zero.
However, lending can create personal wealth, such as home equity, but such bank lending form of money creation adds nothing to the net amount of high powered money. As the individual grabs his share of the currency to repay the loan, both he and the bank grab their share of the money pie and are more wealthy at the expense of those who did nothing. High powered money remains constant unless the government is in deficit and we all work for our share of it. So, in net, 'money or wealth' (if you will) is 'created' by the government under a soft currency system. And surely this process works at any interest rate, including zero.
As to who and what will impose a limit, yes, the market seems to impose a limit on bank lending and money creation in terms of the money supply. Either you like a 4% return or rate and you agree to create money or you don't. But, what limits government spending, an all together different animal whose spending does NOT net to zero (unless the budget is balanced and not in deficit or surplus), is the self imposed budget constraints such as the debt ceiling. When the government leaves money in the system, by not taxing as much as it spends, such a deficit leaves excess reserves which are converted to savings through monetary policy. Someone has increased savings. It also creates more currency in circulation as folks spend their deposits, i.e., government spending creates high powered money or net financial assets.
If the government defaults, well...it would be silly to think of such a thing unless one is dogmatic about the law and doesn't understand debt and fiat currencies. Or, unless one just wants to play politics and force a default to whatever end one might wish to achieve. Personally, I believe the threats to default (by law and not necessity) are simply political wrangling.
Disclaimer, again: I always hope I say things correctly..and can grasp what is said equally well. :)
Debt Misconceptions: Default Can Mean a Brighter Future [View article]
Lawrence, if you're talking monetization, it would be an open market operation in the end. The treasury can borrow from the Fed, but reserves become excessive and the Fed brokers those bonds to the private sector to keep overnight lending rates adequate.
The Treasury could also write as many checks as it wishes and the Fed will always clear them regardless of the Treasury's balance. It could be zero, and really is except for some smoke and mirrors...the law requiring a balance paid by our tax money and T&L bond issues. HPM does not exist nor does any measure of money...including our taxes being transferred (liability, promise to pay being fulfilled and the money destroyed)...in the Treasury's checking account. HPM is created when the government spends anew.
What keeps the government in check is a system of government budget constraints designed to mirror the hard currency process where debt is very real. This is what keeps the government from spending it's paper money...where debt is a fiction. The debt ceiling is simply one of those legal (careful, almost said "lawful") constraints, not necessity...just a self imposed constraint. Fund matching and the Treasury checking account balance is another constraint designed into the system.
The government does not crowd out investment in the sense it borrows from the population in the course of fiscal policy. Yea, if it taxed away our ability to save, it might. But, in the normal course of events, the government spends and leaves a little after tax money in the system. This increases the wealth of our nation's net financial position. A budget surplus has the opposite effect, as I am sure you understand (in theory.)
Banks are not reserve constrained, they will lend into risk and returns and recover reserves later. If banks lend like mad men, the Fed will always release reserves into the system to maintain the short term interest rates. This is why banks do not worry about the money supply directly, only the short term inter-bank lending rates.
Besides, it's not the quantity of money that causes inflation under a fiat currency (though it is true when the dollar is pegged to gold). Capacity utilization is the cause, primarily. Too much money chasing capacity drives up prices (You can follow this line of thought through Wiemar and Zimbabwe where capacity was trashed and utilization was easily exceeded.) The presence of trillions of dollars could be deflationary if those dollars pay off debt and not new purchases. Ever wonder why we are having a hard time stoking inflation under QE? Debasing the dollar, supposedly, as opposed to stressing capacity? No one is buying, except maybe some commodity speculation. That's inflationary, but it's not caused by the quantity theory.
The government has to pick up the slack in the spending gap and create deposits...it has to raise the debt ceiling (vice default)...and really it needs to keep our taxes lower so we can help spend, too. In times of economic crisis, only the government can create net 'national' wealth (as opposed to our own personal wealth.) Cutting spending these days is suicide. Go figure England...
Debt Misconceptions: Default Can Mean a Brighter Future [View article]
Volcker tried to control the money supply and failed miserably giving us high interest rates, the Savings and Loan crisis, and the inevitable march into mortgage bonds...the root of today's crisis. The point is, when banks are not constrained by reserve ratios, there is no control over the money supply or the money multiplier. The central bank worries about the overnight lending rates so funding will only find a home in projects that are economically profitable and worthwhile, like subprime mortgages, apparently.
Deficit spending and government debt are a measure of a nation's 'wealth' (if we ignore the export sector and foreign 'wealth.') (Disclaimer: yea, I do not like the term wealth used in this context, either.) If the government did not spend it's currency into existence, none of us would have any. It is true only the government can create new deposits, reserves, currency in circulation, and savings. The rest of us compete to borrow what's out there and create our own personal wealth from it. All bank (liability and asset) lending creates nothing new to our net financial position in aggregate (though it /should/ boost GDP.) I do appreciate the debt ceiling and budget constraints in the sense they serve to regulate the unfettered eagerness to spend ourselves into oblivion. However the government needs to close the spending gap not stretch it.
The US is not bankrupt except if forced by law and not by necessity. This is why the debt ceiling will always be raised, it must be raised periodically and especially during a severe recession if the government is to operate a fiat currency. I believe the whole budget battle is not over the debt or default, it's over who will get their share of the money the government must spend into existence anyway.
On a personal level, a comedian friend once joked in his stand up routine, "Bankruptcy is great. Yesterday I was $40k in debt, today I am not. God bless America. <snappy salute>"
Debt Ceiling and Austerity Have Their Costs [View article]
I argued the same on the UK austerity months ago...and took a beating for it. I also argue the rhetoric from Washington is never really about debt ceilings and the law, but more about lobbying for a larger piece of the pie. It's political scare tactics, we're gonna spend money. It's all a matter of who gets their hands on it, first.
"...where the government spends much more wisely... This is impossible!"
I think the quote above implies the government is not efficient in allocating money. Probably true, but it does not have to be. It simply spends on it's own needs to provide health care, social security, defense, or what have you. The rest is up to us. Again, the battle is over allocation of funds, not the size of the necessary deficit.
One can kill lobbying and reduce corporate taxes, but do not even consider a VAT tax or any other additional taxes. I am not sure I can define unnecessary spending in aggregate, unless you consider anything from an infomercial unnecessary. I do.
Fed's QE Policy Shift Due to Politics, Not Inflation [View article]
QE halted investment bank insolvency through a massive asset swap. It worked. It did not spur lending, stimulate the economy nor devalue the dollar, though it did create some commodity inflation. It's over.
The Trouble With Modern Monetary Theory [View article]
Wow, what a spur of activity on this topic, recently. Too much to read critically and comment on. A quick scan reveals praise for some (you know who you are) and a laundry list of items to argue for others. It's a bottomless laundry list and, to make matters worse, the opposing train of though always circles back on itself to begin anew. Arguing it is not worth the immense effort to keep up with it, to each their own applies here. I salute those who have the gumption to stick it out and chase the dog's tail. You are better men than me. <salute>
By the way, I wish the OP could have read my initial rant upon hearing of MMT for the first time. Then I studied it a bit closer.
The Trouble With Modern Monetary Theory [View article]
"One of the main flaws of MMT is its excessive reliance on fiscal policy and its exclusion of monetary policy."
Huh? Do you read at all? Can you read? MMT excludes monetary policy? Not even worth rebutting. Bonds and taxes are monetary policy, not fiscal policy, aimed at controlling the lending rate not the money supply (entirely.) This is not Volker's Fed. This so fundamental to MMT, how could you have missed such a simple concept? It must be not even cracking a page on the theory.
This about all the ignorance I can take for one night.
The Trouble With Modern Monetary Theory [View article]
Bankster, understood. The situation is also somewhat different because the Fed no longer has to defend the funds rate.
MT, you're gonna have to find someone more adept at arguing your specific points. Though, you have to admit your argument has become more refined since your OP (You probably won't admit it, but I see it.) I can say what about this or that in an attempt to nic pick hypotheticals or irrelevant examples (based on false assumptions) of special relativity, but would need an expert to refute me. A beer drinking buddy just isn't up to the task. Likewise, I cannot speak for MMT on your specific issues, though I do try.
The pros that briefly showed up in this thread didn't hang around, and it wasn't due to fear of being wrong. You really should address those concerns to the experts. I'd need much more detailed understanding (rather than a more general understanding) to do so. And we'd need to argue consistently in context. In other words, you cannot argue debt burden when it doesn't exist. It would make for a messy, of track beer drinking discussion. Might be fun though.
To me, the main issue is, "must" our government default due to heavy 'debt' burdens. This is why I began studying MMT, not because I am a fiat currency nut case nor MMT expert. I believe the answer is certainly not...and we won't default.
As such, I have exhausted my usefulness in this discussion. I may hit MMT again in the future, but I've moved onto other subjects. See ya around, MT...and if we ever meet, you got the first round.
The Trouble With Modern Monetary Theory [View article]
"That is to say, the whole reason the government can "deficit spend to buy a stick of gum" is because legal tender laws require the gum-maker to accept government-issued currency as a form of payment. "
While what you say is true, it is not the reason the government can deficit spend. It can because it can...and does. The laws in force mean the seller must accept your, my, the government's fiat currency or go to jail. If not, the currency has no teeth...no value.
Yes, you can have a system of gold backed FRN. We don't.
"To the degree that the government deficit spends, then, it borrows from the real economy." Are you talking about crowding out of loanable funds? This does not happen. The government borrows as a means of monetary policy, not fiscal policy. Deficit spending creates "wealth effect" (not gonna argue semantics, you know what I mean. And I know what you mean.) This creates deposits and puts downward pressure on the funds rate, not send it higher. This is why the government front loads it monetary policy by 'borrowing' before it spends. And this looks a lot like borrowing.
"...hypothetically they could borrow an infinite amount." Not true, they can 'borrow' only what they spent previously. Ford Motor Company must fund it's spending and certainly could not issue a trillion shares without making wheelbarrows to carry them in. Nor would the government issue more 'spending' than was necessary. (If you trust the government, that is...but that's their responsibility.) You cannot compare apples and oranges. Ford is like Greece, the US is not. Companies could issue fiat currencies, but the law prohibits it.
".. for joy, is a place where it is hard to see what is really so different about fiat money economics versus hard money economics.." They are completely different in almost every way. Even if a company issued it's own fiat currency back only on reputation. It has no power to enforce it's currency.
We can argue this for eternity. This almost feels like a troll thread...LOL
The Trouble With Modern Monetary Theory [View article]
Can't answer that. I don't think it's a theory killer. A friend asked about government revenue, for example fees for passports. I don't know the answer to that one, either, but I suspect the fee collected is seen as a 'special purpose' tax. In other words, it's a tax that only applies to passport holders. I suspect MMT would see it this way.
So, there may be an explanation for no recourse loans, too. As I am sure there are for over the counter derivatives, too. They may not be considered net financial assets, even though that's what we call them. In any case, this is not the government's doing, this is private bank activity...creating money, I assume.
The Trouble With Modern Monetary Theory [View article]
Okay, in fairness, you both make good points. (Just finished my massive year end audit...so got some time to catch up.) You're saying it the private sector could create sufficient aggregate demand through money creation, so why would the government need to deficit spend? At first glance, cuz I am not an expert with a ready retort, it seems it would not need to in such a case...but probably would deficit spend anyway because it must fund it's operation.
The government must deficit spend (create NFA) to buy a stick of gum. Again, if one looks closely at the reserve banking (I have), borrowing does not funding anything...it's monetary policy (currently) done ex ante to hold the funds rate steady. It certainly looks like funding, however, because of the way it chooses to carry out monetary policy. And the government actually does borrow and spend, but this has no effect on the resulting deficit. The government spent someone's money (from an earlier deficit) and now owes them what it could have printed and spent. The deficit still grows. (I believe, even taxes collected resolve to the deficit during the spending process. They disappear.)
The identity applies only to NFA, not to purchasing power created through lending. All lending is offset by liabilities, they create their own deposits. Now, if someone get's a little 'wealthier' from a real estate deal, so be it. NFAs, the sum of reserves and bonds, do not change...someone got richer (collateral), another lost out on the deal. If lending increases, the shift of NFA assets occurs from bonds to reserves to hold the funds rate steady, not creating new ones. This Fed lending to banks short of reserves increases base money (resulting from, not controlling) the money supply and it's level of 'debt' holdings decrease a bit. NFA are unchanged.
It's not the math, it's defining the variables. But, it's a good point. Would like to think on it a bit to check my own understanding of MMT. But, I think we're talking definitions here.
One key thing important to understand, fiat currency differs from hard currency economics in almost every way, though the terms and processes used still resemble gold standard rules. One cannot understand a fiat system if their mind is still wrapped around the way things were done under the gold standard.
Anyway, you really need to argue with an expert. I can only offer my understanding. And I am not arguing in favor of a fiat system, just saying it makes sense...to me...as an accountant...who can jiggle the numbers... :)
Debt Misconceptions: Default Can Mean a Brighter Future [View article]
If you tap your credit line, then you owe someone. We, as users of the currency (the PIIGS and California are perfect examples), are revenue constrained. We (and they) work hard to earn our share of the money out there...too often to pay back our credit line and maybe even default. When a sovereign government taps it's credit line (under a fiat system), it owes nothing to the thin air whence the money came. And it certainly need not tax or borrow to spend, though as I've explained above...the budget constraints kind of force the system to work that way...the way in which you allude, I believe.
"If Canadian banks need no reserves, does the Canadian government still have to spend money into existence?"
I see your point, but I think we're (or just me) using the term money too loosely. Off the cuff, the government probably does not need to spend a thing for banks to lend and create 'bank' money (especially if they are not reserve constrained or rates are zero. This lending form of money creation can be used to buy up our GDP or create personal wealth. However, the government must deficit spend to create a larger supply of deposits, reserves (even if zero), and savings...net wealth, if you will suffer the term as I do...that net to something other than zero in the financial system as a whole and regardless of who has more of the share of that wealth.
I need to think about your last paragraph. Gonna go lay down and think through your post. I am sure the answer lies in the creation of net financial assets. Be back after the inevitable nap. :)
By the way, I am in the classical camp when mentioning wealth. I believe labor and capital are wealth, not equity and (maybe) not currency. The latter are more of a wealth effect (hack! hack! Excuse me while I cough up a fur ball), as is one's credit rating.
Debt Misconceptions: Default Can Mean a Brighter Future [View article]
However, lending can create personal wealth, such as home equity, but such bank lending form of money creation adds nothing to the net amount of high powered money. As the individual grabs his share of the currency to repay the loan, both he and the bank grab their share of the money pie and are more wealthy at the expense of those who did nothing. High powered money remains constant unless the government is in deficit and we all work for our share of it. So, in net, 'money or wealth' (if you will) is 'created' by the government under a soft currency system. And surely this process works at any interest rate, including zero.
As to who and what will impose a limit, yes, the market seems to impose a limit on bank lending and money creation in terms of the money supply. Either you like a 4% return or rate and you agree to create money or you don't. But, what limits government spending, an all together different animal whose spending does NOT net to zero (unless the budget is balanced and not in deficit or surplus), is the self imposed budget constraints such as the debt ceiling. When the government leaves money in the system, by not taxing as much as it spends, such a deficit leaves excess reserves which are converted to savings through monetary policy. Someone has increased savings. It also creates more currency in circulation as folks spend their deposits, i.e., government spending creates high powered money or net financial assets.
If the government defaults, well...it would be silly to think of such a thing unless one is dogmatic about the law and doesn't understand debt and fiat currencies. Or, unless one just wants to play politics and force a default to whatever end one might wish to achieve. Personally, I believe the threats to default (by law and not necessity) are simply political wrangling.
Disclaimer, again: I always hope I say things correctly..and can grasp what is said equally well. :)
Debt Misconceptions: Default Can Mean a Brighter Future [View article]
The Treasury could also write as many checks as it wishes and the Fed will always clear them regardless of the Treasury's balance. It could be zero, and really is except for some smoke and mirrors...the law requiring a balance paid by our tax money and T&L bond issues. HPM does not exist nor does any measure of money...including our taxes being transferred (liability, promise to pay being fulfilled and the money destroyed)...in the Treasury's checking account. HPM is created when the government spends anew.
What keeps the government in check is a system of government budget constraints designed to mirror the hard currency process where debt is very real. This is what keeps the government from spending it's paper money...where debt is a fiction. The debt ceiling is simply one of those legal (careful, almost said "lawful") constraints, not necessity...just a self imposed constraint. Fund matching and the Treasury checking account balance is another constraint designed into the system.
The government does not crowd out investment in the sense it borrows from the population in the course of fiscal policy. Yea, if it taxed away our ability to save, it might. But, in the normal course of events, the government spends and leaves a little after tax money in the system. This increases the wealth of our nation's net financial position. A budget surplus has the opposite effect, as I am sure you understand (in theory.)
Banks are not reserve constrained, they will lend into risk and returns and recover reserves later. If banks lend like mad men, the Fed will always release reserves into the system to maintain the short term interest rates. This is why banks do not worry about the money supply directly, only the short term inter-bank lending rates.
Besides, it's not the quantity of money that causes inflation under a fiat currency (though it is true when the dollar is pegged to gold). Capacity utilization is the cause, primarily. Too much money chasing capacity drives up prices (You can follow this line of thought through Wiemar and Zimbabwe where capacity was trashed and utilization was easily exceeded.) The presence of trillions of dollars could be deflationary if those dollars pay off debt and not new purchases. Ever wonder why we are having a hard time stoking inflation under QE? Debasing the dollar, supposedly, as opposed to stressing capacity? No one is buying, except maybe some commodity speculation. That's inflationary, but it's not caused by the quantity theory.
The government has to pick up the slack in the spending gap and create deposits...it has to raise the debt ceiling (vice default)...and really it needs to keep our taxes lower so we can help spend, too. In times of economic crisis, only the government can create net 'national' wealth (as opposed to our own personal wealth.) Cutting spending these days is suicide. Go figure England...
Debt Misconceptions: Default Can Mean a Brighter Future [View article]
Deficit spending and government debt are a measure of a nation's 'wealth' (if we ignore the export sector and foreign 'wealth.') (Disclaimer: yea, I do not like the term wealth used in this context, either.) If the government did not spend it's currency into existence, none of us would have any. It is true only the government can create new deposits, reserves, currency in circulation, and savings. The rest of us compete to borrow what's out there and create our own personal wealth from it. All bank (liability and asset) lending creates nothing new to our net financial position in aggregate (though it /should/ boost GDP.) I do appreciate the debt ceiling and budget constraints in the sense they serve to regulate the unfettered eagerness to spend ourselves into oblivion. However the government needs to close the spending gap not stretch it.
The US is not bankrupt except if forced by law and not by necessity. This is why the debt ceiling will always be raised, it must be raised periodically and especially during a severe recession if the government is to operate a fiat currency. I believe the whole budget battle is not over the debt or default, it's over who will get their share of the money the government must spend into existence anyway.
On a personal level, a comedian friend once joked in his stand up routine, "Bankruptcy is great. Yesterday I was $40k in debt, today I am not. God bless America. <snappy salute>"
Debt Ceiling and Austerity Have Their Costs [View article]
"...where the government spends much more wisely...
This is impossible!"
I think the quote above implies the government is not efficient in allocating money. Probably true, but it does not have to be. It simply spends on it's own needs to provide health care, social security, defense, or what have you. The rest is up to us. Again, the battle is over allocation of funds, not the size of the necessary deficit.
One can kill lobbying and reduce corporate taxes, but do not even consider a VAT tax or any other additional taxes. I am not sure I can define unnecessary spending in aggregate, unless you consider anything from an infomercial unnecessary. I do.
Fed's QE Policy Shift Due to Politics, Not Inflation [View article]
Greece: It's Not Lehman [View article]
Is a Budget Deficit Necessary for Economic Health? [View article]
The Trouble With Modern Monetary Theory [View article]
By the way, I wish the OP could have read my initial rant upon hearing of MMT for the first time. Then I studied it a bit closer.
The Trouble With Modern Monetary Theory [View article]
Huh? Do you read at all? Can you read? MMT excludes monetary policy? Not even worth rebutting. Bonds and taxes are monetary policy, not fiscal policy, aimed at controlling the lending rate not the money supply (entirely.) This is not Volker's Fed. This so fundamental to MMT, how could you have missed such a simple concept? It must be not even cracking a page on the theory.
This about all the ignorance I can take for one night.
The Trouble With Modern Monetary Theory [View article]
The Trouble With Modern Monetary Theory [View article]
MT, you're gonna have to find someone more adept at arguing your specific points. Though, you have to admit your argument has become more refined since your OP (You probably won't admit it, but I see it.) I can say what about this or that in an attempt to nic pick hypotheticals or irrelevant examples (based on false assumptions) of special relativity, but would need an expert to refute me. A beer drinking buddy just isn't up to the task. Likewise, I cannot speak for MMT on your specific issues, though I do try.
The pros that briefly showed up in this thread didn't hang around, and it wasn't due to fear of being wrong. You really should address those concerns to the experts. I'd need much more detailed understanding (rather than a more general understanding) to do so. And we'd need to argue consistently in context. In other words, you cannot argue debt burden when it doesn't exist. It would make for a messy, of track beer drinking discussion. Might be fun though.
To me, the main issue is, "must" our government default due to heavy 'debt' burdens. This is why I began studying MMT, not because I am a fiat currency nut case nor MMT expert. I believe the answer is certainly not...and we won't default.
As such, I have exhausted my usefulness in this discussion. I may hit MMT again in the future, but I've moved onto other subjects. See ya around, MT...and if we ever meet, you got the first round.
The Trouble With Modern Monetary Theory [View article]
While what you say is true, it is not the reason the government can deficit spend. It can because it can...and does. The laws in force mean the seller must accept your, my, the government's fiat currency or go to jail. If not, the currency has no teeth...no value.
Yes, you can have a system of gold backed FRN. We don't.
"To the degree that the government deficit spends, then, it borrows from the real economy." Are you talking about crowding out of loanable funds? This does not happen. The government borrows as a means of monetary policy, not fiscal policy. Deficit spending creates "wealth effect" (not gonna argue semantics, you know what I mean. And I know what you mean.) This creates deposits and puts downward pressure on the funds rate, not send it higher. This is why the government front loads it monetary policy by 'borrowing' before it spends. And this looks a lot like borrowing.
"...hypothetically they could borrow an infinite amount." Not true, they can 'borrow' only what they spent previously. Ford Motor Company must fund it's spending and certainly could not issue a trillion shares without making wheelbarrows to carry them in. Nor would the government issue more 'spending' than was necessary. (If you trust the government, that is...but that's their responsibility.) You cannot compare apples and oranges. Ford is like Greece, the US is not. Companies could issue fiat currencies, but the law prohibits it.
".. for joy, is a place where it is hard to see what is really so different about fiat money economics versus hard money economics.." They are completely different in almost every way. Even if a company issued it's own fiat currency back only on reputation. It has no power to enforce it's currency.
We can argue this for eternity. This almost feels like a troll thread...LOL
The Trouble With Modern Monetary Theory [View article]
So, there may be an explanation for no recourse loans, too. As I am sure there are for over the counter derivatives, too. They may not be considered net financial assets, even though that's what we call them. In any case, this is not the government's doing, this is private bank activity...creating money, I assume.
The Trouble With Modern Monetary Theory [View article]
The government must deficit spend (create NFA) to buy a stick of gum. Again, if one looks closely at the reserve banking (I have), borrowing does not funding anything...it's monetary policy (currently) done ex ante to hold the funds rate steady. It certainly looks like funding, however, because of the way it chooses to carry out monetary policy. And the government actually does borrow and spend, but this has no effect on the resulting deficit. The government spent someone's money (from an earlier deficit) and now owes them what it could have printed and spent. The deficit still grows. (I believe, even taxes collected resolve to the deficit during the spending process. They disappear.)
The identity applies only to NFA, not to purchasing power created through lending. All lending is offset by liabilities, they create their own deposits. Now, if someone get's a little 'wealthier' from a real estate deal, so be it. NFAs, the sum of reserves and bonds, do not change...someone got richer (collateral), another lost out on the deal. If lending increases, the shift of NFA assets occurs from bonds to reserves to hold the funds rate steady, not creating new ones. This Fed lending to banks short of reserves increases base money (resulting from, not controlling) the money supply and it's level of 'debt' holdings decrease a bit. NFA are unchanged.
It's not the math, it's defining the variables. But, it's a good point. Would like to think on it a bit to check my own understanding of MMT. But, I think we're talking definitions here.
One key thing important to understand, fiat currency differs from hard currency economics in almost every way, though the terms and processes used still resemble gold standard rules. One cannot understand a fiat system if their mind is still wrapped around the way things were done under the gold standard.
Anyway, you really need to argue with an expert. I can only offer my understanding. And I am not arguing in favor of a fiat system, just saying it makes sense...to me...as an accountant...who can jiggle the numbers... :)