"The U.S. is running out of money": How do we discuss this claim?
James Keenan
I am having a problem explaining, from the MMT perspective, one aspect of the debt ceiling "crisis" now going on in Washington, D.C.
MMT rejects analogies between the budgeting process of a monetarily sovereign government (such as the U.S. federal government) and the budgeting processes of individuals, households, businesses and even sub-sovereign goverments (such as New York city or state). The latter need to acquire currency before they can spend. They can't create currency; they have to amass it via earning it (wages in the case of individuals and households; sales in the case of businesses; etc.) or borrowing it. They are currency users. Their spending is ultimately constrained by their income.
The U.S. federal government, in contrast, is a currency issuer. MMT argues that the government creates money in the process of spending it into the economy. MMT emphasizes that since people pay their taxes in the government-issued currency, they have to be able to acquire that currency before they can actually pay their taxes. Logically, that means the government has to spend that currency into the economy before the government can tax it back. That suggests that the government does not have to delay spending until tax dollars roll in. Congressional authorization and appropriation are the prerequisites to federal spending, and the debt ceiling law amounts to a needless obfuscation of the way a monetarily sovereign government spends. That further implies that taxation and (by extension) sales of federal debt instruments serve functions other than "funding" or "financing" the government.
As I understand it (and as I have been trying to explain it in blog posts), the federal government right now is not "running out of the money" -- indeed, its economic capacity to create money is by definition unbounded -- but it is running out of legal authority to sell new debt instruments because doing so would exceed the statutory maximum on the public debt accumulated since 1789. (Is that understanding correct, or sufficiently precise?) However, the phrase "running out" suggests a flow of money out of some federal accounts -- a flow which must be monitored by the Treasury Department to determine the point at which the debt limit has been reached, after which the government enters into a state of default on its obligations.
Today the Washington Post carries on its website an article, "The man in charge of knowing when the U.S. runs out of money", about the civil servant who is actually tasked with determining when the debt limit has been reached. I infer from this article that there must be positive balances in Treasury accounts out of which payments are typically made and that when those balances go negative, overdrafts are not an option if those overdrafts would breach the debt limit.
What I'm puzzling about is how to put into words the difference between an MMT advocate saying, "As a monetarily sovereign government, the U.S. government can never run out of money" and the title of the Post article which states the U.S. will very soon run out of money. MMT advocates need to be able to explain to average people the differences in the way the phrase "government running out of money" is used. Can anyone suggest better language?
Ryan Benincasa
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Michael Graves
Yes, that’s Mosler’s assertion. “The government neither has, nor doesn’t have, dollars.” It’s all a matter of accounting.
Further, the whole the necessity of TGA needing to be at zero or positive is a matter of norms.
A very recent edition of Keen’s Debunking Economics podcast he considered the “need” to sell bonds. He kinda drifts through saying that, to be negative,”...it just looks wrong.”
Michael Graves
From: modern-mone...@googlegroups.com <modern-mone...@googlegroups.com>
On Behalf Of Ryan Benincasa
Sent: Monday, May 22, 2023 3:13 PM
To: James Keenan <jke...@pobox.com>
Cc: Modern Monetary Theory <modern-mone...@googlegroups.com>
Subject: Re: "The U.S. is running out of money": How do we discuss this claim?
Hey Jim there's a line I've heard (maybe from Stephanie Kelton or Warren Mosler or both I forget) that the US federal government neither has nor doesn't have money at any given time.
I think it's key to consolidate Treasury and Fed balance sheets in order to show this is in fact the case. Consider, in the Fed's weekly report H.4.1, the latest figure for "U.S. Treasury, General Account" is $68.332 billion:
This balance is the Fed's liability. It's simultaneously the Treasury's asset. See below, from the Treasury's Daily Statement from the same day:
Thus, we can see that on a consolidated basis, the US federal government's "cash" position is $0, as it always is.
Operationally, there is nothing preventing the Fed from continuing to process Treasury payment outflows and booking a negative balance in the Treasury's General Account. And if that were to happen, then the TGA balance would flip from the Treasury's asset to its liability, vice versa for the Fed. In that case, the net balance on a consolidated basis for the federal government is still $0.
This is what makes the characterization of the government "running out of cash" so incredibly misleading. On a consolidated basis, the government's cash balance is always $0!
Hope that helps.
Ryan
On Mon, May 22, 2023 at 3:49 PM James Keenan <jke...@pobox.com> wrote:
I am having a problem explaining, from the MMT perspective, one aspect of the debt ceiling "crisis" now going on in Washington, D.C.
MMT rejects analogies between the budgeting process of a monetarily sovereign government (such as the U.S. federal government) and the budgeting processes of individuals, households, businesses and even sub-sovereign goverments (such as New York city or state). The latter need to acquire currency before they can spend. They can't create currency; they have to amass it via earning it (wages in the case of individuals and households; sales in the case of businesses; etc.) or borrowing it. They are currency users. Their spending is ultimately constrained by their income.
The U.S. federal government, in contrast, is a currency issuer. MMT argues that the government creates money in the process of spending it into the economy. MMT emphasizes that since people pay their taxes in the government-issued currency, they have to be able to acquire that currency before they can actually pay their taxes. Logically, that means the government has to spend that currency into the economy before the government can tax it back. That suggests that the government does not have to delay spending until tax dollars roll in. Congressional authorization and appropriation are the prerequisites to federal spending, and the debt ceiling law amounts to a needless obfuscation of the way a monetarily sovereign government spends. That further implies that taxation and (by extension) sales of federal debt instruments serve functions other than "funding" or "financing" the government.
As I understand it (and as I have been trying to explain it in blog posts), the federal government right now is not "running out of the money" -- indeed, its economic capacity to create money is by definition unbounded -- but it is running out of legal authority to sell new debt instruments because doing so would exceed the statutory maximum on the public debt accumulated since 1789. (Is that understanding correct, or sufficiently precise?) However, the phrase "running out" suggests a flow of money out of some federal accounts -- a flow which must be monitored by the Treasury Department to determine the point at which the debt limit has been reached, after which the government enters into a state of default on its obligations.
Today the Washington Post carries on its website an article, "The man in charge of knowing when the U.S. runs out of money", about the civil servant who is actually tasked with determining when the debt limit has been reached. I infer from this article that there must be positive balances in Treasury accounts out of which payments are typically made and that when those balances go negative, overdrafts are not an option if those overdrafts would breach the debt limit.
What I'm puzzling about is how to put into words the difference between an MMT advocate saying, "As a monetarily sovereign government, the U.S. government can never run out of money" and the title of the Post article which states the U.S. will very soon run out of money. MMT advocates need to be able to explain to average people the differences in the way the phrase "government running out of money" is used. Can anyone suggest better language?
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Ryan Benincasa
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carlan
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Ryan Benincasa
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Adam Rice
On May 22, 2023, at 4:18 PM, carlan <car...@gmail.com> wrote:
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James Keenan
What you are saying is:
* The Treasury's general account (TGA) at the Federal Reserve is an asset on the Treasury's balance sheet but a liability on the Fed's balance sheet -- and that's true by accounting definition.
* If the balance of the TGA falls to $0 but the Fed continues to process Treasury payment orders, then the Fed is, in effect, extending an overdraft loan to the Treasury. This loan appears as an asset on the Fed's balance sheet -- as does any loan on any bank's balance sheet -- but as a liability on the Treasury's balance sheet -- as does any loan on any borrower's balance sheet.
(Two secondary questions arise here, which I'll mention but not dwell on for now. First, would the Treasury have to pay interest or a fee on this overdraft, as John Q Public would when running an overdraft at Chase? Second, does the amount of this overdraft count toward the total national debt governed by the debt ceiling?)
* However, in MMT we often find it useful to speak (as you do in your post) of the *consolidated* federal balance sheet -- in effect, the merging of the Treasury's and Fed's balance sheets. When we perform that consolidation, the federal government's cash balance always nets out to $0. In the Mosler/Kelton formulation, it both has and doesn't have money at any given point in time. (Zen financing?)
Okay, but ...
* Wouldn't John Q Public then say, "If I run an overdraft at Chase, the bank is going to sock me with fees and interest and maybe even close my account and force me into bankruptcy. Can the Federal Reserve, as the Treasury's banker, force the Treasury to stop running overdrafts under penalty of bankruptcy? Isn't the answer to that question, 'No'?"
* Wouldn't John Q Public also say, "It's all very well and good for you to look down from 30,000 feet and see the federal government as a consolidated balance sheet. But the Treasury official profiled in the *Washington Post* by law has to look exclusively at the Treasury's balance sheet. And that's what the political ruckus in D.C. is all about now. So where does a concept like the consolidated federal balance sheet actually get us now?"
Note that I'm not so much disputing what you are saying as trying to think through the difficulties we will encountering in discussing these issues with lay people.
Ryan Benincasa
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