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Jim Cook



Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

Best of Doug Noland
March 5, 2012
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February 21 – CNBC (John Carney):  “The Washington Post ran a long and well-wrought article on Modern Monetary Theory over the weekend. The piece, by Dylan Matthews, starts with Jamie Galbraith’s experience trying to explain to a large audience of economists in the Clinton White House that the budget surpluses the federal government was running was immensely destructive. Or, rather, it starts with those economists laughing at Galbraith’s attempt to explain this. It was obvious to me way back before I had ever heard of MMT that governments should probably never run a budget surplus—or should do so only in dire emergencies. When the government runs a surplus, that means it is taking more money out of the economy than it is spending back into the economy. It is making us poorer.”

In my initial CBB back in 1999, I trumpeted the need for a Contemporary Theory of Money and Credit.  Some thirteen years later, I lament that the void remains as large as ever.  Mr. Matthews’ Washington Post article highlighted “Modern Monetary Theory,” an alternative economic framework with Keynesian roots that is receiving heightened attention in our age of unrelenting government stimulus.  I will not be jumping on board.

From Mr. Matthews’ article:  “‘Modern Monetary Theory’ was coined by Bill Mitchell, an Australian economist and prominent proponent, but its roots are much older. The term is a reference to John Maynard Keynes, the founder of modern macroeconomics. In ‘A Treatise on Money,’ Keynes asserted that ‘all modern States’ have had the ability to decide what is money and what is not for at least 4,000 years.  This claim, that money is a ‘creature of the state,’ is central to the theory. In a ‘fiat money’ system like the one in place in the United States, all money is ultimately created by the government, which prints it and puts it into circulation. Consequently, the thinking goes, the government can never run out of money. It can always make more.”

And from Wikipedia:  “Chartalism is a descriptive economic theory that details the procedures and consequences of using government-issued tokens as the unit of money, i.e. fiat money… The modern theoretical body of work on chartalism is known as Modern Monetary Theory (MMT).  MMT aims to describe and analyze modern economies in which the national currency is fiat money, established and created exclusively by the government. In MMT, money enters circulation through government spending; Taxation is employed to establish the fiat money as currency, giving it value by creating demand for it in the form of a private tax obligation… Because the government can issue its own currency at will, MMT maintains that the level of taxation relative to government spending (the government’s deficit spending or budget surplus) is in reality a policy tool that regulates inflation and unemployment, and not a means of funding the government’s activities per se.”

My “contemporary theory…” takes an altogether different approach.  “Money” is not foremost a creature “ultimately created by the government,” but is instead primarily an issue of market perceptions.  “Money” is as money does (“economic functionality”).  The reality is that we today operate in an age of globalized electronic Credit – a comprehensive virtual web of computerized general ledger debit and Credit entries linking creditors and debtors round the globe.  This “system” of electronic IOUs comprises myriad types of financial obligations of diverse structure, maturity, Creditworthiness and currency units of accounts.   Importantly, if the marketplace perceives that a Credit instrument will act as a highly liquid and stable store of nominal value, this Credit enjoys “moneyness.”  It is the nature and nuances of contemporary marketable debt – especially with respect to the prominence of governmental and central bank support - that should be the analytical focal point.  A static view of government-based “fiat money” is anachronistic.