Presentation to FPC by Stephanie Kelton

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  • Presentation to FPC by Stephanie Kelton

    1. 1. Money is No Object:No Theory, No Controversy Stephanie Kelton, Ph.D. University of Missouri-Kansas City FPA Experience 2012, San Antonio, October 1, 2012
    2. 2. Conventional Economics• Highly theoretical treatment of banking & govt finance• Deposits (Multiplier) Loans• Deficits (Higher interest rates) Crowding Out• Highly controversial
    3. 3. My Conclusions
    4. 4. My Conclusions• We should be doing so much better
    5. 5. My Conclusions• We should be doing so much better• Money is no object
    6. 6. My Conclusions• We should be doing so much better• Money is no object• The budget deficit is not our enemy
    7. 7. My Conclusions• We should be doing so much better• Money is no object• The budget deficit is not our enemy• China is not our banker
    8. 8. My Conclusions• We should be doing so much better• Money is no object• The budget deficit is not our enemy• China is not our banker• We aren’t like Greece
    9. 9. My Conclusions• We should be doing so much better• Money is no object• The budget deficit is not our enemy• China is not our banker• We aren’t like Greece• We can have full employment and low inflation
    10. 10. We’re Living Way Below Our Means Output gap estimated at $9.7 billion per day in lost"Just say it to yourself – every day the US government is allowing $9.7 billion to go down the drain in lost income just because they are too stupid to implement sensible direct job creation strategies." ~Bill Mitchell
    11. 11. We Face a Simple Problem
    12. 12. We Face a Simple Problem There isn’t enough total spending to employ everyone who wants to work.
    13. 13. There is Only One Way Out
    14. 14. There is Only One Way Out• We can only reach our potential if spending grows
    15. 15. There is Only One Way Out• We can only reach our potential if spending grows• GDP measures how much money is spent buying new goods and services every year
    16. 16. There is Only One Way Out• We can only reach our potential if spending grows• GDP measures how much money is spent buying new goods and services every year• GDP = C + I + G + (X-M)
    17. 17. There is Only One Way Out• We can only reach our potential if spending grows• GDP measures how much money is spent buying new goods and services every year• GDP = C + I + G + (X-M)• Spending creates income
    18. 18. There is Only One Way Out• We can only reach our potential if spending grows• GDP measures how much money is spent buying new goods and services every year• GDP = C + I + G + (X-M)• Spending creates income• Income creates sales
    19. 19. There is Only One Way Out• We can only reach our potential if spending grows• GDP measures how much money is spent buying new goods and services every year• GDP = C + I + G + (X-M)• Spending creates income• Income creates sales• Sales create jobs
    20. 20. Who Will Spend?
    21. 21. Who Will Spend?• Households? • Lost $16T of wealth from late 2007 to early 2009 • Recovery has been uneven across wealth groups • Top 10% back to 2004 levels, but median wealth has fallen to 1992 levels • 25- to 44-year olds suffered the most significant wealth losses • JPM estimates that GDP growth will be down 1.3% over the next 10 years as this group rebuilds wealth
    22. 22. Who Will Spend?• Households? • Lost $16T of wealth from late 2007 to early 2009 • Recovery has been uneven across wealth groups • Top 10% back to 2004 levels, but median wealth has fallen to 1992 levels • 25- to 44-year olds suffered the most significant wealth losses • JPM estimates that GDP growth will be down 1.3% over the next 10 years as this group rebuilds wealth• Firms? • Corporations are sitting on record profits • Hesitant to hire and reluctant to invest
    23. 23. Who Will Spend?• Households? • Lost $16T of wealth from late 2007 to early 2009 • Recovery has been uneven across wealth groups • Top 10% back to 2004 levels, but median wealth has fallen to 1992 levels • 25- to 44-year olds suffered the most significant wealth losses • JPM estimates that GDP growth will be down 1.3% over the next 10 years as this group rebuilds wealth• Firms? • Corporations are sitting on record profits • Hesitant to hire and reluctant to invest• Foreigners? • Europe, China, India, Russia, Brazil, etc. slowing or already in recession
    24. 24. That Leaves Only ...
    25. 25. That Leaves Only ...• The GOVERNMENT• And some very powerful myths
    26. 26. That Leaves Only ...• The GOVERNMENT• And some very powerful myths
    27. 27. That Leaves Only ... We have no money!• The GOVERNMENT• And some very powerful myths
    28. 28. That Leaves Only ... We have no money!• The GOVERNMENT• And some very powerful myths
    29. 29. That Leaves Only ... We have no money!• The GOVERNMENT• And some very powerful myths Our money comes from China
    30. 30. That Leaves Only ... We have no money!• The GOVERNMENT• And some very powerful myths Our money comes from China
    31. 31. That Leaves Only ... We have no money!• The GOVERNMENT• And some very powerful myths Our money comes from China We’ve already spent too much.
    32. 32. “We’re out of money .”
    33. 33. “We’re out of money .”
    34. 34. “We’re out of money .” “The government, just likeevery American household, has to live within its means.”
    35. 35. “We’re out of money .” “The government, just likeevery American household, has to live within its means.”
    36. 36. Households
    37. 37. Households• Can only spend what they earn or what they can borrow
    38. 38. Households• Can only spend what they earn or what they can borrow• Might not be able to pay back debt
    39. 39. Households• Can only spend what they earn or what they can borrow• Might not be able to pay back debt• Are subject to market discipline
    40. 40. Households• Can only spend what they earn or what they can borrow• Might not be able to pay back debt• Are subject to market discipline• Cannot spend more than their income for very long
    41. 41. Households• Can only spend what they earn or what they can borrow• Might not be able to pay back debt• Are subject to market discipline• Cannot spend more than their income for very long• Have to live within their means
    42. 42. Households• Can only spend what they earn or what they can borrow• Might not be able to pay back debt• Are subject to market discipline• Cannot spend more than their income for very long• Have to live within their means• Are Users of the currency
    43. 43. This House is Different• Has currency-issuing capacity• Is not revenue constrained• Always has the ability to pay• Can afford anything for sale in US dollars CONGRESS
    44. 44. This Picture Has No Economic Meaning
    45. 45. An Experiment THE UNITED NATION OF KELTONIA10 1010 10 ONE HUNDRED KELTONISFrom the United Nation of Keltonia
    46. 46. Welcome to Keltonia• I have taxing authority, a standing army, courts, prisons, etc.• Some of you live in Keltonia and are subject to taxes• To avoid penalty, you must pay me 200 Keltonis (K 200)• Let’s see what this means
    47. 47. You Are In Debt To Me Private Sector Keltonia + K 200 Taxes Due + K 200 Taxes Due - K 200 NWAssets = Liab.+NW Assets = Liab.+NW
    48. 48. Pay Your Taxes Now
    49. 49. You Can’t!
    50. 50. You Can’t!• Because I haven’t spent any Keltonis into existence
    51. 51. You Can’t!• Because I haven’t spent any Keltonis into existence• The money to pay taxes comes from government spending
    52. 52. You Can’t!• Because I haven’t spent any Keltonis into existence• The money to pay taxes comes from government spending• I’ll hire some of you to build roads for me
    53. 53. You Can’t!• Because I haven’t spent any Keltonis into existence• The money to pay taxes comes from government spending• I’ll hire some of you to build roads for me• Then you can pay your taxes
    54. 54. Private Sector Keltonia+ K 500 Keltonis + K 500 NW + K 500 Keltonis- K 200 Keltonis - K 200 Taxes Due - K 200 Taxes Due - K 200 Keltonis Assets = Liab.+NW Assets = Liab.+NW
    55. 55. Your Net Financial Assets THE UNITED NATION OF KELTONIA 10 10 10 10 ONE HUNDRED KELTINIS K 300 Keltonis
    56. 56. A Simple and Fundamental Accounting Truth Government Non-Government $$$ or
    57. 57. A Simple and Fundamental Accounting Truth G >T Government Non-Government $$$ or
    58. 58. A Simple and Fundamental Accounting Truth G >T Government Non-Government $$$ My Deficit is Your Surplus! or
    59. 59. A Simple and Fundamental Accounting Truth G >T Government Non-Government $$$ My Deficit is Your Surplus! or My red ink is Your black ink!
    60. 60. Why Don’t You Buy Some Imports?
    61. 61. Why Don’t You Buy Some Imports?• You might decide to spend part of your money on things produced in another part of the world
    62. 62. Why Don’t You Buy Some Imports?• You might decide to spend part of your money on things produced in another part of the world• You can import them as long as others want Keltonis
    63. 63. Why Don’t You Buy Some Imports?• You might decide to spend part of your money on things produced in another part of the world• You can import them as long as others want Keltonis• Spend K 200 on imported goods
    64. 64. Why Don’t You Buy Some Imports?• You might decide to spend part of your money on things produced in another part of the world• You can import them as long as others want Keltonis• Spend K 200 on imported goods• Now where are we?
    65. 65. Who’s Holding Keltonis? K 100 500 200 200-K K 200
    66. 66. The World is a Closed System
    67. 67. The US is a Net Importer
    68. 68. The US is a Net Importer• Each year, we buy more goods and services from the rest of the world than they buy from us
    69. 69. The US is a Net Importer• Each year, we buy more goods and services from the rest of the world than they buy from us• This results in a trade deficit in the U.S.
    70. 70. The US is a Net Importer• Each year, we buy more goods and services from the rest of the world than they buy from us• This results in a trade deficit in the U.S.• And a trade surplus in other countries
    71. 71. The US is a Net Importer• Each year, we buy more goods and services from the rest of the world than they buy from us• This results in a trade deficit in the U.S.• And a trade surplus in other countries• This can cause unemployment to increase
    72. 72. The US is a Net Importer• Each year, we buy more goods and services from the rest of the world than they buy from us• This results in a trade deficit in the U.S.• And a trade surplus in other countries• This can cause unemployment to increase• And it can cause the domestic private sector to lose net financial assets
    73. 73. Unless....
    74. 74. Unless....The government compensates by running a sufficiently large deficit
    75. 75. But, But, But
    76. 76. But, But, But• Deficit spending is irresponsible
    77. 77. But, But, But• Deficit spending is irresponsible• China won’t stand for it
    78. 78. But, But, But• Deficit spending is irresponsible• China won’t stand for it• The Bond Vigilantes Will Get Us
    79. 79. But, But, But• Deficit spending is irresponsible• China won’t stand for it• The Bond Vigilantes Will Get Us• We’ll end up like Weimar or Zimbabwe
    80. 80. What Does it Mean?
    81. 81. The Hawks Have Their Definition
    82. 82. The Hawks Have Their Definition• A deficit hawk opposes deficit spending on principle
    83. 83. The Hawks Have Their Definition• A deficit hawk opposes deficit spending on principle• Want immediate cuts and austerity to reduce deficits
    84. 84. The Hawks Have Their Definition• A deficit hawk opposes deficit spending on principle• Want immediate cuts and austerity to reduce deficits• Often favor gold standard or 100% reserve backing
    85. 85. The Hawks Have Their Definition• A deficit hawk opposes deficit spending on principle• Want immediate cuts and austerity to reduce deficits• Often favor gold standard or 100% reserve backing• Would legislate rules to mandate balanced budgets
    86. 86. The Doves Have Their Definition
    87. 87. The Doves Have Their Definition• A deficit dove supports limited deficit spending in tough economic times
    88. 88. The Doves Have Their Definition• A deficit dove supports limited deficit spending in tough economic times• Want the budget balanced over the business cycle
    89. 89. The Doves Have Their Definition• A deficit dove supports limited deficit spending in tough economic times• Want the budget balanced over the business cycle• Support rules to limit the size of the deficit (e.g. Europe’s Fiscal Pact)
    90. 90. The Doves Have Their Definition• A deficit dove supports limited deficit spending in tough economic times• Want the budget balanced over the business cycle• Support rules to limit the size of the deficit (e.g. Europe’s Fiscal Pact)• Prefer to wait until after the economy begins to recover before imposing austerity
    91. 91. The Owls See Things DifferentlyOwls Doves Hawks
    92. 92. The Deficit Owl
    93. 93. The Deficit Owl• Assigns no arbitrary limit to the size or duration of the deficit
    94. 94. The Deficit Owl• Assigns no arbitrary limit to the size or duration of the deficit• Supports austerity only as an anti-inflationary measure
    95. 95. The Deficit Owl• Assigns no arbitrary limit to the size or duration of the deficit• Supports austerity only as an anti-inflationary measure• Calls it fiscally irresponsible to permit chronic unemployment or high inflation
    96. 96. China Isn’t Our Banker
    97. 97. China Isn’t Our Banker• China has US$ because they are net exporters to the US
    98. 98. China Isn’t Our Banker• China has US$ because they are net exporters to the US• Rather than holding those dollars in a (checking) account at the Fed, China prefers to convert some dollars into bonds
    99. 99. China Isn’t Our Banker• China has US$ because they are net exporters to the US• Rather than holding those dollars in a (checking) account at the Fed, China prefers to convert some dollars into bonds• Treasury bonds are, functionally, savings accounts at the Fed
    100. 100. China Isn’t Our Banker• China has US$ because they are net exporters to the US• Rather than holding those dollars in a (checking) account at the Fed, China prefers to convert some dollars into bonds• Treasury bonds are, functionally, savings accounts at the Fed• I could choose to sell you some Kelton bonds, and we could call them my “debt”
    101. 101. China Isn’t Our Banker• China has US$ because they are net exporters to the US• Rather than holding those dollars in a (checking) account at the Fed, China prefers to convert some dollars into bonds• Treasury bonds are, functionally, savings accounts at the Fed• I could choose to sell you some Kelton bonds, and we could call them my “debt”• But this in no way burdens me (or you!)
    102. 102. China Isn’t Our Banker• China has US$ because they are net exporters to the US• Rather than holding those dollars in a (checking) account at the Fed, China prefers to convert some dollars into bonds• Treasury bonds are, functionally, savings accounts at the Fed• I could choose to sell you some Kelton bonds, and we could call them my “debt”• But this in no way burdens me (or you!)• Just listen to Alan Greenspan
    103. 103. “[A] government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claims without limit” ~Alan Greenspan, 1997
    104. 104. The Issuer of the Currency Can Always Pay“[A] government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claims without limit” ~Alan Greenspan, 1997
    105. 105. The Issuer of the Currency Can Always Pay“[A] government cannot become insolvent with respect to obligations in its own currency. A fiat money system, like the ones we have today, can produce such claims without limit” ~Alan Greenspan, 1997
    106. 106. How does a Currency Issuer Spend?
    107. 107. How does a Currency Issuer Spend? • By directing its bank (usually the central bank) to credit someone’s account
    108. 108. How does a Currency Issuer Spend? • By directing its bank (usually the central bank) to credit someone’s account • There is no "printing of money"
    109. 109. How does a Currency Issuer Spend? • By directing its bank (usually the central bank) to credit someone’s account • There is no "printing of money" • In the modern era, government spending is accomplished through electronic keystrokes (Bernanke)
    110. 110. Money is No Object• As Chairman Bernanke explained on 60 Minutes in 2009: (PELLEY): Is that tax money that the Fed is spending? (BERNANKE): It’s not tax money. We simply use the computer to mark up the size of the account.
    111. 111. If Money is No Object, Then Why Cant Greece Pay?
    112. 112. If Money is No Object, Then Why Cant Greece Pay?• The EUR-17 gave up their keyboards! • Turned themselves into users of the currency, much like individual US States
    113. 113. If Money is No Object, Then Why Cant Greece Pay?• The EUR-17 gave up their keyboards! • Turned themselves into users of the currency, much like individual US States• Italy is like Indiana. Greece is like Georgia.
    114. 114. If Money is No Object, Then Why Cant Greece Pay?• The EUR-17 gave up their keyboards! • Turned themselves into users of the currency, much like individual US States• Italy is like Indiana. Greece is like Georgia.• Transferred spending authority to financial markets
    115. 115. If Money is No Object, Then Why Cant Greece Pay?• The EUR-17 gave up their keyboards! • Turned themselves into users of the currency, much like individual US States• Italy is like Indiana. Greece is like Georgia.• Transferred spending authority to financial markets• The only reason the Eurozone hasnt collapsed is because of the ECB - and its keyboard!
    116. 116. We Are NOT Like Greece
    117. 117. We Dont Need to Beg for Help
    118. 118. We Dont Need to Beg for Help
    119. 119. Money Matters
    120. 120. Money Matters• Governments should be in control of their currency
    121. 121. Money Matters• Governments should be in control of their currency• Otherwise, they lack the power to keep their domestic economies on track
    122. 122. Money Matters • Governments should be in control of their currency • Otherwise, they lack the power to keep their domestic economies on track “By virtue of its power to create or destroy money by fiat and its power to takemoney away from people by taxation, [the State] is in a position to keep the rateof spending in the economy at the level required to [maintain full employment].” ~Abba P. Lerner
    123. 123. Isnt That a Job for the Fed?
    124. 124. Isnt That a Job for the Fed?
    125. 125. What About Inflation?• Eccles wrote that tax increases may needed to "aid in fighting inflationary price rises which may occur when full capacity is approached."
    126. 126. We Have Plenty of Capacity
    127. 127. We Have Millions of People Who Want to Contribute
    128. 128. We Have UsefulWork For them
    129. 129. Not Nearly Enough Jobs
    130. 130. Its Not a Free Lunch!
    131. 131. Its Not a Free Lunch!• Everything has a cost
    132. 132. Its Not a Free Lunch!• Everything has a cost• We have the money
    133. 133. Its Not a Free Lunch!• Everything has a cost• We have the money• We have the real resources
    134. 134. Its Not a Free Lunch!• Everything has a cost• We have the money• We have the real resources• We should have much higher incomes
    135. 135. Its Not a Free Lunch!• Everything has a cost• We have the money• We have the real resources• We should have much higher incomes• But "because we fear becoming the next Greece, were turning ourselves into the next Japan"
    136. 136. There Is An Alternative to"Shared Sacrifice" and Stagnation It begins with the understanding that Money is No Object @deficitowl

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