Perhaps I was too hasty in poo-pooing comparisons of our nation's economy to an individual's economy. Certainly, there are plenty of differences that are largely ignored by the Right but there are some similarities that were illustrated quite well over at The Pragmatic Capitalist. The first piece, "The US Government is not $16 Trillion dollars in the hole," points out the obvious.
The IER estimates that total fossil fuel resources owned by the Federal government are valued at over $150 trillion alone. These assets alone are FIFTY FIVE times the amount stated in the CNBC report. But that only scratches the surface. I haven’t even looked into the huge amount of federally owned land and buildings that would surely amount into the hundreds of billions if not trillions of dollars. There’s also the gold resources. And there’s the trillions of dollars in its own liabilities that it owns via the Fed and Social Security funds.
Just like an ordinary person who owns land, oil, a profitable business and other assets like gold, the US government also has a gigantic pile of assets that make us far into the black. And that's with all the future Social Security and Medicare liabilities (around $60-7$0 trillion). As PragCap show us, we are not going bankrupt and the people who claim this are simply lying because of their pathological hatred of the US government and their inability to admit fault. Their obsession with spending is essentially holding us back from economic growth and one was to wonder if this is the whole point. They want our country to fail so they can win the argument.
Of course there are still differences which the second link illustrates quite well.
The constraint for the government is different from that of a household or business who can really “run out of money”. The US government’s constraint is not that it will run out of funds, but that it could supply too much liquidity to the private sector thereby causing inflation. So the US government’s real constraint is inflation and not solvency. This is a vastly different issue than the one the US media usually harps on with regards to the budget deficit and the US government’s ability to “afford” its spending.
The USA has an institutional arrangement in which it is a contingent currency issuer. That is, while the Treasury is an operational currency user (meaning it must always have funds in its account at the Fed before it can spend those funds) it has the extraordinary power to tax and issue risk free bonds that the public will always desire to hold so long as inflation is not extraordinarily high. In addition, even in a worst case scenario, the US Treasury can always rely on the Federal Reserve to supply the funds necessary to fund its spending. Therefore, the US government can be thought of as a contingent currency issuer who can issue the funds to spend. This makes it very different from a household.
The US Treasury is a currency user, but the government as a whole can be seen as a contingent currency issuer by institutional design because of this implicit funding guarantee. So the key here is that there’s no solvency constraint as in, “running out of money”. Greece doesn’t have this arrangement. In fact, since the ECB is essentially a foreign central bank there is a real solvency constraint. So banks and private investors have become hesitant to buy Greek bonds because of this flawed institutional arrangement and the lack of an implicit guarantee. It’s apples and oranges compared to the USA.
Once again, not like Greece. Not going bankrupt. Not overspending. Not running out of money. Plenty of assets.
IN THE BLACK.
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Once again, not like Greece. Not going bankrupt. Not overspending. Not running out of money. Plenty of assets.
Heard as he passed the 10th floor: "so far, so good!"
Why Modern Monetary Theory is Wrong About Government Debt
The notion at the heart of modern monetary theory that governments that control their own currency do not have to engage in contractionary deleveraging remains largely ignored. Just because nations can (in a worst case scenario) always print money to pay their debt, doesn’t mean that they will always print money to pay their debt. They will often choose to adopt an austerity program (as is often mandated by the IMF), or default outright instead (as happened in Russia in the 1990s).
And what governments cannot guarantee is that the money they print will have value. This is determined by market participants. In the real economy people in general and creditors (and Germans) in particular are very afraid of inflation and increases in the money supply. History is littered with currency collapses, where citizens have lost confidence in the currency (although in truth most hyperinflations have occurred after some great shock to the real economy like a war or famine, and not solely as a result of excessive money printing).
American Money Institutes’s Evaluation of “Modern Monetary Theory”
At the outset AMI enjoys a good, cordial relationship with some of the leading MMT economists, and we certainly wish to build on this relationship. But one thing we can’t compromise on is facts. MMT, like much of modern economic thinking, builds upon some erroneous assumptions and a definition of money that is faulty and works to the extreme detriment of the 99%. In addition MMT has its own specific problems between its claims and the facts which have bearing on the validity of MMT.
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MMT shows a lack of respect for empirical facts. This is a problem with economists’ theories in general, and we find that MMT is no exception. As the monetary historian Alexander del Mar observed over a century ago (and it still holds true today):
“As a rule, political economists … do not take the trouble to study the history of money; it is much easier to imagine it and to deduce the principles of this imaginary knowledge.”1
To their credit, MMT economists like Professor L. Randall Wray admit to using imaginary history, for example:
“This … summation of the ‘origins’ of money, much of it relying on speculation” is used in “a stylized, hypothetical example of the way in which an economy can be monetized.”
Weekender: The Trouble With Modern Monetary Theory (MMT)
• MMT says it’s important to understand the government is self-funding and can’t run out of money.
• MMT says (or strongly implies) deficits don’t matter because the Monopoly banker can’t go broke.
• MMT verbally acknowledges that governments cannot “spend and spend” unproductively, but fails to pursue the implications of this truth.
• MMT says there will always be a demand for currency because of taxes and payments and transactions.
• MMT implies that U.S. government self-funding equals financial immortality.
• MMT suggests that governments are special economic entities worthy of their own 5th-dimension-like rules.
• MMT glosses over the importance of productivity and prudent investment — paying lip service to such, but then promoting contradictory assertions.
• MMT does not fully account for the role that bad spending, unproductive debt build-up, and malinvestment surges have in fueling Austrian style boom-bust cycles, which have been around for centuries (or even millennia).
• MMT fails to acknowledge, let alone give proper weight to, the fact that THE REAL ECONOMY IS WHAT MATTERS.
• MMT ignores the lessons of history in its general smugness as to the U.S. financial position.
That there are supposed 'experts' you can find to back up your insane economic thoughts boggles the mind and explains why we are in this situation in the first place.
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