RE: Have You Heard of Modern Monetary Theory?
Interesting stuff David - thanks for bringing in Pavlina for the interview. I hope you can talk about the intersection of what Pavlina says and cryptocurrency in a later conversation. As best I can tell it sounds like she would say MMT would deny that Bitcoin, Litecoin, anything-coin is a currency because it is not what any government demands payment of taxes in.
I have an alternative view - what if we say Bitcoin (or whatever) is established by the authority of we the people (all people not just Americans). If we start demanding payment using it then we establish it as our currency. I mean theoretically, at least in America, government is supposed to be of, by, and for the people. Clearly that hasn't been the case for a long time either because the government wasn't representative of us in its makeup - just an elite crowd, or now because they are beholden to wealth and its preservation via the legalized bribery and corruption that SCOTUS has enshrined. So we the people actually creating and backing Bitcoin (et al) is just an end-run around that system. The "Sorry mates, we don't like your authoritarian money, we have our own now" and g-dang it seems to be popular. Some people may see the increasing value of Bitcoin as a bubble, the other perspective is it is the collective devaluing of fiat currency.
One other point Pavlina makes that really resonated - that deficit is really just the difference between what the government spent and what it taxed to pay for that spending. It's the difference that stays in our pockets. But when you look at income and wealth distribution you find that 25% of all Americans have no net wealth at all. And they aren't, for the most part, living a profligate lifestyle either. And the vast majority of the rest that have wealth don't have much wealth at all either. That debt - it's a measure of how much money we have poured into the top 1,2,3,4,5% of society.
However, I might argue that the "savings" she says deficit creates rather assumes that what the money was spent on did some good for the people. If the deficit is $0 and then the government gives $1T of that to people who will offshore that money and invest outside of the country then that generates no net savings. Even a war costing $1T is better than giving $1T to people who don't need it because at least in theory it creates jobs in the defense industry etc.
The National Debt isn't really a debt. For the most part, it's savings.
When the government wants to 'borrow', they sell securities (bonds). What does a bond look like? Is it a piece of paper with fancy writing on it? No. It's numbers in an account on a computer at the Fed.
When banks buy securities, they use the money from their reserve accounts at the Fed. These are the equivalent of deposit accounts that you or I may have at a commercial bank. Instead of receiving a piece of paper, the balance of their securities account goes up. This is the equivalent of a savings account that you or I may have.
So, government borrowing (at a Federal level) is nothing more than the shifting of balances from a banks deposit account to their savings account. The Government then says "the amount that's been put into the savings account is no longer in circulation, which means that we can spend an equal amount into circulation without causing inflation." The Government is actually wrong about money having been removed from circulation because the bank never intended for it to enter circulation in the first place, but that's another story.
Good points. But it occurs to me that the view "National Debt" is savings hypothesis is
flawedoffset by the fact that a large amount of those debts are owned by foreign entities. Okay, so they are still someones savings, but noone in our country and hence not a true reflection of the health of our nations savings. At the extreme end none of the debt could be held by Americans! Unless these foreign entities are active trade partners that we have a trade surplas with (i.e. most definitely not China) then those overseas savings don't really do us any good, in fact I'd hazard a guess they are net negative that enriches other countries who don't share our values by payment of interest to them.According to Wikipedia as of 2014, 47% of all public debt was owned by foreign entities. Wow. I wonder how different the US would be if it was all held by Americans? Maybe people would have a completely different relationship to the national debt which is more in line with your "Savings" description. The interest would enrich our economy, and the government would be beholden to us, not overseas entities when making economic and fiscal decisions. What a novelty.
Another factor in the equation... is that banks make money too - using debt. That whole fractional reserve thing that basically amplifies debt in the system. I don't see any discussions about how cryptocurrencies and blockchain based tokens differ from real banking because of the lack of fractional reserve banking. You can say what you will about BTC being a Ponzi scheme but no one, to my knowledge, is magically creating Bitcoin out of thin air using debt.
It's common to hear people in the US media lament the $1 trillion debt that's owed to China. This 'debt' is nothing more than $1 trillion in savings that China has in their account at the Fed.
You are correct to say that it's not a true reflection of the host nation's savings, but data exists to help you figure out that amount.
If the savings will continue to be saved (including the interest), then I don't think it will make the kind of difference that you're thinking of. If the savers decide to spend the money, then things will change.
You're also correct that banks create money (well, credit that gets used as money). However, they don't use the fractional reserve model that you see in textbooks and You Tube videos. Instead, they use something called the credit creation model. In a nutshell, banks can create as much credit as they like (with fewer constraints than fractional reserve). What matters to them is whether or not they can find credit-worthy borrowers.
Bitcoin is a form of 'acknowledgement money' - it acknowledges the fact that someone did 'work' to mine it. However, unlike work that you or I do, the acknowledgement that Bitcoin provides lasts forever and doesn't diminish over time (though the price fluctuates). The credit money that banks create gets destroyed when it's paid back to banks, just as the money (effectively tax credits) that the central bank creates on behalf of Government get destroyed when paid back to the Federal Government in taxes.