Slashdot Mirror

Google's worth as a bookmark system has seriously dropped with the way they're handling links now. Obviously, the links in my post are messed up, they should be: #1 and #2.

If the money is placed in the bank, the bank has more money to lend to businesses

This is incorrect. The ability of a bank to make loans is not limited by the amount of deposits that it has. It is only limited by the amount of capital the bank has, but deposits do not count as capital (for good reasons). The bank only benefits from your deposits because it makes it slightly cheaper for them to lend.

You may want to read this explanation for some background.

Actually, the problem with our current economy is that we do not have sufficient amounts of captial in reserve to supply funds to those who wish to take advantage of new business opportunities.

Not true. There is lots of capital to go around, as you can see by how easily huge companies like Apple, Google and MSFT are able to get insane amounts of money. So why does that capital not flow to take advantage of new business opportunities?

The answer is simple: There are very few promising new business opportunities in the current economic climate, because consumers do not have enough money.

At least part of this problem could be relieved by instituting programs to create jobs for the unemployed, since the unemployed are obviously the ones with the least amount of money available and would therefore give the largest multiplier effects.

The crucial thing that all the talking heads are missing is that you and I are users of money. We have to get money before we can spend. The US federal government, on the other hand, is an issuer of money. They have to spend money before they can get it back.

We are the players of World of Warcraft, and the US federal government is Blizzard. Everything else follows from this when you think about it logically (and are prepared to challenge everything you've known so far about macroeconomics).

If you want to really challenge your understanding of all this, I suggest you read about Modern Monetary Theory. Some initial pointers are: this overview, the book 7 Deadly Innocent Frauds, and the blog of economics professor Bill Mitchell - for your particular question particularly the series Deficit Spending 101: #1, #2, #3.

The Cliff Notes version is that because - in the long run - the private and external sectors save in financial assets, the currency issuer must run a deficit to maintain aggregate demand at a level where the economy does not tank - after all, the money that is being saved by the private and external sectors has to come from somewhere. The government surplus under Clinton was only possible due to the financial engineering that allowed the private sector to accumulate massive debts. These debts ultimately were not sustainable, and so it is quite reasonable to say that the Clinton surpluses are one of the causes of the global financial crisis. What we are seeing now is that the private debt burdens are shifted back to the government.

The crucial thing that all the talking heads are missing is that you and I are users of money. We have to get money before we can spend. The US federal government, on the other hand, is an issuer of money. They have to spend money before they can get it back.

We are the players of World of Warcraft, and the US federal government is Blizzard. Everything else follows from this when you think about it logically (and are prepared to challenge everything you've known so far about macroeconomics).

If you want to really challenge your understanding of all this, I suggest you read about Modern Monetary Theory. Some initial pointers are: this overview, the book 7 Deadly Innocent Frauds, and the blog of economics professor Bill Mitchell - for your particular question particularly the series Deficit Spending 101: #1, #2, #3.

The Cliff Notes version is that because - in the long run - the private and external sectors save in financial assets, the currency issuer must run a deficit to maintain aggregate demand at a level where the economy does not tank - after all, the money that is being saved by the private and external sectors has to come from somewhere. The government surplus under Clinton was only possible due to the financial engineering that allowed the private sector to accumulate massive debts. These debts ultimately were not sustainable, and so it is quite reasonable to say that the Clinton surpluses are one of the causes of the global financial crisis. What we are seeing now is that the private debt burdens are shifted back to the government.

The crucial thing that all the talking heads are missing is that you and I are users of money. We have to get money before we can spend. The US federal government, on the other hand, is an issuer of money. They have to spend money before they can get it back.

We are the players of World of Warcraft, and the US federal government is Blizzard. Everything else follows from this when you think about it logically (and are prepared to challenge everything you've known so far about macroeconomics).

If you want to really challenge your understanding of all this, I suggest you read about Modern Monetary Theory. Some initial pointers are: this overview, the book 7 Deadly Innocent Frauds, and the blog of economics professor Bill Mitchell - for your particular question particularly the series Deficit Spending 101: #1, #2, #3.

The Cliff Notes version is that because - in the long run - the private and external sectors save in financial assets, the currency issuer must run a deficit to maintain aggregate demand at a level where the economy does not tank - after all, the money that is being saved by the private and external sectors has to come from somewhere. The government surplus under Clinton was only possible due to the financial engineering that allowed the private sector to accumulate massive debts. These debts ultimately were not sustainable, and so it is quite reasonable to say that the Clinton surpluses are one of the causes of the global financial crisis. What we are seeing now is that the private debt burdens are shifted back to the government.

The crucial thing that all the talking heads are missing is that you and I are users of money. We have to get money before we can spend. The US federal government, on the other hand, is an issuer of money. They have to spend money before they can get it back.

We are the players of World of Warcraft, and the US federal government is Blizzard. Everything else follows from this when you think about it logically (and are prepared to challenge everything you've known so far about macroeconomics).

If you want to really challenge your understanding of all this, I suggest you read about Modern Monetary Theory. Some initial pointers are: this overview, the book 7 Deadly Innocent Frauds, and the blog of economics professor Bill Mitchell - for your particular question particularly the series Deficit Spending 101: #1, #2, #3.

The Cliff Notes version is that because - in the long run - the private and external sectors save in financial assets, the currency issuer must run a deficit to maintain aggregate demand at a level where the economy does not tank - after all, the money that is being saved by the private and external sectors has to come from somewhere. The government surplus under Clinton was only possible due to the financial engineering that allowed the private sector to accumulate massive debts. These debts ultimately were not sustainable, and so it is quite reasonable to say that the Clinton surpluses are one of the causes of the global financial crisis. What we are seeing now is that the private debt burdens are shifted back to the government.

Of course, if you were to print a large enough amount of money, it would lead to inflation (or asset price bubbles, which actually seem to occur first in the current economy).

The reason for this is clear: the current system is set up to benefit the rich: see this recent entry on billy blog

Since the rich have more money than they need already, their increased income does not go into consumption. Instead, they use that income to buy stocks and other assets, hence the quick recovery of the stock market since the great recession.

It is nice to see a reasoned post in such a discussion, I'm especially happy to see somebody point out that banks do not lend out deposits, but this caught my eye:

There is a limit to the total credit but it is related to the fractional reserve and the money multiplier and has nothing to do with real things.

This has not been true for a very long time. Availability of reserves does not limit bank lending, because banks can always obtain required reserves after the fact. The central bank acts as lender of last resort for that purpose. Explained by an actual economist: Lending is capital- not reserve-constrained.

I was pointing out the error in your argument. Second, there is no tradeoff between financial assets and government debt. If the government paid off its debts, then private enterprise could borrow more, adequately compensating for the absence of government debt.

I recommend you read a little on accounting. When you borrow X amount, you have an additional assets of amount X. However, you also have an additional liability of amount X. The person who gave you the loan has X amount of assets less (the ones that he loaned out), but they will be replaced by a new asset worth X, namely your debt. In other words, the net outcome in financial assets is therefore zero.

No matter how you play this game, as long as only private actors (banks, firms, private persons) are involved, the net financial assets held by the private sector sum to zero. The only way that this quantity can increase is when the government comes in.

Incorrect. Less money is loaned to private sources when government debt is involved. Once again, I can lend only a finite amount of money. If I'm lending more to government, then I'm lending less to private enterprise. Either way, it is obvious that the government or private source will spend or invest the money. So there's no inherent change in the availability of capital for further loans from that.

You are implicitly assuming that the amount of money you have available to lend out is the same no matter whether there is a government budget deficit or not. But that assumption is clearly false.

The economy is flow-consistent. What this means is that when somebody spends money somewhere, then this money does not magically disappear. It has to come out again or accumulate somewhere. So, with a government budget deficit, some private entity ends up holding more money than they would otherwise have held. In fact, when you sum up over all private entities, the additional amount of money held by all private entities compared to what they otherwise would have had is exactly equal to the government's budget deficit. Note that this is not a theory. It is a mathematical fact that follows from flow-consistency.

Now you may say that time plays a role, and that the additional money is only available after the government has borrowed the money. In fact, if government were to borrow money and then hold on to it for a year before spending it, then you would be right at least inside your flawed model. However, this is not what is happening. The borrowed money is spent, and in the next "time step" it is back in the hands of private entities to be lent out again. The computation becomes a bit longer than what I wrote in my previous post, but the end result is still the same: when you average over time, the introduction of the budget deficit actually reduces the competition between borrowers.

(And let me state again explicitly, in the unlikely case somebody else stumbles into this thread this late: The above three paragraphs are written under the assumption that your approach to how lending works is correct. Reality works quite differently, but I don't expect you to take my word for it. This is why I put forward this argument that even if your model were correct, your conclusions based on it would still be wrong. My hope is that this will encourage you to read more seriously some of the sources I've linked to - in particular 7DIF and Bill Mitchell's blog - where these things are explained in more detail.)

[1] I am assuming here that the classical model of a market for loanable funds underlies your thinking, where people with savings go to loan them out for a profit, and borrowers go to request funds. This model is pretty flawed, because the way in which banks give out loans is not compatible with it. So I reject your premise - your model of ho

Every country can do that. Printing money is something every government does, and printing money doesn't create debt, and never has.

However, printing more money does cause inflation.

Kind of off-topic, but this is a common misunderstanding. The most direct causal link between inflation and printing money is that when inflation happens, you are eventually forced to print more money so that payment settlement can continue normally. [1] The misunderstanding comes from people confusing printing money with government spending.

There are a number of causes of inflation, but for this type of discussion, the relationship of productive capacity and aggregate demand is key. The short version is the following. When aggregate demand grows too fast for productive capacity to keep up, then you get inflation (because competition drives up prices). When productive capacity grows faster than aggregate demand, then unemployment results (because companies that cannot fill their order books lay off workers). Those are the key constraints of the economy.

From a sovereign government's point of view, this means that while it can obviously spend as much as it likes, there are real constraints to keep in mind. If the discretionary budget deficit is too large, there will be inflation. If the discretionary budget deficit is too small, there will be unemployment. (Of course, due to automatic stabilisers, the final budget outcome can be very large and unemployment can be high at the same time. In such a situation, the reasonable thing to do is to increase the size of the discretionary budget deficit. This often decreases the final budget outcome via automatic stabilisers.)

One cannot say a priori how large the budget deficit should be to be neutral with respect to both inflation and unemployment. The size of the neutral budget deficit changes over time, based on changing circumstances in the private sector's savings behaviour and the development of the external sector.

Fundamentally though, printing money is just a liquidity management operation. What really matters are spending flows.

If you truly have an open mind and want to learn more about the long version, I suggest you search for Modern Monetary Theory. A good starting point is here, and more thorough analyses can be found on this blog of an Australian economics professor.

[1] The recent story of Argentina in that respect is very educational. Basically, Argentina has long had quite high inflation, and the government believed - like most people do, unfortunately, due to that misunderstanding - that they could fight inflation by not printing any more money. Well, prices were rising anyway, and at some point there was a lack of physical money for people to make their payments. Keep in mind that electronic payments are not well developed in Argentina, so people might have had money in a bank account, but were unable to get it out simply because the ATMs ran out of notes. This was not in any way a bank run, it was just an under-supply of tokens, and the irrationality that goes along with that kind of problems hurt price stability on top of the inflation that was happening anyway. In the end, printing more money solved that problem, but crucially, it was really only about printing more money, purely liquidity management. By printing this money, the government did not increase its spending.

You mentioned only one actual effect of those numbers, namely interest payments. Those constitute a risk-free stream of income for holders of treasuries. Is that a bad thing?

Yes, it means potential borrowers who can't offer the so-called "risk-free" stream of income have to settle for higher interest rates and/or lower borrowed amounts.

Be careful to get the causalities right. It is not the budget deficit and the issuing of treasuries that drives up interest rates. Interest rates are set by monetary policy, which is decided by the central bank. And as I said, I would be all for a zero interest rate target (which would mean zero interest paid by the central bank and government, and a very low cost of borrowing at the central bank).

A third effect of excessive borrowing is higher future borrowing rates due to an elevated risk of default.

There is no risk of default for the federal government, by definition. If the Tea Party lunatics get their way, it might default voluntarily. But the federal government cannot, ever, find itself in a position where it is unable to pay.

(Though to clarify, from an economics point of view, "government" means all of government, not just the executive branch. If the legislative branch decides that the government should go into voluntary default, then there's not much the executive branch can do against that under current political arrangements. The important point is to understand that the government can never be unable to settle its bills, it might just become unwilling to do so for stupid ideological reasons.)

The good news is that interest payments are entirely voluntary, and the interest rate is set by political choice via monetary policy.

If it's so easy, why not turn the dial to 11 and make bank? What could possibly be the obstacle to this fascinating money machine?

Inflation. Someone who bothered to save money or loan money to others gets shafted. There is no such thing as a free lunch. Someone always pays for it.

You're mixing up too many things for me to bother to reply in detail. The short answer is that since the part of inflation that can be controlled domestically is essentially driven by the relationship between aggregate demand and productive capacity of the economy, it is perfectly feasible to run a zero interest rate regime and control inflation by setting the size of the budget deficit appropriately. This is what Japan has been doing for two decades now. If you honestly want to understand more, I again recommend reading about Modern Monetary Theory, start with e.g. Warren Mosler's 7 Deadly Innocent Frauds, or perhaps Bill Mitchell's blog.

Sure, you can interpret it that way. I don't consider your distinction meaningful, especially to the current discussion. Where's the economic growth that's going to absorb increases of 10% debt per year? Sure, if the economy were growing well over 10% per year, then deficits of 10% of GDP per year wouldn't be that significant. Similarly, if we just borrowed money for a short, spent it on things that raised US economy substantially (you know, that Keynesian economics thing) while and cut back promptly, then that might But that's not what's happening.

Do you believe that the budget outcome is chosen by politicians? If so, I have bad news for you: it is largely a result of automatic stabilisers. If the economy were to grow again significantly, then the budget deficit would reduce automatically via increased tax revenue and reduced welfare outlays. The budget deficit as a ratio of GDP would fall below the growth rate long before the growth rate reaches those 10%.

The second part is that people and businesses aren't stupid. People know when the US i

The US deficit is not a problem. Seriously. The size of the US debt means nothing when looked at in isolation. Is it a large number? Sure. But compare it to the amount of private wealth, and things start looking very different suddenly.

The only problem is to optimize spending and taxation in such a way that the real outcome is good in some sense - and there needs to be a genuine discussion about what "good" should mean. I would say "good" means jobs that allow obtaining a high real living standard for everybody who wants that (if you don't want to work, that's fine too, just don't expect such a high living standard).

Then the deficit will be as small or large as is necessary to achieve that goal. The deficit is an endogenous outcome anyway; this means that the size of the deficit is not a decision by politicians, and in fact politicians can do very little to influence it (as the continued austerity measures in Britain, Greece, and other countries demonstrate). Instead, the budget deficit is simply the outcome of private spending and savings decisions. It is a matter of accounting that by itself means very little.

This is the essence of Functional Finance and the more recent Modern Monetary Theory.

You think your US government backed cash has any actual value to it? It has as much (or as little) value as the people who hold it believe it does.

This is incorrect because of taxation. By taxation, the government forces a debt nominated in US$ on you. This implies that you have to get US$ from somebody else. Thus demand for US$ is created, giving them value.

Almost everybody believes that the US government taxes people so that they get money to spend. This is completely false, however. Think about it: the US government is the one who *creates* the US$. Saying that they need income from taxes to be able to pay out US$ is as silly as saying that Blizzard needs income from somewhere in order to be able to pay out WoW gold.

The primary purpose of taxes is to remove purchasing power from the private sector, to create a gap in aggregate demand that can then be used for inflation-free government spending. You may be interested in some of Prof. Mitchell's writing on Modern Monetary Theory, starting e.g. here.

I don't see a problem with bitcoin in theory... but throughout history no currency has been stable without an army to enforce its existence. Disband the USA police/Army and the dollar would collapse.

You almost hit Bitcoin's problem spot on. The reason that fiat money like the US$ is viable is that there is an entity - the US government - that can force a US$-denominated debt on you via taxation. This taxation creates demand for the money, which is what ultimately underpins the money's value, once you go beyond all the circular reasoning of "You work for US$ because Walmart accepts US$ in payment for goods because Walmart needs US$ to pay its suppliers because the suppliers need US$ to pay their employees, i.e. you".

Historically, no monetary system could remain stable and useful for significant amount of time unless it was backed by an appropriate power of taxation to jumpstart the value of the currency. No power exists that is able to force Bitcoin-denominated debt onto people, and so Bitcoin will never be widely used outside of the fringe of curious geeks and gold-nutters.

And this is just the problem of how Bitcoin could gain traction. If Bitcoin ever gained traction, then G** help us. Recessions like this one would be inevitable and prolonged, because nobody has the power to jump-start the economy out of a recession by unilateral stimulus spending. (Of course, given how the political debate is going these days, we might as well use Bitcoins, since governments refuse to use the tools at their disposal with which they could get us out of it.)

By the way, if you really want to learn more about how monetary system works, I recommend billy blog as a good source by a modern monetary theory economist. The entry A simple business card economy is probably a good starting point.

I don't see a problem with bitcoin in theory... but throughout history no currency has been stable without an army to enforce its existence. Disband the USA police/Army and the dollar would collapse.

You almost hit Bitcoin's problem spot on. The reason that fiat money like the US$ is viable is that there is an entity - the US government - that can force a US$-denominated debt on you via taxation. This taxation creates demand for the money, which is what ultimately underpins the money's value, once you go beyond all the circular reasoning of "You work for US$ because Walmart accepts US$ in payment for goods because Walmart needs US$ to pay its suppliers because the suppliers need US$ to pay their employees, i.e. you".

Historically, no monetary system could remain stable and useful for significant amount of time unless it was backed by an appropriate power of taxation to jumpstart the value of the currency. No power exists that is able to force Bitcoin-denominated debt onto people, and so Bitcoin will never be widely used outside of the fringe of curious geeks and gold-nutters.

And this is just the problem of how Bitcoin could gain traction. If Bitcoin ever gained traction, then G** help us. Recessions like this one would be inevitable and prolonged, because nobody has the power to jump-start the economy out of a recession by unilateral stimulus spending. (Of course, given how the political debate is going these days, we might as well use Bitcoins, since governments refuse to use the tools at their disposal with which they could get us out of it.)

By the way, if you really want to learn more about how monetary system works, I recommend billy blog as a good source by a modern monetary theory economist. The entry A simple business card economy is probably a good starting point.

I'm not sure what you mean by "natural rate of unemployment". I am sure that you can define that term in such a way that what you're saying is true, but I would argue that such a definition is ultimately not useful at all. As far as the NAIRU is concerned, the concept is hugely flawed, and the perceived increase of that rate can be mostly traced to economists changing their models as it pleases them when reality contradicts their claims.

And who is going to pay for your scientists and engineers to dream things up while other countries are busy working and building the next new things?

The government can pay for that. See, for example, Debt is not debt to get an alternative view to what all the deficit terrorists are telling you these days.

I'm sorry to burst your bubble, but there really are some (in my view very misguided and/or sociopathic) individuals who believe that it is not government's job to work towards full employment - meaning that the only type of unemployment is the kind of frictional/between jobs unemployment that you mention. This rate of unemployment is probably more like 0.5%-2%, at least judging from the period of low unemployment in many Western countries after World War II (Germany, for example, had a run of less than 1% unemployment for several years in a row in the 1960s). This is not to be confused with the so called NAIRU, a fictional (that is, unmeasurable) unemployment rate that is supposedly neutral with respect to inflation. The latter is also a somewhat misguided concept, because there are ways of creating jobs without creating any inflationary pressure.

Here is an interesting article by Victor Quirk on the historical development of policies related to full employment, and the abandonment of those policies with the policy shifts starting in the 1970s.

which is why the current political obsession with austerity is so ridiculous

How do you figure? Over time, there's a limit on the amount of money that a government can raise though taxes (thanks to the Laffer curve having a maximum), and a limit to the amount of money a government with rolling debt can print (because it has to continue to borrow against the perceived risk of future inflation). This means the total amount of money a government can spend (without a currency collapse) is limited, not infinite.

I hate to write it this plainly, but from a technical point of view, this is simply false. The government (as a whole, i.e. assuming both executive and legislative bodies get behind it) can always spend as much as it likes. As long as there are goods and services for sale denominated in US$, the US government can buy them. Think about it:

You offer something for sale at a certain US$ value. The government writes you a check to that amount. You go to a bank to cash that check. If the check bounces, then the government is unable to pay you. If the check doesn't bounce, then the government is able to pay you.

Since it's ultimately the government (via the Fed) that runs the US$ monetary system, government checks never bounce. This means that on a functional level, the US government can spend as much as it likes.

Is spending as much as it likes always a good idea? Obviously not. But once you accept the fact that government spending has no technical limitations - unlike the spending of you and I - you are free to ask other questions about how the economy should be run. If the government has no spending limit, why are there taxes? There is a good reason for them. Why does it borrow? There are fewer good reasons for that. And how much should it tax? More than it spends? Less than it spends? Exactly the same amount? Figuring out an answer to this question without any ideological baggage is precisely what Modern Monetary Theory is about, see e.g. here.

The most important lesson is perhaps this: Mindless budget rules are stupid. The appropriate size of the budget and its balance can only be determined in the context of how the real economy is doing, the amount of unemployment, and political choices.

Currency is IOU notes that devalue over time.

Absolutely. This is the one thing that "goldies" never seem to get right. Money is all about you owing me and vice versa. Moreover, all money in existence is ultimately a debt of the government, which is why the current political obsession with austerity is so ridiculous. Government debt is simply the mirror image of private wealth.

FIAT currency tends to be *backed* by something, like an economy, like USA or European Union or even China.

More concretely, modern fiat money is backed by the power of taxation. A large part of the value of money comes from ultimately circular reasoning, i.e. you can pay your groceries at the shop using money, because the shop needs to pay its employees with that money, because those employees can use that money to pay for groceries. However, underlying this circularity is the fact that the state has a monopoly power to force a debt on you: the tax debt. A random stranger on the street cannot force you into debt, but the state can. By doing so, it creates scarcity and demand for the state-issued money, and this is where the value of modern money ultimately comes from.

This is one of the key insights of Modern Monetary Theory, which was greatly influenced by the Functional Finance of Abba Lerner, and is developed by people like Randall Wray and Bill Mitchell.

Here are my thoughts on the matter.

First off, the biggest obstacle to American success is China and their unfair trade practices. By keeping their currency pegged to the US dollar at artificially low rate they are creating trade barriers to real free trade.

Try thinking about this situation in real terms, i.e. comparing the resources available to a country vs. the resources it is able to consume. Because the Chinese government keeps buying US$, the US is able to import cheap goods from China, which means that the US, as a nation, is able to consume more resources than it normally would be able to. If I were the US government, I would be happy about the Chinese policy!

It is true that this competition causes US manufacturing jobs to disappear. However, that's not a bad thing at all, because it means that those workers are freed up for other, more advanced and useful tasks. They can help raise the living standards for US citizens even beyond what they are used to today.

Of course, actually making use of this opportunity would require a government that isn't stuck in neo-liberal economic thinking. For example, it would require a government that realizes that idle resources can simply be employed via higher deficit spending in programs that advance public purpose. In other words, it would require a government that understands Modern Monetary Theory.

In the meantime, those of us who do have an unobstructed view on the fundamentals on how monetary systems and the economy function are keeping up the facepalming in light of the supreme idiocy that comes out of our politicians on both sides of the Atlantic.

Please explain why you support the government wasting over 3 trillion dollars of borrowed Chinese money, and then please explain why people opposed to that make you so angry.

No need, as I don't believe the money is wholly wasted. What makes me angry is the 4-7 trillion dollars we've spent and have accrued liability for with pointless boondoggles in Iraq and Afghanistan, and the people who blindly support those "wars". But that's beside the point.

I agree with that, though I would also add that the expression "3 trillion dollars of borrowed Chinese money" shows a gross misunderstanding of how the US monetary system works. You may be interested in an economic approach to understanding fiat money called the Modern Monetary Theory.

The fact of the matter is that the Chinese earned US$ by selling goods to the US. This money ended up in an account at the central bank (the Fed). This account can be thought of as a checking account. The act of buying US treasury bonds is equivalent to shifting that money from a checking account into an interest earning savings account.

In other words, it is not the US government that spends money borrowed from the Chinese. Rather, the Chinese are saving money that they earned from the US, money that comes from US federal spending.

It is important to understand the distinction. For a first reading, I recommend The 7 Deadly Innocent Frauds by Warren Mosler. Also, billy blog by Australian economist Bill Mitchell makes for interesting reading.

Which sounds good, until you realize that there are times when deficit spending is legitimate and necessary for the good of all those that are concerned. It's just when you start wasting money on things like pointless wars and tax breaks for the rich that you start to run into trouble.

I would go even further: there is significant evidence that on average, deficit spending is a requirement for a well functioning economy in a fiat money system - where by well functioning I mean that there are no resources left to idle, in particular it means there is no waste in the form of idle production capacities and involuntary unemployment.

The key is to understand the basic mechanisms that underlie a modern monetary system, as that will forever change your understanding of the function of federal government debt. I recommend the book by economist Warren Mosler 7 Deadly Innocent Frauds for a start, it's not too long a read and really challenges your understanding of money in a good way. Once you're through with that, I recommend the blog of Australian economist Bill Mitchell, billy blog.

Really smart tech people stoop to balancing nominal bookkeeping numbers? beyond belief!!

What part of simple logic don't these people understand? My faith in tech CEOs is demolished.

Their efficiency tactics are all admirable, & to be encouraged - but their stated policy & goal reasoning is so naive it's embarrassing!
We should be spared the shame of hearing them try to speak in public about fiscal policy (not that Obama or Geithner are any better, but .... no further comment).

For god's sakes, someone PLEASE ask them to review the following links before EVER opening their mouths about fiscal policy again! PLEASE!

Sample references on basic monetary operations.

"Almost everybody talks about budget deficits. Almost everybody seems in principle to be against them. And almost no one, literally, knows what [they are] talking about."
http://books.google.com/books?id=jTSddYcGA6gC&printsec=frontcover&dq=Robert+Eisner,+The+Misunderstood+Economy&source=bl&ots=nz6wJ-sCnK&sig=6Vli8JdSQLSwlg9K1rVcdnW2SIc&hl=en&ei=KeQx6AEwAA#v=onepage&q&f=false

Public initiative and the beginning of US currency: A confused electorate can end up pretending to borrow it's own currency, instead of creating it? http://www.monetary.org/briefusmonetaryhistory.htm

Understanding Modern Money [a historical guide] http://books.google.com/books?id=6PMuExCtMe8C&pg=PA18&dq=Understanding+Modern+Money:+The+Key+to+Full+Employment+and+Price+Stability&source=gbs_toc_r&cad=4#v=onepage&q=&f=false

Fiscal sustainability 101, by Bill Mitchell http://bilbo.economicoutlook.net/blog/?p=2943

Teaching the Fallacy of Composition: The Federal Budget Deficit, by Randy Wray http://www.cfeps.org/pubs/pn-pdf/PolicyNote2006-1.pdf

The 7 Deadly, Innocent Frauds of Economic Policy, by Warren Mosler http://moslerforsenate.com/wp-content/uploads/2010/06/7DIF.pdf

"ECCLES: We [the Federal Reserve] created it.
PATMAN: Out of what?
ECCLES: Out of the right to issue credit money.
PATMAN: And there is nothing behind it, is there, except our government's credit?
ECCLES: That is what our money system is."
- Federal Reserve Board Governor Marriner Eccles in testimony before the House Committee on Banking and Currency in 1941, during questioning by Congressman Wright Patman about how the Fed got the money to purchase two billion dollars worth of government bonds in 1933. http://www.google.com/search?sourceid=chrome&ie=UTF-8&q=Federal+Reserve+Board+Governor+Marriner+Eccles+in+testimony+before+the+House+Committee+on+Banking+and+Currency+in+1941
http://en.wikipedia.org/wiki/Marriner_Stoddard_Eccles

“When our Federal Government, that has the exclusive power to create money, creates that money and then goes into the open market and borrows it and [pretends to pay]interest for the use of its own money, it occurs to me that that is going too far. I have never yet had anyone who could, t