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Yes, we don't have an informed public, mostly about the nature of money. People who have money (aka the 1%) want you to believe there is a finite amount of the stuff, and that the most powerful nation in the history of mankind needs to tax money from the people when only it has the sole legal right to create that money in the first place.

ALL money comes from the government originally. So powerful was this myth that until very recently, money always had the likeness of the ruling sovereign on them as it literally was a projection of his power. We see a relic of this today with the Secret Service. Similar services existed in the past to protect kings, and now presidents, and always prosecuted counterfeiters as traitors directly attacking the king.

What is sad is this should be a progressive thing. The only serious progressive economists today are well aware of how money functions.

See this:

http://moslereconomics.com/wp-...

http://neweconomicperspectives...

The same people saying Trump is wrong in this instances are also the idiots who believe banks lend grandma's savings. Banks don't lend money, they create debts, which are counted as assets via double entry bookkeeping. Exactly how Trump is doing it.

It is only a logical error to a fool who believes money grows on trees or is dug up from the ground and there is a fixed supply of it. It's just a number. It's all made up. It is a political construct like all others that keeps us from killing each other like wild animals.

https://www.youtube.com/watch?...

The Government can issue as much (sovereign) money as it likes without causing inflation provided it is in exchange for new wealth so the wealth per dollar ratio is maintained. The limit is the capacity of the economy and ecosystem to produce wealth.
Exceeding this will cause inflation. Borrowing is entirely optional.

The causes of hyperinflation are a little more involved than the popular narrative you relate. See Michael Hudson's definition here: H is for...
A more detailed examination of Weimar and Zimbabwe here:
Positive Money
A fuller explanation of the whole borrowing/spending thing here: Warren Mosler

No discussion of modern money can proceed without referencing the following people? Marriner Eccles http://mikenormaneconomics.blo... Beardsley Ruml http://www.constitution.org/ta... Abba Lerner http://en.wikipedia.org/wiki/F... William Vickrey http://www.columbia.edu/dlc/wp... Wynne Godley http://www.levyinstitute.org/s... Warren Mosler http://moslereconomics.com/man... Randy Wray http://www.levyinstitute.org/p... Bill Mitchell http://bilbo.economicoutlook.n... and CH Douglas, already referenced in another comment

Mod parent +Informative, please. Thanks for posting it.
Seven Deadly Innocent Frauds of Economic Policy is absolutely gorgeous.
Not flawless (better said... not a complete exploration of the consequences), but an eye opener on what "fiat money" is, why is not an absolute evil and how to look at it in a non-dogmatic faith-based way.

They're looking for cash? That's funny, because the US government is not revenue constrained. There's no constitutional limit on creating any amount of money, and in fact that's one of the most important policy tools of a sovereign nation (the EU members gave that up, and it has ended with disaster except for the mercantilist Germans, as was predicted by Modern Monetary Theory many years ago). This is all the more clear when one notes that there is no operational connection between government spending and subsequent taxation or public/foreign borrowing (much like bank lending is not really reserve constrained since banks lend unconstrained during the day and borrow anything they need to make up for reserves from the overnight market--and even the Fed itself). Much of the debt is just an accounting fiction registered between the Fed and treasury (being about as meaningful as the between a husband and wife), and legally, 100% of government debt could be made in this form--there could legally be zero public borrowing and no taxation. The appearance that taxes pay for anything is just an illusion, since tax "revenue" does not make any legal constraint on spending. But borrowing is done due to custom and ideological and political considerations which are vestigial from the times of gold-backed currency--not any current legal constraints. Taxation's actual role, however, is critically important: it forces private entities to use the government issued currency. You can only pay the IRS in US dollars. More information: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625 or lighter reading at http://www.cnbc.com/id/45795986 as well as http://bilbo.economicoutlook.net/blog/ and http://moslereconomics.com/ MMT has been around for quite a while and derives from the old Chartalism, but nowadays it's really starting to gain steam, and some MMT ideas have been co-opted by other economic schools. Back to the original point, government doesn't need covert means of funding agencies such as the TSA because it can do so easily with legal means. Your conspiracy theory is superfluous.

Once you start dealing with a deficit that's bigger than what you can reasonably expect to grow, you're in deep trouble.

You're taking the wrong metric here. When it comes down to it, the deficit is simply equal to the net imports plus the saving of the private sector. That is not a theory, by the way, it is a simple consequence of proper book keeping. So whether a government deficit is big or not really needs to be seen in relation to the desires of the private sector and the behaviour of the rest of the world.

What you are seeing in the US is simply that the crazily low savings rate of the private sector is returning back to normal now. Where before, consumption has been financed by easy credit, this access to credit has now dried up and everybody is scrambling to get their balance sheet in order - a balance sheet recession. This increase in private saving needs to be supported by a government deficit. If the government withholds the assets that the private sector needs, this will result in less spending, i.e. a lower path of GDP, and a lot of pain for private individuals especially via higher unemployment.

All that has been known for a long time, see e.g. here. Modern Monetary Theory also explains the connections quite well, and can perhaps help you calm down in general.

To anybody who reads the parent: yes, those debt numbers sound impressive. However, ultimately they are just the necessary counter-part to giving the private sector the monetary assets that it desires. This was understood a long time ago, see e.g. here. More recently, Modern Monetary Theory economists have been pushing the same point. If you haven't yet, I recommend you set aside some time to read introductory explanations e.g. here and here and here.

The bottom line is this: targeting a specific size of the budget is bad policy. The budget will be whatever it has to be to match the behaviour of the private sector. Artificial austerity, as is being proposed these days, is coercion of the private sector to go against its natural behaviour, even when that natural behaviour is benign. In other words, austerity actually means an oppressive and draconian government. Deal with it.

The government has grown wildly under all parties.

I have not questioned that.

What I'm saying is that the question of big vs. small government is orthogonal to the question of the government's budget balance. That may seem like hair splitting, but it's really not. When you take a look at Modern Monetary Theory economists, you'll see a very wide variety of political opinion on the question of where they stand on big or small government (Warren Mosler is a good example, but of course their opinions are usually much more subtle).

But they all agree that the deficit and debt hysteria is a red herring.

Perhaps that's not what you want to have a debate about, and you would rather debate the question of the size of government. Fine with me. I'd just thought I should point out that you're confusing categories: size of government is more or less equal to the total size of government spending. The deficit and resulting debt are something different.

All I want is that the distinction is appreciated, because it would elevate the quality of the discussion. That you believe this to be trolling is surprising (and a bit depressing).

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.

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