Memo: US Treasury – E-mail me for my bank details

I saw a bit of the recent US Republican candidates’ debate. It was extremely boring to say the least. If that field is the best conservative America can muster and Obama is the best the conservatives who think they are progressives can muster then que dieu nous aide. I thought the policy discussion from the candidates in the debate were woeful and I longed for Sarah Palin to walk in and say something sensible. But one influential commentator did find something rather interesting and pleasing about the debate. In this Wall Street Journal article (June 16, 2011) – Republicans Return to Reality – Peggy Noonan tells us that the GOP has at least demonstrated a new sobriety when it comes to policy. The reason? Read on. But my reaction is to draft a memo to the US Treasury – headline – E-mail me for my bank details.

My database interrogation of things I have kept from Peggy Noonan over the years yielded some comments she made during the last Presidential election campaign about the Alaskan. In this WSJ article (October 16, 2008) – Palin’s Failin’ she noted:

She was a dope and unqualified from the start … there is little sign that she has the tools, the equipment, the knowledge or the philosophical grounding one hopes for, and expects, in a holder of high office. She is a person of great ambition, but the question remains: What is the purpose of the ambition? She wants to rise, but what for? … She doesn’t think aloud. She just . . . says things.

For a former Reagan staffer and conservative sympathiser Noonan didn’t waste time with Palin. The fact the Republicans went for her signified how desperately woeful their message has become.

But she thinks that “there was no obvious candidate from Crazytown” among the candidates before the American nation in the latest Republican shebang – the debate

She also claims that “the foreign-policy discussion, though limited, was marked by a new sobriety” which was manifest in the fact that:

There was no spirit of adventurism, there were no burly promises of victories around the corner and lights at the ends of tunnels. It was more muted than that, more realistic, different in tone and tenor from four and eight years ago. This signaled a real shift, and a heartening one.

I always think that American politicians are totally OTT when talking about foreign policy so nuances in OTT more or less evade me. I rarely hear an American political leader adopting a humble – we won’t be martial any more – line. Which would be my preference.

So I am glad that an insider who has written a lot about American politics can detect this for me.

So I was interested in her reasoning. She thought it was “the sound of the Republican Party inching its way back from 10 years of un-Republican behavior”. When I reflected back on the economic policies being put forward at present the GOP appears to be very Republican. But I digress.

Noonan is interested in why the gung-ho, lie-then-invade US foreign policy is becoming tempered by the Republicans at present. She rehearses a range of ideas about this “new sobriety” including a return of isolationism” or “there is little taste now for what is fast becoming an old vision that progress can be made and U.S. security enhanced through invasion, pacification and occupation” and “little taste for the idea that we can easily, or even arduously, force the complete cultural change of other hearts and other minds”.

She notes that the opinion polls are sick of US troops coming home dead. She notes the US have been in Afghanistan longer than the Soviets and we know what happened to them.

But while the “killing of Osama bin Laden provided a psychic endpoint to the drama” Noonan claims these are all peripheral to the main reason:

… probably the most important fact of all.

We are as a nation, on paper, almost bankrupt. Or bankrupt, depending on how you judge. Among the Republican candidates for president, there is a growing awareness that America does not have a foreign policy unless we have the money to pay for it. We do not have an army unless we can fund it. We do not have diplomacy and a diplomatic structure without money. We do not have alliances and friendships sealed by aid without money. We do not go forward and impress the nations with our values, might and leadership without money.

We cannot lead, or even be an example, without money. And we are out of it. Therefore, reordering our financial life and seeing to our financial strength is the single most constructive thing we can do to create and maintain a sound U.S. foreign policy. If we want to be safe in the world, we must be sturdy at home.

That is why those inclined to take an unfriendly or competitive view toward us increasingly see us as a paper tiger. Because they hold our paper.

The problem with Afghanistan, and Iraq for that matter, is not only that after 10 years our efforts have turned out of be-polite word-inconclusive. We are spending money we don’t have for aims we cannot even articulate.

At that point this journalist, no matter how well considered she is as a political commentator, no matter how many books she has written, no matter who she knows or what she says about Sarah Palin … no matter what … at that point she loses all credibility and should hang her head in shame for writing outright lies in a leading and influential daily newspaper and broader media portal.

She should hang her head in shame for providing further myths that will certainly agitate all the ignorant – uneducated (despite long lists of credentials) – and high blood pressure conservative types who get wound up every day about their claims the US is facing impending bankruptcy. Leave them alone Peggy. Let them have a day off so they can calm down.

What does being bankrupt or almost bankrupt – on paper or anywhere else mean when you are talking about a nation that issues its own currency and can credit any bank account it likes for any amount it likes at any time that it likes? Answer: it is blathering nonsense.

It is true that you don’t have a foreign policy that requires a vast mobilisation of real resources to back it if you have run out of those real resources. But if there are companies around who can find the materials necessary to build the tanks, guns, rockets etc and offer them for sale then the American government will always be able to purchase them.

It might be that the economy eventually achieves full employment – although that looks a distant goal under current policy – and such purchases (of military equipment etc) would have to involve hard trade-offs to ensure that the real resources used in making the weapons etc are not desired elsewhere. If there was competition for these real resources then inflation can occur.

So if the US government found itself in that position then it might have to raise taxes and cut spending in other areas if it wanted a non-inflationary environment in which to purchase its weapons of death. But it can always fund the purchases. How?

Credit: Bank account of military equipment provider
Debit: Some account in the Federal Reserve system.

That would do it. A computer operator would easily accomplish that transaction in less than 20 seconds I would imagine. Presumably the due diligence that went into selection the tenderer etc might take longer. It would take some time to work out which mates owned which of the armament supply companies and which of them would be best duchessed.

Noonan claims “We cannot lead, or even be an example, without money” – but leadership is not about having money. The US government doesn’t “have money” but it can spend it whenever it likes.

Leadership is about insight, judgement, courage, empathy etc … all human values. The mandate that leadership leads to can always be “funded” by the US federal government. Leadership is about knowing where to use the power that comes with the currency monopoly to advance the welfare of the nation.

The vast array of real resources that have been deployed by the US military have not advanced the welfare of the US citizens. The money that deployed those resources should have deployed them in creating jobs and revitalising decaying urban environments, and increasing access to first-class health care for the poor and all those sorts of things. But they are all political choices and operationally the US government can exercise whatever political choice it wants. The constraints are thus all political and/or human (lack of leadership qualities).

It is an outright lie to say that the nation is “without money”.

The other myth is that the Chinese etc are reducing their opinion of the US – which is reducing the standing and authority of the US on the World stage – the “increasingly see us as a paper tiger” argument – “Because they hold our paper”.

The non-US community sees the US as losers because they have entrenched unemployment, failing cities, high crime rates, cannot even provide adequate health care to the bottom 20-30 per cent of the income distribution, and cannot even agree on simple things like paying civilised unemployment benefits when there are not enough jobs.

They juxtapose that vision which we see every day on our news etc with the grandstanding oratory from the political leaders who talk about freedom and might all the time but have turned their economy against their own citizens denying many the essential freedom to live a decent life.

The “paper” holders know damn well that if they relinquish that paper they lose. The issuer of the paper holds all the cards especially when it could instruct the central bank at any time to buy it if the foreigners didn’t want it.

The tragedy of the “paper” holders is that they think it is sensible to export real resources to the US which improves the standard of living of Americans while only accepting bits of paper (bank accounts in nominal US dollars) back. They think that is a sensible growth strategy.

Anyway, perhaps the US Treasury would like to spend some of that “money they don’t have” providing fiscal support to my research centre. I won’t see it as a paper tiger and I promise I will spend it forthwith.

ECB to don Purple Robes

And to finish this week I bring to your attention the speech yesterday (June 16, 2011) – Social Business and Economic Growth – given by Lorenzo Bini Smaghi, Member of the Executive Board of the ECB to the Vatican Executive Summit on Ethics for the Business World.

Imagine giving a gathering of senior Vatican-types a lecture on ethics. Anyway, I digress again – it is late afternoon on a Friday.

Bini Smaghi, who is under pressure from his own Prime Minister to give up his place on the ECB board in favour of a French appointee (see ) went all historical and indicated that:

… central bankers have adopted Saint Thomas More as their patron saint, who, with his independence of thought and his firm conviction in the supremacy of the public interest, managed to resist pressure from King Henry VIII – for whom he was the closest adviser prior to being appointed Lord Chancellor – until he was forced to resign, imprisoned and then condemned to death.

One might hope his historical reflection might be a prophecy – at least at the organisational level.

The analogy according to Bini Smaghi is that More (quoting some Pope or another) “followed his conscience, even at the cost of displeasing the sovereign whose “good servant” he was, because he chose to serve God first.”

He also quoted the Bishop of Aachen who in handing out some prize to the current boss of the ECB recently said:

Financial matters have an element of public service. This also applies to the euro, which is helping to realise a shared vision of a united Europe in the spirit of humanism. It is in this spirit that the European Central Bank … and we members of the Church must fulfil our shared task for the people of this continent and beyond.

One might reflect on the way in which the Roman Catholic church has advanced humanity especially the futures of young children in its care.

But it seems that Bini Smaghi has completely lost it.


So I guess this might be one good thing to come from the mass delusion and ignorance about the monetary system that pervades public opinion and political debate in the US and everywhere else.

If the politicians really believe they can no longer maim, slaughter and pillage with their high-tech weapons and put their most vulnerable boys and girls in uniform and send them to face their own mortality because they have “run out of money” then that might be a good thing.

Memo (to the sound of a type writer clicking):

To: US Pentagon
Topic: The US government has run out of money


Please suspend all military activities immediately. America has run out of money and on paper is bankrupt. Bring all troops home and cancel all future orders for equipment.


To: US Treasury
Topic: Redeployment of all US military staff and expenditure


Please do not tell the US Pentagon officials that you are redeploying all their staff and equipment expenditure into areas where you will create jobs in American regions doing nice things and also sending plenty of foreign aid to fix up the mess they are leaving behind in places the US has invaded.

Film recommendation

Last night I attended a charity event which was in the form of a film night. The movie was – Incendies – and it is about (without specifying) the civil war in Lebanon which began in the 1970s. It is a very compelling movie about human endurance and care. If you get a chance to see it I would take it.

Saturday Quiz

The Saturday Quiz will be back sometime tomorrow – about as hard as last week!

That is enough for today!

This Post Has 11 Comments

  1. Mr. Dr. Prof Mitchell,

    I have been struggling to comprehend the C+S+T=GDP equation.

    Even though I have managed (with assistance) to validate it (using basic Macroeconomic theory), others such as Ragan & Lipsey (Macroeconomics 13th CDN ed.) and Abel, Bernanke, & Kneebone (Macroeconomics 5th Cdn. Ed) indicate that in order for that equation to be valid, one must factor in Income received from Foreign Sources, otherwise C+S+T=GNP (not GDP).

    Where are they going wrong? Have you written anything validating that identity in more detail so I might put aside this confusion?

  2. Why do MMTers like to say “credit” when they are adding assets, and debit when they are “subtracting?” In accounting, a debit means you are adding assets- ie adding stuff to the left side of the T account. A credit adds stuff to the right side of the T account, or adds liabilities.

  3. @wh10,

    I’m assuming you mean when discussing things like a bank account. A bank account may be your asset, but they are liabilities to the bank so the terminolgy appears to switch. So when a bank account sees an increase in value it means the banks liabilities went up too.

  4. This may be a bit off topic here, but have been thinking about sectoral balances and found this on the UK Office for budget responsibility’s website:

    If you open the first Excel sheet on the right hand side, on table 1.8 it gives forecasts for the UK’s financial balances. It looks like they’re forecasting domestic private net savings to fall to 0 and the current account deficit to fall to almost zero. Could someone smarter than me interpret this for me and comment on how credible the forecasts are?

  5. wh10

    I think thats an interesting point. In my opinion the people most likely to get MMT are those that understand double entry booking and as someone who learned mine from good old Frank Woods. I, like you it seems follow the golden rules:

    To increase and asset or an expense debit the nominal/ general ledger account
    To increase a liability or income credit the nominal/ general ledger account
    To decrease a liability or income debit the nominal/ general ledger account
    To decrease an asset or an expense credit the nominal/ general ledger account

    You end up with a tally of debit balances that equal credit balances and your profit and loss/income and expenditure and balance sheets statements are derived from these.

    Unfortunately if you are trying to explain such a theory to non-accountants this will probably confuse them even further.

    This raises the question of what is the best way to spread the gospel.
    I am coming round to the conclusion, god help me, that it may be better to convince the number crunchers like you first.
    That would involve taking a stricter approach to nomenclature which I agree might cause problems in the short run.

    On a related matter you may be the perfect candidate to prove a point for me.
    If you don’t or didn’t know what ‘sectoral balances’ were, would you put the term in the income/ expenses section of your brain or the assets/liabilities section? Just for fun!

  6. @Barton

    That doesn’t help.
    The issue I am trying to resolve has to do with GNP.
    C+S+T = C+I+G+(X-M)+R

    where :
    R = Net Factor Payments from abroad
    CA = Current Account
    KA = Capital Account

    If a Canadian company builds roads in Saudi Arabia, any fees that company earns are counted towards GNP not GDP.
    So either the Capital acct. is subtracted from C+S+T, or the R is eliminated somewhere else in the identity (perhaps in the Investment component of C+I+G+NX).
    How are Transnational and Multinational Corps treated in MMT?

  7. Bill,a spot on demolition job on some eminently suitable targets.Keep up the good work.

    I recently watched “Incendies” – a great and very moving example of cinematic art.

  8. In defence of Ms Noonan, to non-economists (and indeed to many economists) Money = Resources. Perhaps what she is really trying to say is that the level of military involvement the US currently has is unsustainable in the long term, not in terms of money, but in terms of the economic (and human) resources devoted to it.

  9. wh10 and Andy,

    I’m not sure that it’s only MMTer’s that say this, a lot of finance and money and banking textbooks use them terms in the same way, for instance:

    “…an individual may issue a cheque drawn on a bank and present the cheque to another party, such as a business, in payments for goods and services received. The business will deposit the cheque in its current account, which may be held with a different bank. . . the funds are debited to the account of the individual at the first bank and credited to the account of the business at the second bank.”

  10. From the Bishop:

    “a united Europe in the spirit of humanism.”

    OK I agree with him here to this point that this is the spirit that is delivering the depraved and unjust policies we are witnessing… then he continues:

    “It is in this spirit that the European Central Bank […] and we members of the Church must fulfil our shared task for the people of this continent and beyond.”

    Huh? What is a so-called Bishop of the Church advocating operating under the “spirit of humanism” under any circumstances? and then he treats us with a dogma of the Church “teaming up” with Central Banks in a mission to deliver depraved economic policies?

    Orthodox Christendom is completely blinded from being able to see what is a truly just economic policy and how we can get there… this is personally humiliating. Resp,

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