The Punk Patriot: The Whole F**king Thing Is Coming Down

besides what you write about CAFR, various people who identify as proponents of the ideas of MMT --- late William Vickrey, Warren Mosler, Pragmatic Capitalism, etc. --- point out that the idea of a "federal debt" is largely nonsense, only because of the intentional design of our money system. The Treasury is required to "borrow" from the Fed, and to do so by selling bonds to private Primary Dealer banks. The bonds pay interest and the banks collect fees. Generous Uncle Sam.

Anyhow, the Fed just creates this money, literally out of thin air. The private banks also "create money" but those loans (hard to conceive) are actually backed by the banking system's new "asset", the loan contract itself. It's screwy and deserves criticism, but that's the math.

The Treasury does not literally need to "borrow". If one wanted to be a stickler for the term "coin" money, then the Treasury could order the Mint to create a multi-trillion dollar coin for about $50 and use that to pay off the entire debt to the Fed (courtesy of Yves at Naked Capitalism). But then those banks would not be getting interest.

Since EVERY SINGLE DOLLAR that lubricates our real aggregate economic transactions is CREATED BY GOVT+FED seen as a single entity, any "balanced budget" plan is ludicrous. It amounts to starving growth.

"Sound money" people who want a strict gold standard would starve growth in the money supply by tying that to mineral extraction, gold not oil. The bankers' term "sound money" really meant "scarce money" and therefore "expensive money". That is, high interest. That was the soundness of it, their high profit margins and control.

The Fed was sold as more democratic, while it's more autocratic and WS bankers sit on the dominant "Class A" positions, this is true, but the generic idea of the functioning of the mechanisms is that the Fed-Treasury can create money WITHOUT RAISING TAXES.

Is that inflationary? Only when money is pushed out into the economy at max employment and max production, when there's no more room to expand and improve and put people to work ... such as helping the elderly. It may be inflationary in terms of wages, and that's what the Fed is concerned about. Also, banks usually want predictable low inflation to profit most on interest charges. When that gets reversed, banks fail on long-term loans like the S & Ls did in the 80s.

The massive Fed bailouts now --- directly to Wall Street, no interference or authorization by Congress, and cutbacks in spending in the domestic sector --- this IS inflationary and it's DESIGNED to be inflationary, but what's being inflated is stocks and derivatives and mortgage securities and commodity futures contracts, such as on food and oil. In other words, that's not "Keynesian", and the price inflation is not occurring because the general population has too much money and needs a dose of austerity. Demand is WAY DOWN, on Main Street. Demand is HIGH on Wall Street. That's how financialization of the economy works.

Cutting "budget deficits" means LESS outgo of money to the private sector and relatively MORE revenue from taxation, for a NET REDUCTION of money in our private sector bank accounts. How that reduction is spread among rich vs poor is another important issue, but the point is it's a NET REDUCTION in money and therefore a reduction in DEMAND and a reduction in ability to hire and to pay debts, leading to a rise in bankruptcies and foreclosure. It's predictable as arithmetic.

So "budget deficits" are NECESSARY for well-lubricated economic growth across society, by how our current money system is designed.
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Also, I think CAFR is partly dependent on the profitability of financialization re state and city investment of funds. That is dependent on Wall St. We've seen articles on how Goldman-Sachs was dealing in municipal bonds and shorting cities and states to profit from collapse.

It's like a friend who wants to eliminate inflation via a Gold Standard, but believing that the interest rates he has earned on liquid funds and gains on dividends would remain the same in a Gold Standard economy. But that cannot be counted upon. Insiders -- major banks -- might earn more due to virtual monopoly on credit and gold supply, as they did when they were foreclosing on farmers 100 years ago, but the average person would not be earning the same kind of interest in a Gold system as they might in a Fed system (currently kept purposely low to bail out TBTF banks and boost Wall Street's bull market) because the Gold restriction would cause the real economy to atrophy like "austerity" will do.