Eric Peters, CIO of One River Asset Management, retells a conversation: “Imagine Congress appropriates $1BN to refurbish Air Force One,” said Warren Mosler, pioneer of Modern Monetary Theory. We were discussing the financial architecture that allows the Fed to create money. “The Department of Defense hires General Dynamics to upgrade the airplane. The US Treasury instructs the Fed to credit General Dynamic’s account at JP Morgan with +$1bln. The Fed simultaneously debits the US Treasury account with −$1bln and the books are balanced.” Notice, the government did not need to collect taxes or issue bonds.” and “The $1bln the Fed created is trapped in the banking system and finds its way to purchase the $1bln in bonds the Treasury issued to balance its Fed account.” and “People misunderstand debt and money. Government debt is simply money the government has spent that hasn’t yet been used to pay taxes. Holders of that debt prefer saving over consuming or they wouldn’t own bonds. At some point, these people may choose to spend more than they save, and if that sparks excess demand and inflation … then that’s easily dealt with. The government simply raises taxes or cuts spending. Easy eh?”
Where is the fraud in the argument? When the government applies deficit-spending/money-creation macroeconomics kicks in. The macroeconomic Profit Law, i.e. Q≡Yd+(I−S)+(G−T)+(X−M), tells everyone that Public Deficit = Private Profit and that MMT is a free lunch program for the Oligarchy and that financial wealth and public debt grow in lockstep and that fabulous financial wealth in the USA is roughly equal to humongous public debt (currently $22 trillion and counting). The Profit Law explains how billionaires are able to accumulate that much money and why they can buy all the bonds the treasury issues and cash in the ultra-safe interest that is reliably taxed from WeThePeople as long as the debt is rolled over.
That’s why the two Wall Street guys Warren Mosler and Eric Peters propagate MMT so enthusiastically. Easy eh?