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The following statement by Warren Mosler appeared on the Facebook page of the group MMT for the Progressives in the USA on 24 December, 2015 [1].

Warren Mosler: “So how do you like this unsolicited speech I drafted for Bernie Sanders”:


I’ve proposed a lot of initiatives from Medicare for all to desperately needed infrastructure. And in all cases the Federal Government will be paying for it. And each time the question that immediately explodes is “So how are you going to pay for it?”

I’m going to answer that question directly and definitively and in a way that everyone can understand.

And before I begin, I’d like to thank my chief economist, Professor Stephanie Kelton, a specialist in economic policy as well as in Federal Reserve Bank monetary operations, for educating me on this critical question. And I’ll tell you right now that what was once cloudy and shrouded in myth and mystery is now absolutely crystal clear.

So first let’s talk about how your government makes ANY and ALL payments. Whenever the Treasury spends, it instructs the Federal Reserve Bank to add those dollars to the bank account of whoever is getting paid.

So, for example, if you are getting a $1000 payment from the Federal Government, the Treasury instructs the Federal Reserve Bank to cause the number of dollars in your bank account to be $1,000 higher.

In other words, if you had $2,000 in your bank account, and then got $1,000 from the government, your bank account would then show $3,000 in it.

More specifically, when the government spends, all it does is act to change the numbers in your bank account to higher numbers. As the former Fed Chairman Ben Bernanke testified: “We just use the computer to mark up the numbers in the account”

Now this is not some new idea, or proposal. It’s how ALL government spending has always been done.

That’s all there is to it and there is no other way to do it. And everyone in the Treasury and the Fed, including the chairman, knows it. There is no dispute whatsoever that whenever federal government spends, yesterday, today, and tomorrow, it’s just about changing numbers in bank accounts.

And the government can just as easily spend $1 billion as it can spend $1, since all it has to do is change a number on its own books.

So how will we pay for medicare and all the infrastructure we need? The exact same way we are paying for everything today, yesterday, and tomorrow: We spend by changing numbers in bank accounts to higher numbers.

This is not to say spending doesn’t have consequences, which it does. What it does mean is there is no such thing as the government running out of dollars to spend, because all it does is change numbers in bank accounts.

The government can’t run out of dollars it adds to bank accounts any more than the football stadium can run out of points it shows on the scoreboard. And if you don’t want to believe me, I have this gentlemen from the Federal Reserve Bank standing next to me along with another from the federal Treasury, to answer your questions.

So let me continue with this question. Since the government can’t run out of money, and can make any payment when it needs to, like it’s always done, what possible problem can there be if it spends too much?

The answer to that is inflation. Too much spending can cause too much inflation. So how do we know if that’s going to happen? How about looking at the inflation forecasts? And it just so happens that the Federal Reserve Bank and the Congressional Budget Office already are spending a lot of money doing inflation forecasting.

So here’s how it works.

We propose a program, like Medicare for all, or my trillion dollar 10 year infrastructure proposal, and then we ask the Fed and the CBO how much inflation, if any, it will cause. And if they say those proposals won’t cause inflation, then we’re free to act without increasing anyone’s taxes.

But what if they say they will cause too much inflation? Well, in that case we have to raise taxes. Why? Because taxing takes money out of the economy.

So if the Fed and the CBO say the new spending will cause too much inflation, we can take some of that money out of the economy by taxing. And, again, how do we know how much to tax? It’s the same answer – the inflation forecast.

The important point is that the inflation forecast is what tells us how much to tax, not the size of the deficit. And so what is this thing called the public debt? Listen carefully: The public debt is nothing more than all the dollars spent by the government that haven’t yet been used to pay taxes.

Let me repeat: The public debt is nothing more than all the dollars spent by the government that haven’t yet been used to pay taxes. And those dollars stay in the economy as someone’s savings until they get used to pay taxes.

Think of it this way – when the government spends a dollar, someone has to have it. And if it also taxes away that dollar, that dollar is gone from the economy. But if the government spends a dollar and doesn’t tax it away, it stays in the economy as someone’s savings. And most all of that savings is right there at the Federal Reserve Bank in bank accounts that they call Treasury bonds, notes, and bills. Yes, all those Treasury’s are just dollars in savings accounts at the Federal Reserve Bank with fancy names.

Yes, the Treasury has spent some $18 trillion more than it’s taxed, and that $18 trillion is the savings of people and businesses in the economy that’s in bank accounts at the Federal Reserve Bank called Treasury securities and also called the public debt.

This means the government doesn’t owe any dollars to anyone, because it’s already given them the dollars when it spent them. Someone already has them, and the dollars are already are sitting there in bank accounts at the Fed.

And this explains why paying off the debt has never developed into a problem. If it was going to cause a problem, don’t you think it would have happened long before it got to $18 trillion?

Yes, all savings accounts are called ‘bank debt’ by the accountants, but in this case it’s highly misleading, and it’s been driving some very bad policy decisions.

Now let me quickly review the three points I’ve just made:

    1. How do we pay for Medicare and infrastructure? The same way we always pay for everything. We instruct the Federal Reserve Bank to enter the dollars into the appropriate bank accounts.
    2. How do we know how much to tax?We give our proposals to the Federal Reserve Bank and the Congressional Budget Office to determine how much tax is necessary to keep inflation low.
    3. The results are world class health- care and infrastructure for all, millions of new jobs, and an increase in total dollar savings for the economy, with taxation at the right level to prevent unwanted inflationary pressures.

Well, I’m pretty sure you’ve never heard anything like this before. And until not long ago, I hadn’t heard it either.

And yes, I’m mad as hell! I used to think the government had run out of money, and had to borrow from lenders like China demanding high rates to be able to spend more than it taxed, and all the rest of that nonsense that’s been keeping us down.

And everyone in Congress still probably thinks that way. And they’re all wrong. And every insider in the Fed and the Treasury knows they’re all wrong, and word is just now getting out. After all these years of hearing it wrong, we’re only now hearing the truth.

And let me finish by saying that’s it’s not about adding any kind of stimulus, but about removing a restriction. Think of the national economy as a champion runner, ready for the Olympics. But then we put a plastic bag over his head and he can’t breathe and he can’t run.

What I’m proposing is to remove the plastic bag – remove the restriction – and let him run again. It’s not about giving him drugs. And so it’s about removing the artificial financial restrict- ions on the economy and letting it run to its potential.

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