# What can be done about the myth that the Federal government only has limits amounts of money **URL:** \ **Category:** Great Debates\ **Created:** [October 19, 2013, 12:52am UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614 "2013-10-19T00:52:27Z")\ **Posts on this page:** 20\ **Page:** 3
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [October 20, 2013, 3:39pm UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/41 "2013-10-20T15:39:23Z")
> [@Tom\_Tildrum](#): > > Unless you’re arguing that for policy reasons, the Fed is paying significantly above market value, I don’t see the massive change. Certainly the value of the bonds that the Fed is buying can swing significantly in a week, but the same is true of the cash the Fed is injecting in its place. The same is not at all true of the cash. A security like a bond is valued in dollars. For the value of that security to change, only one price needs to swing: the price of the security itself. But one dollar of cash is always and forever one dollar, by definition, and so for the value of that cash to change, the price of _everything else in the world_ has to change. Obviously some prices will swing quickly. Most prices in the financial markets turn on a dime, for example foreign exchange, but foreign exchange is only a fraction of what determines the value of a dollar. There are countless other goods and services in the country itself that are priced in dollars. The rest of the prices will be sluggish to some degree. Many domestic markets have sticky prices, most notably the labor markets which are extraordinarily sticky. Even some parts of the financial markets can get sort of sticky at zero percent interest, because the “natural” rate might be less than zero, and so the market can’t clear at the lower bound, so to speak. The value of a dollar will necessarily change much more slowly than the value of everything else priced in dollars. This is a primary reason why the cash injected into the system is much different from the assets that it replaces. (The other reason is the lack of any yield from a dollar, but that’s no longer true of excess reserves.) ---
**Author:** ![Little\_Nemo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/little_nemo/32/3120_2.png) [@Little\_Nemo](https://boards.straightdope.com/u/Little_Nemo)\ **Post date:** [October 20, 2013, 4:37pm UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/42 "2013-10-20T16:37:35Z")
> [@LinusK](#): > > I agree that ultimately the wealth of a nation is the productivity of its people. It’s one of the reasons why I think so much hand-wringing over deficits and debts is misplaced. Unemployment is a real problem. The debt is not. Unemployment is a real problem, because unemployed people produce nothing. > > I disagree that the huge problem is Americans buying a Chinese goods. I agree it’s a problem for China, maybe, but not America. If China is intent on acquiring US dollars, I see no reason not to let them. Our ability to produce dollars for them to hoard is unlimited, and cost-free. Producing electronics and toys for us, on the other hand, requires investment in real resources. Moreover, by sending all that shit to is, that means they don’t get to enjoy it themselves. > > I agree making American products competitive is a great thing - in and of itself. But I don’t think that’s why we have we have trade deficit with China. China, I think, manipulates the relative value of its currency by purchasing purchasing dollars. That makes its currency cheap, and creates an international glut of Chinese currency. That yuan, in turn creates a demand for Chinese products. > > There’s no reason, in other words, why we can’t both enjoy cheap Chinese products, while continuing to grow our own economy as well. Your argument is self-defeating. Buying goods from another country makes that country more productive than your own country and causes unemployment in your country. Look at what happened to Spain five hundred years ago. It had discovered the New World and had a monopoly on the resources of two continents. The result was Spain was the richest country in Europe. And the result of that was Spain became the buyer of European goods. Good and silver and other valuables were taken out of America and flowed into Spain. And they then flowed out of Spain and the Spanish bought goods from other countries. Those other countries didn’t have the access to American gold and silver that Spain had. They couldn’t just take wealth. They had to earn it. So those other countries build farms and workplaces and factories to make goods that Spain wanted to buy in order to earn Spanish gold and silver. The result was that a hundred or so years later, all those other countries had better economies and were more productive and had better workers than Spain had. Spain had just been spending money and its economy was weakened to the point of collapse as its colonies were played out. Other European countries moved past Spain and built colonial empires of their own. That’s the problem with the current relationship between China and the United States. China needs America right now because it needs a market for the goods it produces. But as China becomes a bigger and better producer it will eventually grow to the point where it no longer needs America as a market. America will find that having lost its role as a major producer, it no longer has a role as a major market either and it’s become a backwater in the world economy. ---
**Author:** ![Tom\_Tildrum](https://avatars.discourse-cdn.com/v4/letter/t/e95f7d/32.png) [@Tom\_Tildrum](https://boards.straightdope.com/u/Tom_Tildrum)\ **Post date:** [October 20, 2013, 4:57pm UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/43 "2013-10-20T16:57:26Z")
> [@Little\_Nemo](#): > > Professional investors aren’t dumb. They understand all the factors like inflation, time value, and opportunity costs. So when they buy bonds they expect a future payment that will include all of these factors and be above and beyond them. Otherwise they won’t invest. But the government makes the same calculations and decides that it’s benefiting from getting money now and not having to pay until later. This is like any transaction; it happens because both sides see value in it. > [@Little\_Nemo](#): > > I’m not sure what your point is here. If the government doesn’t build the bridge, we’ve lost whatever value the bridge would have added to society. No, we haven’t – we would still have the $10 million, to save or to use on other things. In general, I think you’re trying to compare transactions while only looking at only one side of them. **Hellestal** , I just mean that the value of dollars is going to fluctuate with the same changes in interest rates that cause the value of T-bills to fluctuate. ---
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [October 20, 2013, 7:52pm UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/44 "2013-10-20T19:52:55Z")
> [@deltasigma](#): > > I have to point this out again. What is being labeled as MMT doesn’t even exist. These people treat it as if it is some separate school of thought like Marxism. It’s not. It is simply the study of how money and interest rates affect the economy. OK, it’s a bit broader than that since like all economics there are the psychological factors as well, but the point is that it’s not a dogmatic position paper that pretends to dictate how things ought to be. Many people who study the field will certainly have strong opinions on certain policy issues but also many strong disagreements. > > So please don’t buy into this bullshit of some monolithic MMT because it doesn’t exist. MMT is certainly not monolithic. There’s not even agreement about what it should be called. Some people call it “Chartalism” instead. Thes also a conflict over something called the “job guarantee”, which some insists is part of MMT; others insist its not. Here’s a good kind of summary, bett than the Wikipedia article, I think: [http://fifthestate.co/what-is-modern-monetary-theory-or-mmt/](http://fifthestate.co/what-is-modern-monetary-theory-or-mmt/) Also here: [What is Modern Monetary Theory, or “MMT”? | New Economic Perspectives](http://neweconomicperspectives.org/2013/03/what-is-modern-monetary-theory-or-mmt.html) ---
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [October 20, 2013, 8:08pm UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/45 "2013-10-20T20:08:08Z")
> [@Little\_Nemo](#): > > I’m not talking about defaulting on the debt. I’m talking about what happens when we pay it. > > Let’s say the government builds a bridge and the bridge costs ten million dollars to construct. Now if we pay for it directly, the government collects ten million dollars and uses that ten million dollars to pay for the construction. > > But suppose instead, the government borrows ten million dollars to pay for the bridge. The bridge is built but the government then has to collect twelve million dollars to pay off the ten million dollar debt. > > We just spent an extra two million dollars for the same bridge we could have had for ten million dollars. I can’t see any economic benefit we gained out of that. And a significant portion of that money was sent overseas so we can’t even claim the extra two million dollars ended up in America anyway. > I realize dollars are just currency. But they do have a relationship to actual wealth such as property or labor. If there was no connection then dollars would be worthless. So when China or other countries receive dollars, there’s a genuine transfer of American wealth out of the country. > > If I’m understanding you correctly, you’re saying the wealth that’s actually leaving the country is relatively minor - that most of the wealth stays in the United States and just changes ownership to a non-American. That may be true but I feel that ownership does represent a flow of wealth. At some point, that non-American owner is going to want to express his wealth and that involves real property. A Chinese investor who builds a mansion in Chongqing represents an American investor who didn’t build a mansion in Houston - there was a mansion’s worth of wealth that moved from America to China at some point. No, I’m saying that’s exactly how it doesn’t work. When a mansion is built in China it’s built by Chinese people doing work. And the mansion is paid for in yuan, not in dollars. But even if the workers were in dollars, so what? My point is that dollars are a renewable resource. If other countries want to use our dollars, they’re welcome to them. We can always make more, for our own use, if we have too few of them. The limit to our real wealth is our total productivity, not the number of dollars. We should, as a country, “print” the number of dollars that maximizes our productivity. To say that, as a country, we don’t have enough dollars to do something is like, saying we don’t have enough numbers. There could be real constraints on productivity: the amount of oil available to power turbines, the amount lithium for lithium batteries, the number of workers available to do the work. Which isn’t to say we should just print an unlimited number of dollars, it is to say that if we have untapped resources - unemployed workers for example - we should print the number necessary to get those people to work. When more people are producing more things, everybody’s richer. ---
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [October 20, 2013, 8:46pm UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/46 "2013-10-20T20:46:11Z")
> [@Little\_Nemo](#): > > Your argument is self-defeating. Buying goods from another country makes that country more productive than your own country and causes unemployment in your country. Only if there’s some constraint on the number of things you can buy. If you can afford to buy a gizmo made in China and something made in America, both countries can be productive. My argument is if China is accumulating dollars, making us financially poorer, we should “print” the number of dollars needed to equal the difference. > [@](#): > > Look at what happened to Spain five hundred years ago. It had discovered the New World and had a monopoly on the resources of two continents. The result was Spain was the richest country in Europe. > > And the result of that was Spain became the buyer of European goods. Good and silver and other valuables were taken out of America and flowed into Spain. And they then flowed out of Spain and the Spanish bought goods from other countries. > > Those other countries didn’t have the access to American gold and silver that Spain had. They couldn’t just take wealth. They had to earn it. So those other countries build farms and workplaces and factories to make goods that Spain wanted to buy in order to earn Spanish gold and silver. > > The result was that a hundred or so years later, all those other countries had better economies and were more productive and had better workers than Spain had. Spain had just been spending money and its economy was weakened to the point of collapse as its colonies were played out. Other European countries moved past Spain and built colonial empires of their own. I agree with you that if - and I don’t necessarily know this is the case - we no longer have any factories capable of making clothes, or some other essential thing, we should take steps to ensure that we never become completely dependent on outsiders for something that’s essential that we be able (if we needed to) to make those things ourselves. We should avoid becoming completely dependent on other countries for things that are essential for our own economy. Oil is a good, historical example of that. We got ourselves sort of fucked, in the 70’s by becoming too dependent on too few countries for a resource we depended on. > [@](#): > > That’s the problem with the current relationship between China and the United States. China needs America right now because it needs a market for the goods it produces. But as China becomes a bigger and better producer it will eventually grow to the point where it no longer needs America as a market. America will find that having lost its role as a major producer, it no longer has a role as a major market either and it’s become a backwater in the world economy. Anything is possible. But if you look at the biggest, most innovative, most important companies in the world, you’ll find a disproportionate number of them are American. Google, Microsoft, Apple, and Amazon come to come to mind. I’m sure there’s others. We still make cars, for heaven’s sake, and the quality of our cars is better than it’s ever been. ---
**Author:** ![Little\_Nemo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/little_nemo/32/3120_2.png) [@Little\_Nemo](https://boards.straightdope.com/u/Little_Nemo)\ **Post date:** [October 20, 2013, 9:14pm UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/47 "2013-10-20T21:14:23Z")
> [@Tom\_Tildrum](#): > > But the government makes the same calculations and decides that it’s benefiting from getting money now and not having to pay until later. This is like any transaction; it happens because both sides see value in it. Normally, I’d say that the interests of a country and the interests of its government are the same. But this can be an exception. Sometimes a particular set of politicians currently in power can do things which benefit them disproportionately. And deficit spending is often an example of this. It makes it easy for politicians to get the credit for building the bridge now while defraying the cost of that bridge to some future politician. John Smith gets to build bridges and lower taxes and everyone thinks he’s a genius. Of course, he’s financing this by borrowing. Twenty years later, Smith’s out of office. Bill Jones is now in office and he’s faced with the difficulty of collecting the taxes needed to pay off that old debt and not having any money to build bridges either. Jones ends up looking like a political failure due to Smith’s policies. And while Jones paid the obvious cost, the country as I noted before had to pay more for that bridge than it would have if it had been paid for it back when Smith was in office. So Smith benefited at everyone else’s expense. ---
**Author:** ![Little\_Nemo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/little_nemo/32/3120_2.png) [@Little\_Nemo](https://boards.straightdope.com/u/Little_Nemo)\ **Post date:** [October 20, 2013, 9:23pm UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/48 "2013-10-20T21:23:50Z")
> [@LinusK](#): > > No, I’m saying that’s exactly how it doesn’t work. When a mansion is built in China it’s built by Chinese people doing work. And the mansion is paid for in yuan, not in dollars. But even if the workers were in dollars, so what? > > My point is that dollars are a renewable resource. If other countries want to use our dollars, they’re welcome to them. We can always make more, for our own use, if we have too few of them. > > The limit to our real wealth is our total productivity, not the number of dollars. We should, as a country, “print” the number of dollars that maximizes our productivity. To say that, as a country, we don’t have enough dollars to do something is like, saying we don’t have enough numbers. There could be real constraints on productivity: the amount of oil available to power turbines, the amount lithium for lithium batteries, the number of workers available to do the work. > > Which isn’t to say we should just print an unlimited number of dollars, it is to say that if we have untapped resources - unemployed workers for example - we should print the number necessary to get those people to work. When more people are producing more things, everybody’s richer. But dollars only have value because there are real assets behind them. If you start printing up dollars with nothing to back them up, they’ll quickly lose their value. I agree it’s a good idea to print enough money to rise to the size of your productivity - assuming otherwise is the error the goldbugs make. But you can’t make the mistake of thinking that increasing the amount of money will cause productivity to rise. The tail doesn’t wag the dog like that. ---
**Author:** ![deltasigma](https://avatars.discourse-cdn.com/v4/letter/d/e5b9ba/32.png) [@deltasigma](https://boards.straightdope.com/u/deltasigma)\ **Post date:** [October 20, 2013, 10:38pm UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/49 "2013-10-20T22:38:46Z")
> [@LinusK](#): > > MMT is certainly not monolithic. There’s not even agreement about what it should be called. Some people call it “Chartalism” instead. Thes also a conflict over something called the “job guarantee”, which some insists is part of MMT; others insist its not. > > Here’s a good kind of summary, bett than the Wikipedia article, I think: [http://fifthestate.co/what-is-modern-monetary-theory-or-mmt/](http://fifthestate.co/what-is-modern-monetary-theory-or-mmt/) > > Also here: [What is Modern Monetary Theory, or “MMT”? | New Economic Perspectives](http://neweconomicperspectives.org/2013/03/what-is-modern-monetary-theory-or-mmt.html) If you want to read what people who are world renown experts and leaders in their fields have to say, I would suggest instead going to a site like Project Syndicate. [Here their list of contributors.](http://www.project-syndicate.org/contributors) Look at their bios and and pick the ones you want to read then subscribe so that when they have new articles you’ll be notified. Then go back and read their old articles. Honestly though, depending on who you pick, some of these folks write at a pretty high level and isn’t for everyone, but if you want short, thumb nail sketches of current economic issues written by some of the smartest people on the planet including Nobel Laureates, this is better than reading some blog. ---
**Author:** ![msmith537](https://avatars.discourse-cdn.com/v4/letter/m/d9b06d/32.png) [@msmith537](https://boards.straightdope.com/u/msmith537)\ **Post date:** [October 20, 2013, 11:08pm UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/50 "2013-10-20T23:08:06Z")
> [@Little\_Nemo](#): > > But dollars only have value because there are real assets behind them. If you start printing up dollars with nothing to back them up, they’ll quickly lose their value. > > I agree it’s a good idea to print enough money to rise to the size of your productivity - assuming otherwise is the error the goldbugs make. But you can’t make the mistake of thinking that increasing the amount of money will cause productivity to rise. The tail doesn’t wag the dog like that. Not exactly. We aren’t on the gold standard anymore, so there isn’t anything “real” behind them, other than that the government issues US dollars and accepts them as payment for your tax obligation. Also the fact that those dollars are also backed by the worlds largest economy helps. You are correct that printing dollars (which is basically what the government does when it takes on debt) has the potential to lead to rampant inflation. However, since inflation is still very low, the government could theoretically take on more debt in order to reduce unemployment. Another important fact is that the US dollar is the world’s reserve currency. That in and of itself creates a strong demand for US dollars. I suspect that rich Republican 1%ers don’t really like the idea of increasing government debt and inflation because of it’s effect of devaluing the dollar. Devaluing the dollar reduces debt by reducing the real value of that debt. Good news for the borrower, but not so great for the lender. ---
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [October 20, 2013, 11:49pm UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/51 "2013-10-20T23:49:39Z")
> [@LinusK](#): > > If the government is running a surplus, that means dollars are disappearing. This is not correct. The government can run a surplus and the number of central bank dollars held by the public can remain exactly the same. Money that goes into the Treasury account from a surplus does not have to stay in the Treasury account. > [@LinusK](#): > > When the Federal government spends more than it taxes, the public (the non-federal government sector) is richer: there’s a net flow of money from the government to the public. This is not correct. There have been countless countries in history that ran massive budget deficits, which were self-financed by the government, and this had the effect of getting massive amounts of paper in the hands of the people while simultaneously impoverishing the country. There is nothing inherent in a deficit that makes the people richer. It is a possibility in certain circumstances, but that is something that would have to be argued instead of merely asserted. > [@LinusK](#): > > The important thing here is that the loans are also debt. In other words, more money always equals more debt. This is not correct. A bank meeting payroll is creating money without debt. Banks can also extend loans without creating any money, depending on the portfolio preferences of the public. There are probably half a dozen other criticisms I can make, but the core of it is probably this: > [@LinusK](#): > > If S= I + G + (X-M), and we set I to zero (lack of demand, because people “saving” in the sense of spending less than they earn) and there’s a trade deficit, the only way for people to save - to accumulate net financial balances - is going to be for the government to run a deficit that big enough to both make up for the trade deficit AND to satisfy the demand for savings. This is not the correct equation for S. The real equation is S = I + (X-M). This is an identity. It’s a matter of definition, and we don’t just get to change definitions in mid-conversation. What you were intending to go for is S[sub]private[/sub], private saving instead of national saving, but even then the equation is botched. The identity for private saving is S[sub]private[/sub] = I + (G-T) + (X-M). That’s not a huge deal, though, because you seem to have been following **M&M** ’s lead. The real issue is your phrase here, the key phrase, “If we set I to zero”. Another way to say this: “If we assume that my idea is correct…” That kind of goes without saying. If we assume the idea is correct, then we must naturally conclude that the idea is correct. But why would anyone believe that? _Even if people were predisposed to believe you_, they don’t have any rational basis to believe this statement. That variable cannot be set arbitrarily to zero. Investment is “endogenous”, in the same sense that broad money is endogenous. It’s low because of “aggregate demand”? Okay. Now what is aggregate demand? How is it measured? How do we know it actually exists? Any term you haven’t yet defined is nothing more than magic. That’s not the only magic term. Demand for savings? What’s that? How do we know it exists? You assert it, but asserting it doesn’t make it true. This argument isn’t even good enough for a person who would want to agree with you. What’s even worse is that your logic doesn’t follow. People could “accumulate net financial balances” very easily if the government started throwing Franklins out of helicopters. No government spending necessary. That’s politically impossible, but it’s not outside the laws of the universe, and even more important, it’s not violated by the identity equation that you cited. There is nothing inherent in your identity that demands that net financial balances must be increased with government spending. Identities don’t imply any causal relationship. Identities don’t imply any causal relationship. Identities don’t imply any causal relationship. They are definitions, and definitions only, and the relationship between the variables has to be handled separately. I have seen this problem countless times. People see an equation, and immediately their minds want to grasp after some cause and effect, as if the equation conveys some sort of understanding automatically. It doesn’t. It’s just an identity. An identity is always true, as a matter of definition, and that makes it totally useless by itself. The equation might allow a nice framework, a vessel into which understanding might later be poured, but the identity by itself, out of context, without some _solid_ causal idea behind it is simply worthless. I can define myself to be Superman. Therefore, I am Superman. But that doesn’t tell me anything about what powers I actually have. Such a definitional problem is easy to see when it’s an English sentence, but somehow when it’s put into equation form, people’s minds get blinkered. There was an example from a GQ thread not very long ago, where the [very first reply to the thread made a false assumption based on an identity.](http://boards.straightdope.com/sdmb/showthread.php?t=704283) Seductive but wrong. Post number 4 had to point out the error. Our identity here is S[sub]private[/sub] = I + (G-T) + (X-M). You want to set I to zero, and accept our trade deficit, and then say that the only way to create private saving is for the government to run a deficit. But I could, with exactly the same amount of justification (i.e. none) say that the change in investment will always be set at -2(G-T), so that every dollar of deficit spending takes away two dollars worth of investment. With that particular relationship between the variables, the best way to increase private saving would be to drastically cut government spending. Seem silly? Well maybe it is, but there are people in positions of power who actually believe that sort of thing. Without some notion of causation, we don’t have any justification to choose one idea over the other. Now here’s something that is very likely to be true in certain circumstances: the change in investment will be approximately -(G-T). The deficits don’t do anything by themselves. Is that true? I could make a good argument for it, which would take an extraordinarily long time to explain because _causation isn’t simple_. But for the idea that deficit spending by itself is sufficient, I don’t need an argument against it. I just need evidence from around the world. The [Spanish deficit](http://www.tradingeconomics.com/spain/government-budget) has been about 10% of GDP for years, and their economy is in the shitter. The [Greek deficit](http://www.tradingeconomics.com/greece/government-budget) has been about 10% of GDP for years, and their economy is in the shitter. Iceland has been [strongly cutting](http://www.tradingeconomics.com/iceland/government-budget) their budget deficit and they’re in much better shape. And the US example? Our strongest recent period of disinflation was the 1980s, at the exact same time that the deficit was exploding under Reagan. Huge deficits, with _much_ lower inflation. This isn’t about the size of the deficit. The big factor here, in every case, is monetary policy from the central bank. ---
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [October 20, 2013, 11:58pm UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/52 "2013-10-20T23:58:08Z")
> [@deltasigma](#): > > Maybe, maybe not. Don’t take this personally, but this comes up often enough that it’s something I think should at least occur to people and that is that due to inflation, a dollar you give someone in a year or 10 years isn’t the same as a dollar that you give them today. So in fact, with adjustments for inflation, that bridge may actually end up costing less than $10M if you take all of the cash flows involved and adjust them for the same base year. Granted, it’s not likely, but it’s possible. > > That’s not the reason for the example though, it’s to highlight the fact that that there are certain benefits to having the bridge now rather than x years from now - i.e., however long it would take you to save the money you would need. If you had to wait, there would be a quantifiable amount of lost business, productivity, lost commerce, etc. that you could attribute directly to not having the bridge for that period of time. > > So you have to agree that getting the bridge sooner is clearly a good thing with tangible benefits. If the only way that can happen is to borrow money, then the only legitimate question is if those benefits clearly outweigh the likely cost of doing so. > > One last point is the fact that the federal reserve has for some time now, decided that it is not possible to have 0% inflation and in fact the current fed target is between 1-2% I believe - although I would be looking to see if Yellen doesn’t start talking about bumping that up until employment numbers start to show some real improvement. Anyway, the point is that we have an officially stated, institutionally mandated policy of low-grade inflation. So countries that borrow from us know that. And in the case of a country with a strong currency like China, that situation is going to be even worse since it would have been likely that their currency would have appreciated vis-a-vis ours anyway. Of course the Renmimbi doesn’t trade on the fx markets, but let’s skip that issue. > > So why the hell does China still buy this shit? Damned if I know. Having foreign reserves for their trading interests is certainly part of it, but I have to wonder how many trillions that really requires. Probably a bigger issue is having some sense of influence. IDK. China buys dollars to (a) reduce the relative price of their own currency, making Chinese products cheaper to buy, and (b) to create a glut of yuan in world markets. Ultimately, yuan is legal tender in only in China, so it creates a market for those who have yuan, and are looking for something to buy. ---
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [October 21, 2013, 12:19am UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/53 "2013-10-21T00:19:52Z")
> [@Little\_Nemo](#): > > But dollars only have value because there are real assets behind them. If you start printing up dollars with nothing to back them up, they’ll quickly lose their value. > > I agree it’s a good idea to print enough money to rise to the size of your productivity - assuming otherwise is the error the goldbugs make. But you can’t make the mistake of thinking that increasing the amount of money will cause productivity to rise. The tail doesn’t wag the dog like that. Dollars have no real assets behind them. They’re value comes from the fact that you need dollars to pay taxes, and the fact that you need dollars to repay loans. Dollars do indeed have the potential to raise productivity. Suppose traffic congestion costs $100 million per year in lost productivity in Los Angeles. A public transportation system would cut the cost in half, but costs $50 million. Los Angeles, nevertheless, fails to build the public transit system? Why? Because of lack of money. The lack of money is costing Los Angeles $100 million a year, why? Not because there’s not enough people who are able and willing to do the work. (Assuming there are unemployed people in Los angeles, who are able to do the work.) Only because the money’s not there. It’s lack of money that’s costing Los Angeles $100 million per year in lost productivity. Now there might be any of number of reasons why Los Angeles shouldn’t have a better public transit system. Maybe people just like sitting in their cars in traffic. Or maybe there’s just something about Los Angeles that makes public transit a bad idea. But if its money, and only money, that stands in the way,then that’s a bad reason not to do it, because money, unlike labor, or oil, is not a limited resource. We can make whatever quantity is necessary to get the work done. And we should. ---
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [October 21, 2013, 12:26am UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/54 "2013-10-21T00:26:12Z")
> [@msmith537](#): > > Not exactly. We aren’t on the gold standard anymore, so there isn’t anything “real” behind them, other than that the government issues US dollars and accepts them as payment for your tax obligation. Also the fact that those dollars are also backed by the worlds largest economy helps. > > You are correct that printing dollars (which is basically what the government does when it takes on debt) has the potential to lead to rampant inflation. However, since inflation is still very low, the government could theoretically take on more debt in order to reduce unemployment. > > Another important fact is that the US dollar is the world’s reserve currency. That in and of itself creates a strong demand for US dollars. > > I suspect that rich Republican 1%ers don’t really like the idea of increasing government debt and inflation because of it’s effect of devaluing the dollar. Devaluing the dollar reduces debt by reducing the real value of that debt. Good news for the borrower, but not so great for the lender. I believe this too. Unemployment keeps wages down, and if you’re kind of person who drinks a lot of margaritas poolside at the Four Seasons, the fact that the guy bringing you the margaritas is desperate to keep his job is kind of a good thing. ---
**Author:** ![deltasigma](https://avatars.discourse-cdn.com/v4/letter/d/e5b9ba/32.png) [@deltasigma](https://boards.straightdope.com/u/deltasigma)\ **Post date:** [October 21, 2013, 12:42am UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/55 "2013-10-21T00:42:40Z")
> [@LinusK](#): > > China buys dollars to (a) reduce the relative price of their own currency, making Chinese products cheaper to buy, and (b) to create a glut of yuan in world markets. Ultimately, yuan is legal tender in only in China, so it creates a market for those who have yuan, and are looking for something to buy. China trades more with the EU than the US, so it would make more sense for them to buy Eurozone debt rather than US then. There was probably more of an imbalance between those currencies as well, though I’d have to check. ---
**Author:** ![deltasigma](https://avatars.discourse-cdn.com/v4/letter/d/e5b9ba/32.png) [@deltasigma](https://boards.straightdope.com/u/deltasigma)\ **Post date:** [October 21, 2013, 1:03am UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/56 "2013-10-21T01:03:33Z")
> [@LinusK](#): > > We can make whatever quantity is necessary to get the work done. And we should. Do you know what the Forex markets do? They value currencies with respect to other currencies. How do you imagine they do that? Seriously, tell me how you imagine that process works. Now, given the process you just described, tell me how the Forex markets would value the currency of a country that suddenly decided to double the total nominal value of its money supply. Pick whichever version of the money supply you think is appropriate for the example - MZM, MB, M0, M1, M2 or M3. ---
**Author:** ![PhillyGuy](https://avatars.discourse-cdn.com/v4/letter/p/ed655f/32.png) [@PhillyGuy](https://boards.straightdope.com/u/PhillyGuy)\ **Post date:** [October 21, 2013, 1:07am UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/57 "2013-10-21T01:07:16Z")
> [@LinusK](#): > > Suppose traffic congestion costs $100 million per year in lost productivity in Los Angeles. A public transportation system would cut the cost in half, but costs $50 million. Los Angeles, nevertheless, fails to build the public transit system? . . . . > > We can make whatever quantity is necessary to get the work done. And we should. Your example suggest payback in 6 months. This is ridiculous, for transit, or for almost any other public investment. Except for New York City, America is too spread out to get good public transit paybacks. And even there, the uncertainty of ridership projections is such that it would be rash to estimate the payback period for something as sensible as the Second Avenue Subway. As someone who prefers not to drive and takes transit every day, I don’t like it, but government rail investments, even good ones, have unknown, and often negative, payback. As for why America is too spread out for most big transit projects to be money-makers, I strongly recommend: [The Power Broker: Robert Moses and the Fall of New York](http://www.amazon.com/The-Power-Broker-Robert-Moses/dp/0394720245) What he says about sprawl on Long Island making transit projects questionable must also apply to LA. Reducing road congestion results in people buying houses that are further from where they work. And the resulting spread-out population then cannot be efficiently served by transit. Congestion encourages people to live near where they work and not travel much, both positives to me. I wouldn’t fight commuter-related congestion. Then, I also know I wouldn’t be elected to public office 😉 ---
**Author:** ![Little\_Nemo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/little_nemo/32/3120_2.png) [@Little\_Nemo](https://boards.straightdope.com/u/Little_Nemo)\ **Post date:** [October 21, 2013, 8:03am UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/58 "2013-10-21T08:03:34Z")
> [@msmith537](#): > > Not exactly. We aren’t on the gold standard anymore, so there isn’t anything “real” behind them, other than that the government issues US dollars and accepts them as payment for your tax obligation. Also the fact that those dollars are also backed by the worlds largest economy helps. I’m not saying it’s a direct 1:1 correspondence but dollars have something real behind them in the sense that they’re backed by a stable government with a sound economy. ---
**Author:** ![Little\_Nemo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/little_nemo/32/3120_2.png) [@Little\_Nemo](https://boards.straightdope.com/u/Little_Nemo)\ **Post date:** [October 21, 2013, 8:11am UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/59 "2013-10-21T08:11:58Z")
> [@LinusK](#): > > Dollars have no real assets behind them. They’re value comes from the fact that you need dollars to pay taxes, and the fact that you need dollars to repay loans. > > Dollars do indeed have the potential to raise productivity. Suppose traffic congestion costs $100 million per year in lost productivity in Los Angeles. A public transportation system would cut the cost in half, but costs $50 million. Los Angeles, nevertheless, fails to build the public transit system? Why? Because of lack of money. > > The lack of money is costing Los Angeles $100 million a year, why? > > Not because there’s not enough people who are able and willing to do the work. (Assuming there are unemployed people in Los angeles, who are able to do the work.) Only because the money’s not there. It’s lack of money that’s costing Los Angeles $100 million per year in lost productivity. > > Now there might be any of number of reasons why Los Angeles shouldn’t have a better public transit system. Maybe people just like sitting in their cars in traffic. Or maybe there’s just something about Los Angeles that makes public transit a bad idea. But if its money, and only money, that stands in the way,then that’s a bad reason not to do it, because money, unlike labor, or oil, is not a limited resource. > > We can make whatever quantity is necessary to get the work done. And we should. I’m not sure what you’re suggesting. Los Angeles, obviously, does not have the power to issue money. So if Los Angeles is lacking money for some project it needs to either raise it by taxation or borrow it (which is just deferred taxation). Now the federal government has a third option. It could theoretically just call up the mint and tell them to run off a hundred million dollar bills. But if it did that with no taxes or loans to back that currency, the value of the currency would drop. Issuing a hundred million dollars worth of currency with nothing to back it up would not increase productivity a hundred million dollars worth. As you noted, money is not an inherently limited resource. But if you treat it like it’s an unlimited resource, it ends up having no value. ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [October 21, 2013, 8:54am UTC](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614/60 "2013-10-21T08:54:42Z")
> [@LinusK](#): > > Los Angeles, nevertheless, fails to build the public transit system? Why? Because of lack of money. > The lack of money is costing Los Angeles $100 million a year, why? > > … But if its money, and only money, that stands in the way,then that’s a bad reason not to do it, because money, unlike labor, or oil, is not a limited resource. > We can make whatever quantity is necessary to get the work done. And we should. I think you agree with me, but your insistence on talking about “money” gets in the way. (In another thread you spoke of “money,” “real wealth”, and “financial wealth” with, IIRC, the first two synonyms and the third a stranger.) Don’t focus on “money.” Focus on _political will_ and _credit_. The money is already there: there are literally trillions of dollars “burning holes in the pockets” of commercial banks. **Hellestal** will explain why that money is not being made available, but I think his views can be rephrased in terms of political will and credit. The Federal Government lacks the _political will_ to take positive steps to grow the economy. The banking system’s _credit_ is still in doubt because capital destroyed by the 2008 crisis has never been replaced. [Previous page](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614.md?page=2) [Next page](https://boards.straightdope.com/t/what-can-be-done-about-the-myth-that-the-federal-government-only-has-limits-amounts-of-money/671614.md?page=4)