To Save the Planet We Must Understand That Money is No Object & Taxes Do Not Fund the Fed Gov

Earlier today I wrote an brief diary about Warren Mosler’s thoughts concerning the potential inflationary impacts of going single payer and would that might mean for good fiscal policy.

In doing so, the fact that currency users (tax payers, individual states and foreign governments who earn dollars through foreign trade) do not fund a sovereign currency issuer (the federal government) was mentioned.  Some people have a problem with believing that currency users don’t fund the currency issuer.

(A sovereign currency issuer is a government that creates it’s own currency at will, doesn’t borrow in a foreign currency and doesn’t peg it’s currency to a foreign currency or anything else.  Also, it might be the case that countries with few natural resources lack sovereignty.  There’s quite a bit of debate about this.  But the US is certainly sovereign.)

So, this diary is just an invitation for those who think currency users fund the currency issuer to explain how this might work.  That is, how do currency users fund the currency issuer?  Just give a simple flow of funds chart — or something — to illustrate how this can be.

My flow of funds chart looks like this:

1)  Congress decides to spend $10 to buy some teacher labor.

2)  Treasury and Federal Reserve work together to provide Treasury with $10 in reserves.

3)  The Treasury spends $10 to hire a teacher.

4)  Now the teacher has $10.

5)  Now the teacher can pay as much as $10 in taxes.

The flow of funds if tax payers fund the federal government — according to me.

1)  The private sector doesn’t have any dollars because only the federal government has legal authority to issue our national currency.  It might have some bank created credit, but taxes are always paid in government created reserves (even when you borrow to pay your taxes).

Personally, I think the belief that currency users fund the currency issuer is the primary reason we can not find the political will to do things like save the planet.  So I find it very disturbing that there are Dems who cling to the illogical belief that currency users fund the currency issuer.

Which is like believing that the card players must deal the cards to the card dealer before the card dealer can deal the cards to the players.

Or believing that the bowlers must issue points to the bowling alley before the bowling can issue points to the bowlers.

Or that the BitCoin issuing computer program must be funded by BitCoin users before it can issue BitCoin.

If the belief is really about the bad effects too much spending might have, ie, inflationary impacts, then that’s a separate issue from the mere logic of who funds whom.

And first we gotta get our flow of funds in the correct order.

Saving the planet is going to require the political will to run far larger public deficits than we are right now.  And we are quickly running out of time.  Clinging to beliefs that defy logic is getting in our way of doing the right thing.
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