Fed admits: Money is a spreadsheet
NPR has a fluff piece from "All Thing Considered" [sic] on how two Flunkies For The Masters Of The Universe saved the world ZOMG!!! which includes this gem, hidden in plain sight:
In the face of the financial crisis, the Federal Reserve decided to buy $1.25 trillion of mortgage-backed bonds as part of its effort to prop up the economy. ....
[Julie Remache] and her team worked in a plain room with four small cubicles, [and] spent six weeks coming up with a plan of attack, and 15 months actually buying mortgage-backed bonds, all of which came with a government guarantee that they’d be paid back even if the borrowers defaulted.
The program’s intent was to keep interest rates low, and slow the decline in housing prices. The team ended up buying more than a fifth of all of the government-backed bonds on the market. ...
In the end, they came very, very close to their target: They told us they were just 61 cents short. (In other words, they bought $1,249,999,999,999.39 worth of mortgage-backed bonds.)
The Fed was able to spend so much money so quickly because it has a unique* power: It can create money out of thin air, whenever it decides to do so. So, [the New York Fed's Richard] Dzina explains, the mortgage team would decide to buy a bond, they’d push a button on the computer — "and voila, money is created."
"Voilà, money is created." Savor that. Not knowing what they said, they said it. Because you just saw the Fed validate one of MMT's (Modern Monetary Theory's) central claims: That, for a government that is sovereign in its own currency, spending is not operationally constrained by revenues.* When Julie Remache pushed the button on her computer, did a red light go on because money was going to run out? Did an alert pop up, saying "This transaction will cause the country to run out of money. Please OK or Cancel"? How about "Insufficient $$$: Abort, Retry, Fail"? Of course not!
In other words, Jamie Galbraith is 100% correct, and according to the Fed; modern money is a spreadsheet:
[M]odern money is a spreadsheet! It works by computer! When government spends or lends, it does so by adding numbers to private bank accounts. When it taxes, it marks those same accounts down. When it borrows, it shifts funds from a demand deposit (called a reserve account) to savings (called a securities account). And that for practical purposes is all there is. The money government spends doesn't come from anywhere, and it doesn't cost anything to produce. The government therefore cannot run out.
(So much, therefore, for the ideology underlying the Cat Food Commission, which is, in short form, that "We're running out of money ZOMG!" and so the MOTU, in order to continue to live the lifestyle to which they have become accustomed, must -- Must, I tell you! Must! -- strategically default on their obligations to elders under Social Security, and use that money for themselves.)
So, was Julie's program a success? The answer, too, NPR hides in plain sight, right in the lead:
In the face of the financial crisis, the Federal Reserve decided to buy $1.25 trillion of mortgage-backed bonds as part of its effort to prop up the economy...
Whenever you read "the economy," ask yourself "Whose economy?" And the answer to that question couldn't be more clear. The money chart:
(Via The Big Picture.) The stack on the right is money used for public purpose: The New Deal, for example. The stack on the left is money handed to the banksters in the bailouts. Different, aren't they? Like, the public stack is a lot smaller, and spread over 200 (two hundred) years. And the bankster stack is a lot bigger, and took place all in 1 (one) year. Any questions?
So, indeed, the program was a "success." The banksters and the MOTU put the rest of us peasants on the hook for $22 trillion dollars, kept their jobs, kept their bonuses, never did the perp walk in orange jumpsuits on the teebee for accounting control fraud, and are still too big to fail. Mission accomplished!
But let's return to first principles for a moment:
1. Who creates money? The state. See Article I, Section 8, at "coin Money, regulate the Value thereof, and of foreign Coin."***
2. Why should money be created? To serve the public purpose. See the Preamble at "general welfare."
Did Julie Remache and her team use the powers of our state**** to create money for a public purpose? No. They did not. If they had done so, disemployment wouldn't be 10% nominal (20% real), we wouldn't be losing our homes, we wouldn't be getting sick and dying for lack of health care. We might have a Jobs Guarantee. But our money wasn't used for that, now was it?
So, money is a spreadsheet. The real question: Cui bono?
Who enters the data into the spreadsheet, and who benefits from SUM() at the bottom line?
NOTE * NPR isn't even wrong here. The "power" is not "unique," not only the Fed has it. Any government that is sovereign in its own currency has this power. Greece is not sovereign, since it uses the Euro, and California is not sovereign, because it uses the dollar.
NOTE ** Some MMT critics argue that money shouldn't be a spreadsheet, that the oil producers will never sell oil to a country with money like that, and so forth. Such critiques miss the point, because our money is already a spreadsheet, and the oil producers are already happily exchanging oil for that money.
MMT is about looking at what happens operationally -- real resources, real actions in real time by real actors -- and operationally there's no question, as we see from the description of how Julie Remache creates money, that government spending is not operationally constrained by revenues. Now, it may be that recognizing reality will have big knock-on effects -- doesn't it always? -- but the reality is clear enough, and has nothing to do with the chalkboards that mainsteam economists use, let alone the talking points developed by MOTU-funded think tanks.
NOTE *** Hat tip, Warren Mosler, for underlining the importance of "regulate the value thereof" in Article I, section 8.
NOTE **** See, e.g.:
NOTE NPR link via Warren Mosler. And then there's this:
The New York Fed is a big, fancy place — lots of marble, a vault full of gold in the basement.
Like The Mighty Corrente Building! Except all we've got in our basement is mighty hamsters in mighty cages powering the mighty servers.
UPDATE Here is a simple example that shows the key MMT concepts.