[Our guest writer does not wish to make his identity known. I will refer to him as G, a retiree who moved to Bellingham over 15 years ago. He is a friend of many years whose wisdom and knowledge I respect. For that reason, I am reprinting here as an article, an interesting and informative email he sent to me several days ago. D. Conoboy]
Can America issue trillion dollar coins out of thin air and pay every American $2,000/month until the pandemic ends and the nation’s economy restarts, as a bill now before Congress proposes, and can it then pay $1,000/month to everyone for a year needed to fully restart the economy? And can such spending be continued to enable Medicare for All, an end to student debt and government paid lower and higher education for everyone? The answer is yes, but it needs a little background and explanation to be believed. Most of us believe that government spending must be budgeted just as household spending must be budgeted. But that is false, because households do not print or coin money, and governments do print and coin it. If a family earns $50,000 a year and spends $60,000, it’s playing financial roulette that may end in bankruptcy. A sovereign government that makes its own currency cannot go bankrupt. The U.S. is a sovereign nation - that is, one that makes its own decisions and policies for itself without any controls imposed by other nations.
This introduction to the issue (and the website linked below that explains it) is a personal story, not an economics lecture. It’s about something we once learned and profited greatly from that’s now largely forgotten and believed by most of us to be impossible.
In high school in the 1940s as WWII ravaged humanity, I was told that there was no limit to the amount of money America, or any other sovereign government, could print, spend for what was deemed necessary and be distributed among its citizens. I heard this from teachers and read about the claim in the newspaper that was delivered twice a day to where I lived. Few believed it was true. Many members of government thought it was pie-in-the-sky nonsense, as did many in the press and probably most citizens. My wealthy grandfather, in whose mansion I lived and was raised after early 1940, could not understand it and was certain it must be false. “Money does not grow on trees”, he said (as most of us still say).
Even then throughout the world most money was made of paper, and paper is made from trees. Drawings and so on that are difficult or impossible to perfectly counterfeit can be placed on paper, making it into what money is, which is anything whatsoever that is sufficiently difficult to counterfeit, including rare metals, greenbacks, bitcoins or you name it that people (and usually a nation or nations) believe and agree is exchangeable for goods and services. Some people believe that money must be made of something that has real value. But nothing has such value. Imagine a billion tons of pure gold atop a cropping on lifeless Planet X five thousand light years from Earth. What is its real value? Zero, nada, nothing. Why is that? Because there is no life form there that places value on it.
On Earth, the value of gold is made of our interest in and uses for it. Its value exists because we render it. We tend to most value what is rare or hard to come by, perhaps a U.S. steel penny made in 1944, which because of mistakes made in pressing it, or made because it was never supposed to be made, can sell at this time for one hundred thousand dollars or more. To my surprise, my grandfather, who from about 1835 to after 1960 bought and preserved a full sheet of every issued brand new and untouched U.S. postage stamp, and gathered a huge collection of franked envelopes, left the lot all to me when he died. It was the sum of my inheritance … I’d not believed he’d leave me anything. My sister boxed it all up and mailed it to me where I was then living, in Los Angeles. It was a fortune, but, lost in the mail, it never arrived. Since I’d expected nothing, the loss did not affect me much one way or another. It was just something I observed, not unlike seeing a Ford driven by a stranger run into and dent but not substantially harm a Chevrolet driven by another stranger.
WWII began in Europe in September 1939 when I was 7 years old. On December 7, 1941 when the Japanese Empire bombed the U.S. Navy station at Hawaii’s Pearl Harbor, I was 9, and Franklin Delano Roosevelt was president. As soon as he became president in 1932, Roosevelt formed a Brain Trust to advise him on how best to shape public policies when, because of the Great Depression, one-third of Americans were unemployed and the whole world’s economy was collapsed. The trust was made up of sociologists, social workers, lawyers, economists, business people, industrialists, agricultural experts and more, including the Black Brain Trust, negroes who served as advisors to the president and his activist wife, Eleanor. These Trusts, which changed as the 30s passed and more was learned from things that were tried, helped our forebears stay alive and fed, helped public education to continue and the young to learn artistic and manual trades, and much more, but the Trusts could not get the economy up and running again, largely because we did not know what was not proved true until a crisis brought about by total war forced us to just print paper money (and make coins of any kind of metal such as aluminum and steel) and use those pieces of paper and bits of metal to spend and buy our way to win the war and support our population; and, as it so happened and we also learned, buy our way out of the economic collapse called the Great Depression. America printed and coined money to pay to privately owned factories to supply military demand and pay wages to workers and employees in every other part of our economy, including wages for soldiers. The spending continued after the war, for, among other things, the GI Bill that enabled the military veterans with whom I went to college to become the most educated and prosperous generation in world history. The spending had promptly ended the depression and led in the
post-war period to the greatest economic growth America’s yet experienced.
Of course, the spending spree made necessary by the war had a potential and serious downside; namely, inflation. Inflation is an increase in the prices of goods and services that tends to accelerate. It occurs because the makers and sellers of everything and all services always want higher percentages of profit, and thus raise prices when the people who buy from them have money to freely spend. Our federal government’s war spending gave millions of us money to spend, raising the ogre - and it’s a real beast - of rapidly accelerating and disastrous inflation. During the first year of America’s participation in the war (specifically in January of 1942 during a surge of inflation necessitating both stopping and preventing further inflation), our government instituted food rationing as well as price ceilings for many things in addition to food, thus making inflation illegal and punishable. These price controls varied as did the goods and services to which they applied as the war years continued and shortages and so on arose and fell.
Below WWII poster -price gougers were breaking the law, and nobody could morally support black marketeers such as those on Amazon.com charging $300.00 + shipping for a previously less than $6 bottle of alcohol-based hand sanitizer.]
Since WWII, much has been learned about economies, what money is and how to tame the problem of inflation without extreme measures such as dictating price ceilings. There are other effective ways for governments to limit price gouging. For instance, most nations have public banks that compete directly with privately owned banks, making the criminality of operations such as Chase Bank, Welles-Fargo, the Bank of America and others much less probable. In America there is a public bank (a bank under government control) in North Dakota, where something admirable and in the public’s interest occurs. Globally, nations with public banks were the most able to weather the Great Recession of 2008. Public banks can, for instance, finance public housing at low cost. A state or city with a public bank quite simply has more money from its tax revenues that it can spend and borrow at low interest toward providing betterment to both citizen and commercial objectives, ends and lives. Such banks do not prohibit privately owned ones. Instead, private banks are free to invent and offer services that enable them to successfully compete.
One of the principles of capitalism is that competition is a good, not a bad thing. More capitalists might try it, and our government might as it did in the Roosevelt era and WWII support such attempts instead of doing what it now does, which is to constantly further enable unregulated monopolies managed far too often by persons of morally vacuous, rapacious character. For instance, a few years ago as the number of Lyme disease cases exploded in some American states, the manufacturer of Doxycycline, the antibiotic of choice for preventing the neurological horrors of Lyme if taken within about 2 days after being bitten by a particular species of tick, long out of its patent and costing drug stores about 10 cents per pill, raised the price so much that the owner of the drug store I then used chortled to me, “What a great day! Since last night the value of my inventory of Doxycycline increased from $500 to $5,000! Isn’t that great!”
I quit buying my prescriptions there.
If you open the FAQ page from MintTheCoin.org and read answers to the questions it names, I think most of you will be surprised, and when you come upon passages like these immediately below you may be pleased, but pleased only if - and really, it’s not a big if - you keep in mind that a lot of these answers were once upon a time proved to be true in America and the world.
As Thomas Edison observed in 1921:
“If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good also…
It is absurd to say that our country can issue $30,000,000 in bonds and not $30,000,000 in currency. Both are promises to pay…If the currency issued by the Government were no good, then the bonds issued would be no good either…
If the Government issues bonds, the brokers will sell them. The bonds will be negotiable: they will be considered as gilt-edged paper. Why? Because the Government is behind them, but who is behind the Government? The people.
Therefore it is the people who constitute the basis of Government credit.”
Indeed, the Federal Reserve Bank of St. Louis made a similar observation in 2011:
“As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills.
In this sense, the government is not dependent on credit markets to remain operational.
Moreover, there will always be a market for U.S. government debt at home because the U.S. government has the only means of creating risk-free dollar-denominated assets.”
Furthermore, as [the New York Time’s Nobel laureate] economist Paul Krugman noted in 2013:
”[When interest rates on short-term debt and money are identical,] issuing short-term debt and just ‘printing money’...are completely equivalent in their effect, so even huge increases in the monetary base…aren’t inflationary at all.”