Every Neo-liberal economist knows that US Bonds and T-Bills are IOUs, right? - Politics Forum.org | PoFo

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#14945139
Every Neo-liberal economist knows that US Bonds and T-Bills are IOUs, right?

And every Neo-liberal economist knows that 100 years ago paper dollars were also IOUs. The Gov. promised to give you $1 worth of gold for your paper dollars.

Now, the US is off the gold standard and will not give you $1 worth of gold for your dollars, but it does give you $1 worth of credit toward your tax liability for each $1 you pay them. This is the reason that I say, “The US Gov. promises to redeem your $1 for $1 worth of tax credit. This makes them an IOU.”
. . Why can you think that the IOU dollar bills stopped being IOUs because the Gov. stopped paying them off with gold and instead pays them off with tax credits? Why?

So, can we just agree that all US dollars are still IOUs?

I think I can assume that everyone knows what an IOU is. We sometimes create them in poker games, etc. We don't need our old IOUs to be given to us so we can have them to give to others. We can just create all the IOUs we want.
. . And, we all know that functionally when we get one of our own IOUs back (and pay the amount owed), we just rip the old one up because it might get lost and be redeemed again, right?

So, why can't you-all see that US Dollar IOUs must also be “destroyed” as soon as they are paid into the US Gov account at the Fed. Res. Bank? [Because almost all tax payments are in the form of a check drawn on a bank, there are no paper dollar bills to destroy. It is just an accounting process.]
. . Yes, the US Gov. needs to keep track of how many dollars it received from all sources, because this information is useful. But, it doesn't need old dollars coming in to have dollars to spend. It can only spend newly created dollars because that is part of the nature of all IOUs. And, again almost all Gov. spending is in the form of a check or a direct deposit, so no actual new paper dollars bills are being spent.

Are THE reasons you-all can't see this --- ?
1] Then you could not say,
. . a] “The taxpayers' money should not be spent on this (whatever the 'this' is).
. . b] “I don't want my tax dollars to be spent on abortions.”
. . c] “How can the taxpayers ever pay back the national debt?”
2] Because you hope the US will get back onto the real money standard, i.e. the gold standard?
3] Because you think that the Soc. Sec. Trust Fund is like the assets of a private insurance company, and it isn't enough to pay all the future demands on it. So, you think it is “an unfunded liability”?
4] Some other reason.

Really, I want to hear your reasons.!
.
#14945176
You have made some good points here.

The notion of how tax payments, or government transfer payments, don't typically result in a physical transference of paper currency is a worthwhile insight.

Transfer payments is a little bit less clear, because the transfers are convertible into paper currency. Also, transfer payments are more liquid, because the recipients are likely to convert the receipts into means of payment. Still, these days settlement often occurs electronically.

Electronic settlement has changed the nature of money. The effects of this are even perhaps an under-understood topic.

I am certainly no adherent to neoliberalism, by quite a long stretch.

As far as my suspicions of the potential flaws in the prevailing monetary system of the US: I have been pretty consistent. The current prevailing arrangement strikes me as potentially unsustainable.

As for the trouble with the level of debt, I have been pretty consistent here, as well. Because the debt servicing is indeed paid for using tax revenue, it diverts funds from other potential alternatives. The military budget also diverts funds from other potential alternatives.

Social security and medicare are bogeymen of the rightwing. Sure they are expensive, but they involve a funding system. Their tendency of depletion (which is real) is caused by not raising income caps, which should be raised, and many economists agree this would be an easy fix (but politics seems to supersede this).

A country the size of the US will have substantial liabilities in these sorts of programs, due to the sheer population. They are worthwhile programs. They sustain a social contract; they support the citizenry; and they are fiscally beneficial (from the theoretical standpoint that consumer demand drives the economy; which is conflicted by the seeming prevailing policy norms of Wall Street-driven growth--a very troubling development. This troubling development actually opposes such demand-led growth (to which wage growth and employment growth is also relevant) to finance-led growth, on the basis of inflation. And this fosters an economic system centered on parasitic finance).

I'm by no means a religious adherent to the above notions, and I've consistently conceded my openness to differing possibilities. I have also consistently provided a skeptical voice. Again, it is grounded in concerns over long-term sustainability of the monetary arrangements.

The situation is, moreover, more complex still than I am able to lay out here, and there may be other ready areas of concern.

The in-built constraint attendant to the use of tax revenues to fund debt service, military spending, social security, medicare, etc., are--I think--necessary, lest hyperinflation possibly rear its head. At the same time, the priorities are misplaced; the political powers have a perverse incentive to run up the debt, in the service of political ends (this basically amounts to a perverse incentive to debase the currency--though these days our situation is more complex do to technical changes with respect to money than in ages old of classical 'currency debasement'; Wall Street acts as a liquidity vacuum, and this fuels speculation).

There are educated voices which warn that the next financial crisis could be worse than 2008, and may not be that far off. No one can accurately predict the future, but I do worry that the prevailing system is one which is building castles out of sand.
#14945333
Crantag,
You and I disagree about a lot.
But, I agree that the US is heading for another GFC/2008. But, not because of the deficit and national debt. Instead, it is because of private debt, like quetzalcoatl said in the "Why are all nations in debt?" thread. This is because [unlike the US public debt which it can always pay] private debt has a risk of default. When the Wall St. banks loan too much to corps. and people because the banks get "exuberant" the borrowers will eventually be unable to pay them back. They declare bankruptcy and this makes the banks insolvent. The market crashes and the security [the house for a mortgage for example] loses much of its value. So, the banks lose money on the deal.
. . It will be a modified repeat of the GFC/2008.

Apparently, you and I didn't resolve the question of "Is it possible for the US to pay the interest on the debt with dollars it borrows?" I just don't see that it is possible to keep the borrowed dollars separate from the revenue from taxes dollars. Dollars are fungible, right?

But, again you didn't directly answer the question.
Are US dollars just IOUs?
Are they destroyed like all *other* IOUs when they are returned to their creator?
.
#14945410
Steve_American wrote:Crantag,
You and I disagree about a lot.
But, I agree that the US is heading for another GFC/2008. But, not because of the deficit and national debt. Instead, it is because of private debt, like quetzalcoatl said in the "Why are all nations in debt?" thread. This is because [unlike the US public debt which it can always pay] private debt has a risk of default. When the Wall St. banks loan too much to corps. and people because the banks get "exuberant" the borrowers will eventually be unable to pay them back. They declare bankruptcy and this makes the banks insolvent. The market crashes and the security [the house for a mortgage for example] loses much of its value. So, the banks lose money on the deal.
. . It will be a modified repeat of the GFC/2008.

Apparently, you and I didn't resolve the question of "Is it possible for the US to pay the interest on the debt with dollars it borrows?" I just don't see that it is possible to keep the borrowed dollars separate from the revenue from taxes dollars. Dollars are fungible, right?

But, again you didn't directly answer the question.
Are US dollars just IOUs?
Are they destroyed like all *other* IOUs when they are returned to their creator?
.

I didn't directly answer those questions; instead I offered that you presented some sound insights, and I can see where you are coming from.

In this post, there is really not a whole lot of cause for disagreement from me. Even in the case of the topics you bring up here which we have tended to characterize somewhat differently, I can understand the logic of what you are saying, and find it reasoned.

I expanded a bit in my previous post to present some thoughts of my own. But I don't really have anything to contend with you on in this thread.
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