Modern Monetary Stupidity

If printing money could end poverty, printing diplomas can end stupidity.

Someone tweeted this quote from the 1619 Project’s Nikole Hannah-Jones:

“You know what Covid taught me? That we have enough. For everybody. Overnight we printed $6 Trillion. We had universal health care. We had universal basic income. Covid proved it’s possible.”

Well OK.

All this really proves is that getting undergrad and master’s degrees in journalism from the University of North Carolina does not require taking or passing any econ classes.

You guys remember the heady days of King Barackus Obamacus the Last?

If you do you remember insane things like a $16.4 trillion debt limit. We’ve doubled that in ten years – but that is the quaint number for the the first quarter of 2013 when the Republicans were gearing up to make a big show about shutting down the government and then giving in to the Democrats for fear the Dems would say bad things about them in the New York Times.

It isn’t shocking that for the last decade, the GOP has knuckled under every single time.

If you remember those fun days, you will likely remember the $1 trillion coin idea. The Washington Post covered it this way:

“If President Obama wants to avoid an economic calamity next year, he could always show up at a press conference bearing two shiny platinum coins, worth... $1 trillion apiece.

Okay, that sounds utterly insane. But ever since last year, some economists and legal scholars have suggested that the “platinum coin option” is one way to defuse a crisis if Congress can’t or won’t lift the debt ceiling soon. At least in theory…

Thanks to an odd loophole in current law, the U.S. Treasury is technically allowed to mint as many coins made of platinum as it wants and can assign them whatever value it pleases.

Under this scenario, the U.S. Mint would produce (say) a pair of trillion-dollar platinum coins. The president orders the coins to be deposited at the Federal Reserve. The Fed then moves this money into Treasury’s accounts. And just like that, Treasury suddenly has an extra $2 trillion to pay off its obligations for the next two years — without needing to issue new debt. The ceiling is no longer an issue.”

It didn’t just sound insane, it was insane. Creating a trillion-dollar coin would have required an offset somewhere, in some account or everything is out of balance. I guess it doesn’t really matter because nobody cares now, and they just dispensed with the coin idea and just did it another way.

Believe it or not, I have had to explain how money is created to college graduates several times over the past couple of decades. They have no idea how it really works; they think it is as simple as throwing a switch on the printing presses at the mints scattered around the country, loading them with paper and ink and punching the green button. They don’t even understand that any money “created” must be offset by some debt instrument – a T-Bill, a government bond, or some notation on the balance sheet of the Federal reserve. It is simple debit and credit, double entry accounting, as rudimentary as the old T accounts familiar to any of us who tool Accounting 101.

Money is also created by commercial banks when they loan money to people. They don’t print any bills or stamp any coins, but money is created. Student loans were the creation of money that had an offsetting entry on somebody’s balance sheet – and to reconcile Biden’s “forgiveness”, that loan is either written off as a loss by the institution – or it is paid by the taxpayer. Since these loans were guaranteed or made directly by the government, the taxpayer is on the hook.

I never go into any of the other forms of money – M1, M2 other short-term interbank forms – because if they don’t understand that when you take something (make more currency) you must put something (debt) on the national balance sheet – and that has implications for every American.

And without this basic knowledge of how money is created, the idea that printing money drives inflation – as simple to understand as too much liquidity (money) chasing too few goods and services – is never going to sink in.

At least until we are just as broke as we pretend we aren’t.

I thought what Javier Gerardo Milei, the new president of Argentina, said was spot on:

"If printing money would end poverty, then printing diplomas would end stupidity."