Which Party Is the Real Marxist Party?

Contrary to popular opinion, I think it is not the Democrats but the Republican Party, with its suppression of labor and its unwillingness to acknowledge people in need, that is the actual Marxist party in the USA. Why?

Marxism is a political, economic, and social philosophy that analyzes the history of humanity through the lens of class struggle and economic factors. Marxism emphasizes the importance of economic factors in shaping human behavior and actions. It also posits that the struggle between the bourgeoisie (capitalists) and the proletariat (workers) will lead to a communist revolution. 

By ignoring the working class of Americans, intentionally or unintentionally, with strict insistance on government austerity in  strong favor of capital over labor, the Republicans are unwittingly fomenting the very struggle that Marx warns will ultimately result in communism. We could avoid that route and cement our democracy with a stronger partnership between the federal government (which creates all the US dollars via its spending) and the people of the United States. A great start to easing the tension between the oligarchy and the average American would be to lessen the financial burden on Americans by implementing a single-payer, federally-funded universal healthcare coverage system akin to the Medicare-for-All program that Bernie Sanders and many Democrats have proposed for years. To continue to ignore the economic dilema of millions of Americans is to continue to fuel the class struggle that breeds autocratic communism. Apparently Republicans are blind to the Marxist path which they are following.

What MMT Means by "No Financial Risk"

Just to be clear, when MMT says that the federal deficit and federal debt pose no "financial risk", we mean simply that federal spending does not lead to federal insolvency or federal bankruptcy.

Why not?

Because the federal government incurs no financial obligation, that is, it incurs no debt when it spends or distributes US dollars. When it issues US dollars, the federal government creates those  US dollars from scratch, brand new. Those dollars carry no promise of convertability to any commodity like gold or silver, no obligation to be converted to some other currency, no obligation to pay anything else. Those dollars ARE payments, in and of themselves, from the federal government to the receivers of those dollars. And the US government, as the sole Constitutionally authorized creator of US dollars, can always create more dollars whenever Congress decrees that it do so. 

The US dollar is simply a US government issued tax credit. The government promises us nothing more when it spends those US dollars than that it will always accept those dollars back in payment of our taxes. That's it. It's that simple. 

Now, the federal government's spending more US dollars than there are goods and services available could, conceivably, result in inflation. But that is an entirely different issue than "financial risk", isn't it?

US National Debt Hits $30 Trillion - No Biggie, No Debt

Did you see that the so-called national "debt' went over the $30 trillion mark this week? Did you feel it? Did the earth shake? Did your bank close down? Did you sense the crisis all around you? No? Neither did I. The "debt" reaching the $30 trillion mark was a non-event, kind of like you hitting your 30th birthday. It may make you feel differently psychologically, but you are virtually unchanged from when you were 29.

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said, “This [$30 trillion] is a jaw-dropping number that is a real cause for concern. It is the result of both borrowing for really important crises, most notably the Covid pandemic, but also trillions and trillions of borrowing for no reason other than politicians have stopped being willing to pay the bills.”

But Maya MacGuineas is wrong. What we call the national "debt" is not the result of politicians not paying their bills. In fact, just the opposite is true. The federal government always pays its bill, in cash, with no borrowing, no credit card, no deferred payment. You see, when the federal government buys something or fulfills an entitlement, it does so by creating brand spanking new US dollars, every time. When the federal government spends, here's what happens:

1 - The Treasury authorizes the Federal Reserve Bank to make the payment.

2 - The Federal Reserve Bank, or "Fed", identifies the payee's bank and credits that bank's reserve account at the Fed where banks' US dollars are kept. By crediting reserves, the government has created new US dollars.

3 - The receiving bank credits the deposit account of the payee, thus making those US dollars available to the public.

Example: When it's time for the government to make your monthly $1500 Social Security payment, the treasury notifies the Fed, the Fed credits your bank's reserve account for a new $1500, and your bank credits your deposit account for $1500. That's it. Dollars are created by accounting.

When people or businesses or even countries accumulate US dollars, they often decide to put some of those dollars away in savings. If they put those dollars into a banking savings account, there is no effect on the number of bank reserves (US dollars) in the economy. But sometimes they decide to park those dollars safely away into US treasury securities accounts. They do that by "buying" treasuries.

US treasury securities are just accounts at the Fed, special savings accounts that are time-limited and on which the federal government pays interest. When someone "buys" a treasury security, the buyer's (saver's) bank debits his deposit account, the Fed debits his bank's reserve account (thus removing dollars from the economy), and credits the securities account at the Fed. That is what the government, many economists, and the media call "borrowing" as though government is "borrowing" that money from the public. But the government does not spend that money. It sits on it until the security term expires at which time the Fed debits the securities account, credits the buyer's bank's reserve account thus adding those dollars back to the economy while adding some extra for interest, and the bank credits the buyer's deposit account. In no sense can treasury securities be called "debt" because the dollars in those securities accounts continue to be owned, not by the government, but by the buyer.

So, the national "debt" did not go over $30 trillion this week. There is no national "debt". Rather, the good news is that the national "savings" went over $30 trillion this week. So Joe down the street, Ford Motor Company, and China and Japan, among others, just continued to add to their US dollar savings by voluntarily buying treasuries as has been happening since 1787.

By the way, remember I mentioned that treasuries accounts are time limited? Well, in fiscal year 2021 the US government redeemed $119.56 trillion in expiring treasuries and savers from the US and all over the world deposited $121.04 trillion back into treasuries savings. So, if $30 trillion seems like a lot, consider that four times that much moves in and out of treasury securities accounts every year.

Ah, That Old Federal Debt Crisis

Ah, the old false "debt crisis" story arises again. The American people should know by now that the US government has no "debt" in the sense that you and I have debt.

The only type of debt the federal government has is its promise to us that it will accept US dollars to satisfy our tax obligations. It does not owe money -- it owes just that promise. You see, the US dollar is simply a federal tax credit that the government issues each time it spends. When the federal government spends, it creates US dollars in our banks and in our bank accounts. And those dollars are useful to the US government because in return for its promise that we can use those dollars to satisfy our tax obligations, we provision the US government with the labor and materials it needs to continue to serve us. You and I have learned to use those dollars as a medium of exchange here in the private sector as we swap dollars back and forth as we sell stuff (like labor) and get stuff. Those dollars come in very handy for that. But we only have them because the government issued them.

So what happens to our dollars when we pay them to satisfy our tax obligations? Nothing "happens" to them. They simply cease to any longer exist. The promise of the dollar will have been fulfilled, all the accounting for the dollar will have been reversed, and the dollar, the promise of the government to accept them in payment of taxes, having been fulfilled, is rescinded. In short, the federal government creates dollars by spending and it destroys dollars by taxing. Until dollars are taxed back, we get to use them.

So you see, the federal debt is simply not an issue. That $23 trillion in so-called "debt" is nothing more than dollars that have not been taxed back. They are sitting in treasury securities accounts at the Federal Reserve, savings accounts if you will, owned by people, businesses, and counties that happen to have accumulated extra US dollars to tuck away in a very safe savings account. So, the so-called "debt" is really a very large and important private sector asset, one that will benefit, not burden, our children and grandchildren. It is not a crisis. It is simply a number.

Money and Inflation

In the president's and Betsy DeVos's rush to cut federal spending, here's a word about money and inflation.

A lot of people are convinced that government's printing too much money causes inflation. But how much is "too much"?  That is difficult to say, but the US money supply has more than doubled in the past few years with hardly a ripple of inflation.

So, how much US money is there altogether right now? It seems like a simple question, but the answer is anything but simple because there are several kinds of US money. There are money categories called MB, M0, M1, M2, and a few other Ms that have meaning only to financiers. As American consumers, we are concerned with only a couple of these, MB and M2.

MB is the monetary base, the number of actual US dollars subject to circulation. US dollars exist in three forms: bank reserves, cash, and treasury securities. The MB money supply consists of only the first two, bank reserves and cash. US dollars originate as the first form, bank reserves, mere account entries created by the Federal Reserve at commercial banks whenever the federal government spends. Some bank reserve dollars are subsequently converted to the second form, cash, when people want to actually hold physical dollars. The third form, treasury securities, are created from reserves when people tuck dollars away temporarily in special federal savings accounts out of the money supply. That third form of US dollars, treasury securities, is also known as the national debt. The monetary base, the MB, currently stands at about $3.3 trillion, broken down as about  $1.8 trillion in bank reserves and about $1.5 trillion in paper dollars and US coins, that is, cash. So, total US cash in existence worldwide is only about $1.5 trillion, some of which sits in bank vaults. It sure seems like there should be more. Total actual dollars in existence are that MB of $3.3  trillion plus the $22 trillion in treasury securities for a total of $25.3 trillion total US dollars in existence worldwide. Treasury securities, though, are dollars out of play which is actually anti-inflationary.

M2 is total cash plus the US dollar-denominated total of bank deposits, that is, our checking and savings accounts, the money we use to buy stuff and pay bills.  M2 is "money" in the sense that it is what we use for our spending, but except for the cash part, M2 is not US dollars. Instead, it is nothing but bank credit against bank reserves. Reserves are US dollars; deposits are just bank credits against those dollars. Deposits are created by the banks when the federal government spends, in which case deposits are created equal to the reserves created. Deposits are also created when banks lend, but in that case no new reserves are created, that is, no new dollars are created even though deposit amounts increase. Currently the measure of the M2 money supply is about $14.5 trillion. Since $1.5 trillion of M2 is in cash, there are checking and savings deposits of $13 trillion against the only $1.8 trillion in actual dollars sitting as bank reserves. Clearly, banks create money even though they do not create dollars.

So, how much US money is there right now? The answer is that we have $14.5 trillion in deposit "money" (M2), but only $3.3 trillion in US dollars (MB). And what might we conclude from these numbers? First, there are not enough dollars to cash out everyone's deposit accounts, if they decided to do that,without breaking the banks. Second, if creating more money is inflationary, then private sector bank lending, which accounts for a lot more money than there are federally-created dollars, probably is more likely to trigger inflation than is federal spending.

What Is That Dollar?

If I've heard it once I've heard it a thousand times, someone whines that the federal government spends by printing worthless paper money. Worthless...paper...money. Of course, they refer to the fact that the US dollar is not backed by anything, and by "anything" they mean it is not backed by gold. I say "So what?" Do people really think that if it were backed by gold, and that if the currency failed they would be reimbursed with gold? Hah! On the extremely remote possibility that the US dollar were to fail we would all have bigger problems than just getting our money reimbursed. Does a lack of intrinsic value make the dollar worthless? I think not. Is the paper deed to your house worthless? How about that paper title to your car? As for intrinsic value, the federal government doesn't actually spend paper dollars. It creates electronic dollars which have even less intrinsic value than paper dollars.

So what, exactly, is the US dollar and why does it not need gold backing? The US dollar is a promise to us from the US government that it will accept that US dollar in payment of federal tax. The US dollar is basically a tax credit that the federal government swaps us in return for the goods and services it buys. We, in turn, seek those dollars in lieu of other currencies because no other currency will be accepted in payment of federal taxes. That tax credit gives the dollar value and that value makes it a negotiable instrument that the public finds useful as a medium of exchange, a unit of value, and a store of value or, in other words, money. Those same people who whine about paper dollars having no intrinsic value apparently are simply fooling themselves because whenever I ask them to send me all of their "worthless dollars" they shut up.

What About That Deficit?

If you are a typical American you have been trained to believe that federal deficits are a danger to the American economy. To that I say retrain yourself. Actually, federal deficits are injections of new economy-building dollars from the federal government into the private sector in a fiscal year. Without federal deficits we would not have money growth and we would have to endure economic recessions such as that of 2008-2009 which was largely the result of Bill Clinton's federal surpluses of 1999-2001.

By definition, a federal deficit is the number of dollars the government spends in a fiscal year minus the number of dollars it takes back in taxes in that fiscal year. Thus, the only way to avoid a deficit is for the government to tax back every dollar it spends. Let me repeat. The only way to avoid a federal deficit is for the government to tax back every dollar it spends. That means no dollars available for saving or investment. No dollars available for growth. Does that sound good to you?

If you are a Democrat you probably believe that raising taxes is good because raising taxes pays for increased government spending. But you would be wrong. Federal taxes do not fund federal spending. Raising taxes just removes already-spent dollars permanently from the economy.

If you are a Republican you probably believe that cutting federal spending is good because less federal spending allows for lower federal taxes. But you would be wrong. Federal spending is not funded by federal taxes. Cutting federal spending just reduces the number of economy-growing dollars available to the private sector.

So, rather than raising taxes or cutting spending to reduce the deficit, why not rejoice in the deficit, be glad the government is there to fund the private sector economy, and demand greater federal spending and lower federal taxes -- that is -- just the opposite of what you have probably been taught to think? The only question concerning deficits should be was the money created and spent for the highest public good, not will the deficit bankrupt the government. It won't. The politics of deficits should concern how they can best be used, not how they can best be eliminated.