First—Sounder, would you mind straightening out your sloppy andf confusing non-attribution of the quote above? Thanks.
Next, I think you have some mistaken notions about the Federal Reserve and MMT.
Sounder wrote: the US government, has ceded to the Fed the authority to create money via debt instruments (Treasury securities); the Fed has in turn passed that authority to its effective master, the private commercial banks, which create money through interest-bearing loans.
All incorrect. The Fed, regulated by Congress, is the master and a regulator of the private banks. The Fed was created to end the mass confusion of private bank-note money which predominated over most of the preceding decades.
The Federal Reserve is far from perfect, it's been rearranged at times to improve its function, and Congress can make any change to the Fed that we might demand, merge it with Treasury or even abolish it (all possibilites in the MMT view, although consolidation with Treasury is preferred by Wray.).
The Fed does
not "create money" my selling Treasury securities; the Treasuries are purchased with
already-existing money.
Also, the Fed does not create a single penny that Congress has not appropriated, or specifically directed the Fed to create by law (TARP, e.g.).
Sounder wrote:As Positive Money explains: “Most of the money in our economy is created by banks...Banks create new money whenever they make loans. 97% of the money in the economy today is created by banks, whilst just 3% is created by the government.”
Commercial bank loans have a net-zero effect on the money supply because they are constantly being paid down to zero (with already existing money). Too much lending can overheat an economy but the money never stays in the economy (so when we hear about capitalist "wealth creation," that really just means "wealth accumulation."
One important difference between bank lending and federal spending is that the federal spending does not have to be "repaid" to anyone (despite what
some people want you to think). And when the government
does not tax back all that it spends,
that remainder is the money that persists—it's where your $5 bill came from.
When the government taxes back all that it spent, that leaves no money in the economy for us. That's a depression or recession—when nobody has any money because the federal governent taxed back all that it spent. This is why imposing a 'balanced budget' on the federal government is a terrible, terrible idea.
Sounder wrote:The role of the central bank is to preside over a legal order that effectively grants banks the exclusive right to create IOUs of a certain kind, ones that the government will recognise as legal tender by its willingness to accept them in payment of taxes.”
I'd loved to have heard your opinion about all this in 1800, when creating and issuing money in America was considered a
human right (Galbraith,
Money: Whence It Came and Where It Went). Anyone could start a bank and issue their own "bank notes." This naturally had its problems but without those banks, growth in the West would have been impossible or greatly impeded—which may have been "just as well" but that's another question; the question here is, "does 'paper money' necessarily mean inflation, economic slavery and disaster?" Answer: No. By no means. In the first half of the nineteenth century, farmers, then 90% of the population, absolutely depended on the frontier banks.
Sounder wrote:As Ellen Brown points out: “If the Fed were actually a federal agency, the government could issue U.S. legal tender directly, avoiding an unnecessary interest-bearing debt to private middlemen who create the money out of thin air themselves.”
It's true the creators of the Fed sought to maintain a debt model, mostly because their greatest fear was—after experiencing the booms and busts of the wild and woolly days—inflation. But the U.S. didn't go off the gold standard (domestically)* until 1933, so fiat money creation wasn't even on the table in 1913 when the Fed was created.
The important point is that MMT proposes more or less what you desire here: "debt-free" U.S. legal tender created to buy goods and services for the public good, stimulate economic activity and additionally serving as an enormously convenient exchange medium.
Sounder, have you read this?:
http://home.hiwaay.net/~becraft/RUMLTAXES.htmlThe necessity for a government to tax in order to maintain both its independence and its solvency is true for state and local governments, but it is not true for a national government. Two changes of the greatest consequence have occurred in the last twenty-five years which have substantially altered the position of the national state with respect to the financing of its current requirements.
The first of these changes is the gaining of vast new experience in the management of central banks.
The second change is the elimination, for domestic purposes, of the convertibility of the currency into gold.
* (The U.S. adopted a gold standard in 1837 and so it remained until 1933.)
And I'll add, Sounder, that the "sound money" you hanker for was promoted by precisely the entities you (and I) vilify—those already rich who want more, want it all. It was the wealthy elite who clamored for "sound money" because they knew they could profit from such activities that would otherwise be funded by the federal government. We're still paying for the "sound finance" that the gold-buggers want to bring back and impose in full on the rest of us.
Is that what you want?—federal spending constraints that benefit only the rich? "Trickle down"? That's what you're advocating.
Finally, you have not responded to my reply to you in this thread, this time I expect one.