MarvinSussman

Think of the US economy as a wash bowl, with water as money. Imagine three sets of faucets and corresponding drains representing the three different ways that money enters and exits the economy. The analogy will show that control of the money flow can attain and maintain a prosperous economy.

“WATER” LEVELS

Because supply and demand determines value, a dollar becomes precious when the “water” level (effectively, consumer demand) is near the bottom of the bowl. Deflation freezes the economy.
Who would spend a dollar today if it would buy more tomorrow? We have a depression, low GDP, and an unemployment rate over 25%.

When the “water” level in the bowl is higher but still below the half mark, the economy hovers between deflation and inflation. We have a serious recession, little GDP growth, and an unemployment rate over 12%.

When the “water” level is not much above the half mark, the economy is precarious. We have a slowly rising GDP, a low inflation rate, and an unemployment rate over 6%. It’s similar to our early 2014 US economy.

When the “water” level climbs higher but not too close to the brim of the bowl, prosperity arrives! We have a 3% GDP growth rate, a 2% inflation rate, and a 4% unemployment rate. Not too cold, not too hot. Goldilocks!

When the “water” level gets closer to the brim, GDP climbs faster and the unemployment rate falls below 4%. A lack of slack brings shortages and too much money chasing too few goods. Harmful inflation rises above 3%.

Near the brim, the economy becomes unstable, prices vainly pursuing rising costs. Imagine an overflowing bowl!

To attain the prosperity level, we have to manage the flows. To maintain that level, we have to micro-manage the flows, steering the economy ahead while avoiding both harmful unemployment and harmful inflation.

“WATER”

With cost-free keystrokes, the Fed may buy US bonds in the open market, collecting the bond interest and relieving the Treasury of corresponding debt because 94% of Fed earnings must be returned to the Treasury. Such buying (and selling) does not affect the “water” level but could change the bond interest rates at auctions.

Private debt is equivalent to “negative” money that reduces the effective “water” level. Also, investment funds held in reserve and severe inequality of wealth have that same effect. Wealth is power and inherited wealth is an inherited power to increase and endow one’s wealth: aristocracy, the enemy of meritocracy and of democracy.

CONTROLLING THE “WATER” LEVEL WITH FAUCETS AND
DRAINS

Money enters the US economy via the Export-Receipt faucet. Import-Payment is the corresponding drain. Acting in their own interest, billions of individuals everywhere make buying and selling decisions. Because the status of the various economies control the trade flows, Congress cannot micro-manage the economy by controlling trade.

The Bank-Lending faucet creates money, raising the “water” level. The Loan-Repayment drain reduces the level. Risk-averse borrowers, waiting for prosperity, don’t borrow much at lower “water” levels. Hence, recessions may linger while those in Congress who want a stimulus to “prime the pump” struggle against “deficit hawks” who fear debt. (Debt be damned, massive World War II spending finally ended the Great Depression after ten years of waiting for enough borrowing.) As the level rises, the borrowing increases. Near the brim of the bowl, excessive bank lending is the main cause of inflation, adding $6 of credit for every $1 of deficit spending. Because the state of the economy determines the bank flows, Congress can’t micro-manage the economy by controlling banks.

The only remaining money source is the Federal-Spending faucet. Congress writes the checks and the Treasury pays all the bills, no questions asked. The corresponding drain is IRS-Revenue, which, to prevent inflation, retrieves almost all of the spent federal money. The myth that tax revenue is needed for federal spending vanishes in every crisis, corrupts political dialogue, promotes Congressional austerity, and destroys our infrastructure. In fact, the reverse is true: tax revenue depends entirely upon the GDP growth and prosperity induced by federal spending.

The federal spending not retrieved by the IRS (the deficit) is saved by the public, increasing the “water” level. Under the previous gold standard regime, the Treasury, to conserve its gold store, limited the money supply by borrowing the savings/deficit with bond auctions. With our fiat currency, that practice is no longer necessary but is still continued. Instead, the Treasury could now auction only the minimum amount of bonds needed for trade collateral, bank reserves, insurance, pensions, etc. With the reduced borrowing, the public’s concern for the national debt and the debt interest would then disappear entirely and we could restore our failing infrastructure.

Indeed, the “debt crisis” is a cruel hoax. With fiat currency, the infinite financial assets of the federal government could produce a wealth of infrastructure limited only by the resources available to us now or yet to be found.

Since tax legislation is always a brutal struggle, the IRS-Revenue drain is an unreliable steering-wheel; Congress will never be able to micro-manage the economy by controlling tax rates.

Which means that, by elimination, we have found that the only way to micro-manage the economy is through Congressional spending. We have also found that the only rational restraint on Congressional spending is the threat of harmful inflation caused by over-consumption of resources by both Congress and the private sector.

To ATTAIN prosperity, Congress must spend enough money (but not more!) on much-needed infrastructure.

To MAINTAIN prosperity, Congress must spend enough money on infrastructure while the Fed controls interest rates and the administration micro-manages the economy by careful scheduling of infrastructure projects to avoid a shortage of physical and human resources.

More spending than that would increase inflation; less spending than that would increase unemployment.

Congress would be willfully malevolent if it allowed unemployment rates that weaken labor’s bargaining strength, promote inequality, and lose the wealth of infrastructure that could be produced if workers were not idled by an austere budget. To attain and maintain prosperity, voters must remove the deficit hawks from Congress.
--------------------------------------------------------------------------------------------------------------------------------------

This essay was inspired by J. D. Alt’s e-book: “Diagrams & Dollars” (Amazon ) and by the blog of:
Dr. Stephanie Kelton, Chair of the UMKC Economics Department, at NewEconomicsPerspectives.org

That this simple model ignores “stagflation” and similar anomalies does not invalidate its conclusions.

© 2014 Marvin Sussman All Rights Reserved. Permission granted only to copy entirely.

MarvinSussman

Think of the US economy as a wash bowl, with water as money. Imagine three sets of faucets and corresponding drains representing the three different ways that money enters and exits the economy. The analogy will show that control of the money flow can attain and maintain a prosperous economy.

“WATER” LEVELS

Because supply and demand determines value, a dollar becomes precious when the “water” level (effectively, consumer demand) is near the bottom of the bowl. Deflation freezes the economy.
Who would spend a dollar today if it would buy more tomorrow? We have a depression, low GDP, and an unemployment rate over 25%.

When the “water” level in the bowl is higher but still below the half mark, the economy hovers between deflation and inflation. We have a serious recession, little GDP growth, and an unemployment rate over 12%.

When the “water” level is not much above the half mark, the economy is precarious. We have a slowly rising GDP, a low inflation rate, and an unemployment rate over 6%. It’s similar to our early 2014 US economy.

When the “water” level climbs higher but not too close to the brim of the bowl, prosperity arrives! We have a 3% GDP growth rate, a 2% inflation rate, and a 4% unemployment rate. Not too cold, not too hot. Goldilocks!

When the “water” level gets closer to the brim, GDP climbs faster and the unemployment rate falls below 4%. A lack of slack brings shortages and too much money chasing too few goods. Harmful inflation rises above 3%.

Near the brim, the economy becomes unstable, prices vainly pursuing rising costs. Imagine an overflowing bowl!

To attain the prosperity level, we have to manage the flows. To maintain that level, we have to micro-manage the flows, steering the economy ahead while avoiding both harmful unemployment and harmful inflation.

“WATER”

With cost-free keystrokes, the Fed may buy US bonds in the open market, collecting the bond interest and relieving the Treasury of corresponding debt because 94% of Fed earnings must be returned to the Treasury. Such buying (and selling) does not affect the “water” level but could change the bond interest rates at auctions.

Private debt is equivalent to “negative” money that reduces the effective “water” level. Also, investment funds held in reserve and severe inequality of wealth have that same effect. Wealth is power and inherited wealth is an inherited power to increase and endow one’s wealth: aristocracy, the enemy of meritocracy and of democracy.

CONTROLLING THE “WATER” LEVEL WITH FAUCETS AND
DRAINS

Money enters the US economy via the Export-Receipt faucet. Import-Payment is the corresponding drain. Acting in their own interest, billions of individuals everywhere make buying and selling decisions. Because the status of the various economies control the trade flows, Congress cannot micro-manage the economy by controlling trade.

The Bank-Lending faucet creates money, raising the “water” level. The Loan-Repayment drain reduces the level. Risk-averse borrowers, waiting for prosperity, don’t borrow much at lower “water” levels. Hence, recessions may linger while those in Congress who want a stimulus to “prime the pump” struggle against “deficit hawks” who fear debt. (Debt be damned, massive World War II spending finally ended the Great Depression after ten years of waiting for enough borrowing.) As the level rises, the borrowing increases. Near the brim of the bowl, excessive bank lending is the main cause of inflation, adding $6 of credit for every $1 of deficit spending. Because the state of the economy determines the bank flows, Congress can’t micro-manage the economy by controlling banks.

The only remaining money source is the Federal-Spending faucet. Congress writes the checks that never bounce. The corresponding drain is IRS-Revenue, which, to prevent inflation, retrieves almost all of the spent federal money. The myth that tax revenue is needed for federal spending vanishes in every crisis, corrupts political dialogue, promotes Congressional austerity, and destroys our infrastructure. In fact, the reverse is true: tax revenue depends entirely upon the GDP growth and prosperity induced by federal spending.

The federal spending not retrieved by the IRS (the deficit) is saved by the public, increasing the “water” level. Under the previous gold standard regime, the Treasury, to conserve its gold store, limited the money supply by borrowing the savings/deficit with bond auctions. With our fiat currency, that practice is no longer necessary but is still continued. Instead, the Treasury could now auction only the minimum amount of bonds needed for trade collateral, bank reserves, insurance, pensions, etc. With the reduced borrowing, the public’s concern for the national debt and the debt interest would then disappear entirely and we could restore our failing infrastructure.

Indeed, the “debt crisis” is a cruel hoax. With fiat currency, the infinite financial assets of the federal government could produce a wealth of infrastructure limited only by the resources available to us now or yet to be found.

Since tax legislation is always a brutal struggle, the IRS-Revenue drain is an unreliable steering-wheel; Congress will never be able to micro-manage the economy by controlling tax rates.

Which means that, by elimination, we have found that the only way to micro-manage the economy is through Congressional spending. We have also found that the only rational restraint on Congressional spending is the threat of harmful inflation caused by over-consumption of resources by both Congress and the private sector.

To ATTAIN prosperity, Congress must spend enough money (but not more!) on much-needed infrastructure.

To MAINTAIN prosperity, Congress must spend enough money on infrastructure while the Fed controls interest rates and the administration micro-manages the economy by careful scheduling of infrastructure projects to avoid a shortage of physical and human resources.

More spending than that would increase inflation; less spending than that would increase unemployment.

Congress would be willfully malevolent if it allowed unemployment rates that weaken labor’s bargaining strength, promote inequality, and lose the wealth of infrastructure that could be produced if workers were not idled by an austere budget. To attain and maintain prosperity, voters must remove the deficit hawks from Congress.
--------------------------------------------------------------------------------------------------------------------------------------

This essay was inspired by J. D. Alt’s e-book: “Diagrams & Dollars” (Amazon ) and by the blog of:
Dr. Stephanie Kelton, Chair of the UMKC Economics Department, at NewEconomicsPerspectives.org

That this simple model ignores “stagflation” and similar anomalies does not invalidate its conclusions.

© 2014 Marvin Sussman All Rights Reserved. Permission granted only to copy entirely.

davecollins

It doesn't really matter who Klaus is - the one thing the Czechs don't understand about ethiopian half breeds is that once the ethiopians take over a neighborhood or state or country - it immediately converts to the ghettos they are accustomed to. In simple words for the ethiopian loving idiots reading this - once the neighborhood goes dark it goes all the way down to the garbage dump and nothing is worth saving within the dump neighborhood - NOTHING or NO ONE.

slatten49 Loc: Lake Whitney, Texas

"Ethiopian half-breeds"? I really am at a loss at to where that came from, DaveCollins. Seriously, could/would you explain that excerpt for me? I could only guess (?) you meant to say 'Kenyan half-breeds'...or not.

Bruce Kennedy Loc: Kansas

I stand corrected, this post is the most racist and ignorant post I've read to date. davecollins what does it take to become this ignorant? That can't be all "natural talent", could it? Surely you've worked extremely hard to become this ignorant, or does it just come naturally?

Coos Bay Tom Loc: coos bay oregon

Any American who would side with a commie over their own president is a commie themselves. Guilty of treason and unworthy to live in this great country

UncleJesse Loc: Hazzard Co, GA

A few days ago, the Czech senate passed a public petition charge that impeached Vaclav Klaus for High Treason of corruption, amnesty to 6,000 prisoners and preventing the prosecution of key business fraud suspects.
It takes the wind out of this quote's sails because apparently, while criticizing Americans for Mr. Obama, he was ignorant of Czech citizen's disgust of him.

aquila

Thank You. Good point!

rjoeholl

And THERRRRE you have it, ladies and gents, the proverbial RACE CARD!

:!: :!: :!:

ldsuttonjr Loc: ShangriLa

Brucie: Back into your little ignorant troll hole!!! Minimum skills,minimum information, education and contribution to whats good for this Country seems to be your trait!!! Delusional stupidly !!!!

Bruce Kennedy Loc: Kansas

Well, there you go again. Who are you accusing of being a "commie"? But the real question is do you even know what a "commie" is?

cesspool jones Loc: atlanta

when wonder-boy obama still has a 40% approval rate after this sham of a presidency, alls i can say...i see the future and itz not pretty.

vernon

im sure you can figure it out if not tough.

saltwind 78 Loc: Murrells Inlet, South Carolina

Ghost, The fact that you say that you despise the Czechs says a lot about you. Why on earth would you despise a little country that has never committed aggression against any country, and has been the victim of Nazi Germany, and Communist Russia. They have a long history of wanting democracy. That being said, Klaus is entitled to his opinion as every individual is. I happen to think he is wrong as wrong can be.

Winter Solstice Loc: Salt Lake City

It amazes me how these posts quickly revert to name calling. Even the first response has degenerated to it. Why don't you all read the words initially posted. They make a lot of sense and don't need to be degraded by smearing the author.