So France bounces Sarkozy and Greece bounces them all. A morality play for US austerity proponents.

[jeff47]

31. And now we shift again.

Back up that statement.

I'll let you start with Krugman
Once you understand what he's saying, maybe we can go over some of the other ways MMT is wrong.

I have absolutely no idea why it matters to you which government body does the shredding.

I'm guessing this is largely because you still think taxes destroy money.

Here's the difference:
If it works they way I say, the Fed is shredding and replacing money only as it's worn out. Money is not being created - the monetary supply is the same, it's just refreshing the literal pieces of paper that are money.

The other reason it matters is it demonstrates why your position is wrong. If the IRS isn't destroying the money, and it isn't transferring the money to the Fed for destruction (which it isn't), then taxes can't literally destroy money. That was your claim waaaaay up-thread.

You didn't answer my question about what would happen if the only way to get money into the economy was through lending, as you claimed.

Because that's not what I claimed. Banks deposit reserves with the Fed, and can get money by drawing on those reserves. In addition to lending systems like the Federal Funds Window. When the Fed prints money, those two mechanisms are how the literal pieces of paper enter circulation.

What would ultimately happen when borrowers needed to repay their debts rather than spend the borrowed money?

They would pay them. Money is spent more than one time. To use a very simplified example:
Bank borrows money from Fed -> Bank loans money to person 1 -> Person 1 buys stuff from person 2 -> Person 2 deposits money into bank -> Bank repays loan to Fed.

The Fed is operating under the failed neoclassical assumption that reserves fuel lending.

Actually, no. Most of the initial Fed lending was to get bank balance sheets back in order so that they were not insolvent. The FDIC should have seized most banks in 2008, because the losses on their loans meant they no longer met the FDIC's requirements. The loans from the Fed solved that problem.

Now, "quantitative easing" and other Fed lending operations are used mostly because they are inflationary. Improving the bank's balance sheet may be helpful, but the bank would have to want to lend first, as you say. It's the inflationary nature that causes banks to lend - at 0% inflation (or deflation), the bank might as well just keep the money in the vault.

How can our GDP grow if the only way to get money into the economy is through lending?

First, lending isn't the only way to get money into the economy, as I said above.
But anyway, there are two ways off the top of my head:
If the Fed is doing the lending to banks, they can effectively buy private loans the bank made, freeing the bank to loan the money to someone else. This is basically the result of what we've done so far, and has very limited power to increase demand.
If the Fed is borrowing the money via issuing public debt, then increased spending by the government can directly increase demand. This is the point of stimulus spending, which unfortunately has been cut off by Republicans.

The government spent it into existence in the form of the stimulus package, increased use of food stamps, unemployment compensation, welfare etc

No, the government borrowed the money via public debt. They did not wave a magic wand and create money. This is the crux of where you are wrong - you are starting from the point where the government spends the money, and ignoring where that money came from. You declare the money poofed into existence. This is very, very, very wrong.

No, it creates money via a printing press.

Very little of our money supply is actually printed.

That next sentence was there for a reason. You really don't score any points for ignoring it and pretending there was only one sentence.

I never said the government doesn't have accounts.

Uh....yeah, you did. Go look up thread.

Your central claim is that taxes literally destroy money, in that it is literally shredded or thrown into an electronic black hole. And that government spending is all newly-created money. If that's the case, government has no reason to have any bank accounts. They aren't storing any money.

The point of bringing up the debt limit crisis is not that we had any real danger of going bankrupt. It's to show that the government does have a bank account, and that it can become empty. This demonstrates your claim is false. The fact that the US Mint could stamp out coins to refill the account doesn't matter here. What matters is there is an account to refill.

I picked this particular quote to demonstrate that a sovereign currency government with a strong central bank can manage rates even under fairly adverse conditions.

Then why aren't US bonds paying 1% interest? If the Fed has complete control, which is what you assert, then the Fed could save us all a ton of money by selling bonds with lower interest.

Btw, your Bernake quote doesn't back up your assertion that the Fed has complete control over the interest rate it pays. He describes mechanisms by which the Fed can try to influence rates, but the market still sets the interest rate. And the market may not believe the Fed.

ETA: Looking once again at these comments, I think you have serious confusion on this topic, which is normal, most people do. The way the FOMC reduces rates is primarily by buying government securities from the banks.

Not at all what you were claiming in your post. I must admit you are quite deft at changing the subject when your original argument fails. Unfortunately, the post is still up there.

Once again, you have to resort to putting words in my mouth

Your words are still right up thread for everyone to read. Unless you're planning to edit them.

If you want to know precisely why the Fed has chosen its current target rate, you can read their minutes.

Not what I'm asking. You are espousing a theory here. In order for your theory to be correct, it must match what's happening in the real world. So your theory needs to account for this situation. The minutes of the Fed are irrelevant, because this is your theory, not Bernake's theory.

The Fed's goal is not simply to get the lowest rate possible. They also have a mandate to control inflation

And inflation would be lower with a lower interest rate on our public debt. After all, you just said you wanted to increase the money supply via interest payments, and increasing the money supply is inflationary. I'd also like to point out that this demonstrates another way money enters the economy via lending....

Of course it works the way I think it does. Read the excerpt from Bernanke again.

Actually, you probably should. Because he wasn't saying they were in control of the rate. They have methods they can use to try and influence the rate, but the market doesn't have to believe them.

The 90% rate you cite was not the effective rate

Because you missed where I said "top marginal"? Perhaps if you set off some fireworks as a distraction while saying this, someone might not notice.

Again, your claim was that raising top marginal tax rates would cripple the economy. You've failed to explain why your model should be treated as true when raising top marginal tax rates or very high top marginal tax rates existed during extremely large economic booms. If raising top marginal tax rates cripples the economy, then Clinton's tax increases should have resulted in a private sector that was not "net spending". If high top marginal tax rates cripple the economy, then the 1950s could not have been a massive boom with such a high top marginal rate.

Your proclamation about freshwater economists being ignorant of history is laughable. The economists I cited all have signifcant bodies of work full of historical information.

Not enough history. They propose a model, but don't try to apply that model to what actually happened. They say "if only we did X, the economy would be doing great!!". What they need to do, and fail to do, is to consider the implications of their model and apply that to historical data.

As an example, your model where high marginal tax rates cripple the economy has a problem when applied to the 1950s. So either the 1950s didn't happen, or your model needs some changes.

The other way Freshwater economists fail with history is they don't learn enough about previous economic models. For example, the Chicago school still doesn't require it's students to read Keynes. While his models aren't perfect, they do work well with some tweaks - just ask the Saltwater economists. In no other science would you not be required to learn the previous advances in your field, even if they were later shown to be wrong. Physicists still learn Newton despite the discovery of Quantum Mechanics. Biologists still learn about Mendel despite the discoveries in genetics. Yet Freshwater economists start as if economics began with Milton Freedman.