Stephanie Kelton has a new book. Perhaps it would get more serious attention, if her name were Steve Kelton. How presumptuous for a woman to opine about money which, until recently, was “the last taboo.”
That said, Professor Kelton is wrong. The U.S. federal deficit is NOT a myth. It is, very simply, the difference between what Congress authorizes the federal agencies to spend in any year and what it adjusts the tax code for the U.S. Treasury to collect in the same year. If the code is set so the Treasury collects less, then Congress expects it to benefit hoarders by borrowing from the legislators’ friends.
In 1991 the situation was ideal from the perspective of the lazy class in that 30 year bonds were guaranteed to provide a return of 8.1%. Since at 7% money doubles every ten years, that was a sweet deal. It will never come again. Those 30 year bonds expire this year and, if there is to be borrowing, it certainly will not be anywhere near even 5%. If the tax code is adjusted to reduce hoarding by people who have demonstrated beyond a doubt that they do not know how to spend wisely, then the difference between outgo and inflow will not be all that great.
However, there is a mythic element to the economy. It involves the Congressional effort to reverse the flow of currency by letting their creature, the Federal Reserve Bank, give free money to member banks so they can lend it at interest and earn themselves a bundle for playing financier. That something has to come back (revenue) before it goes out is a reversal, not unlike putting the cart before the horse. And that is what Congress has been selling to the public for half a century in their vain effort to control the economy.
It took a virus to shatter that scam. The passage of the CARES act (with Trump’s signature) and the RESCUE package with no Republican votes and now the upcoming INFRASTRUCTURE bill working together to resuscitate the U.S. economy from a half century of intentional deprivation. The purpose? To deny Capitol Hill responsibility and make it easier to retain incumbents.
I would note, however, that COVID did not bring the sea-change by itself. After the 2016 election, the people had replaced at least 50% of the House with relative novices. In 2020 it was the Senate’s turn for a little housecleaning. We fell a tad short, but creative thinking will turn the economy around.
Will the bankers recover? Not to their previous untouchable stature. Obama standing between them and the pitchforks only served to delay the inevitable return to being a public utility.