Wrapping My Head Around a Tree

There a discussion going at http://www.the99declaration.org/debt_reduction regarding Modern Monetary Theory and Monetary Sovereignty, which are closely related economic theories. A user going by the name of Rodger Malcolm Mitchell, who presumably is the same person described here, has been pushing the idea that, essentially, we could pay all of our debts any time we want just by crediting bank accounts. Initially, I conceded that while true, that would result in a loss of confidence at the world level, which would cause inflation (since our money is based on nothing more than confidence in America).
Recently, a friend of mine and I got into a discussion about the national debt. He was looking at the statistics displayed on http://www.usdebtclock.org/, particularly debt owed per citizen. During the course of our conversation, I gained a clearer picture of the concept of Monetary Sovereignty, and would like to walk myself through how our debt works.

The first thing to realize is that the term "debt" is misleading. When you or I think of debt, we think of having a monthly bill to pay. Someone has fronted us money, and we make incremental payments -- usually with interest -- to square it up. At the national level, this is completely wrong. We only make payments when someone comes to collect. But what are they collecting on?
As I covered in my post, "8. Debt Reduction," all "debt" is in the form of treasuries. There are four types of treasuries: Treasury bills, Treasury notes, Treasury bonds, and Treasury Inflation Protected Securities. Federal Reserve Notes (ie: dollar bills), are backed by treasuries, so they could also be considered a form of debt. Debt held by the public stimulates the economy, while debt held by foreign investors *could* harm the economy.

We always hear that China holds the majority of our foreign debt. This is true. China has purchased more treasuries than any other foreign nation. What does that mean?
The nearest that I can tell, treasuries must be purchased using dollars. If not, it doesn't seem like it should be a difficult process to turn yuan into dollars. So the process seems to be:

1. American businesses and consumers send dollars to China.
2. China buys treasuries using its dollars.

Of course, since most of this is electronic now, it's a simple matter of converting my dollars into a Chinese company's yuan inside a banker's computer. Regardless, now China holds treasuries, which are worth more than they were purchased for. But what are they worth? If China were to come collect on all of those treasuries (assuming that they had all matured), what do we give them?

Dollars, of course.

So they currently hold a piece of paper that represents a debt. Then they turn that paper in for more paper, which also represents a debt (and is, in fact, backed by the same paper that China originally held).

Now, the obvious question is: What if we don't have enough dollars on hand to give to China for the debt that we owe them? Well, first off, like I said above, it's mostly electronic, so we can just credit their accounts. If they want paper, we can print them paper.

But won't this cause inflation? It might. If every country that held treasuries cashed them in, and the world was flooded with dollars, they would be very easy to obtain, so the demand for them may go down. If that's the case, however, why would any country ever cash in its treasuries? If worse came to worst, and they were forced to cash them to fix some kind of economic collapse, they risk devaluing the very thing that they need. Instead, why not just trade what they already have (ie: the treasuries themselves)?

Now, I'm not suggesting that we force foreign countries to cash in their treasuries. I'm also not suggesting that we continually run a deficit (which, incidentally, has little-to-nothing to do with the national debt). 

What I am suggesting is that national debt means very, very little when it's all based on a lot of nothing.

Rodger?

10. Student Loan Debt Refinancing

From http://www.the99declaration.org/student_loan_debt_refinancing

"Our students and former students are more than $1 trillion in debt from education loans. These young people have far fewer employment prospects due to the financial collapse directly caused by the unbridled and unregulated greed of Wall Street.

Ensuring a higher education, particularly in the fields of science, engineering, technology, green energy and mathematics, is no longer a luxury for the few and must now be viewed as a national security issue.

Banks receive virtually interest free loans from the Federal Reserve Bank and then charge upwards of 6% interest to our students for profit. Because education is the only way to secure our future success as a nation, interest on student debts must be immediately reduced to 2% or less and repayments deferred for periods of unemployment. Subject to the provisions of grievance five, the tax code will be amended so that employers will receive a student loan repayment tax deduction for paying off the loans of their employees.

Outright federal grants should be provided to those students who pursue and obtain degrees in the sciences, green energy, sustainability, mathematics, technology and engineering.  Moreover, to reduce the principal on all outstanding student loans, a financial transaction surcharge, similar to those fees charged by banks on consumers, will be introduced to banks and securities firms.

The current economic crisis, the worst since the Great Depression, resulted in the $1.5 trillion dollar bail out of Wall Street, secret Federal Reserve loans, and unknown losses of trillions of dollars to the economy. Work study programs should be expanded to increase access to higher education; universities and colleges that do not reduce tuition to affordable levels shall lose federal funding; and non-citizens who obtain their education in the United States should be provided an accelerated path to citizenship so the investments made in these students remain in the United States."

I'm torn on this issue. On the one hand, I'm struggling to pay off student loans on a degree that I will most likely never use, due to inability to find a job in the field, loss of interest, and aging of the degree itself. On the other hand, I'm the one that made the commitment and took the risk, so now I'm the one dealing with the repercussions.

I believe that education is important. It doesn't matter what field you are in, an excellent grasp of the English language, at least some foreign language experience, a good understanding of mathematical and scientific concepts (including how our own bodies work), an appreciation for the arts (including philosophy), and a strong understanding of history are all useful and help make a well-rounded person.
I think that we really need to strengthen primary education. Extend the school year. Extend the number of years in public school. Teach children how to learn.
Everyone learns in a different way. If you can help children identify how they learn, you can engage them in learning from the start. The more you engage them, the more excited they will be about learning, and will be more successful at it.

I'd propose splitting education into two parts: primary and secondary. Primary education would encompass K-12 (or whatever ending point becomes necessary). Secondary school would be like college now, except that most of your prerequisite courses would already be covered. Think post-associate degree.

So, I'd strengthen primary education (K-12). Maybe you let students begin to drift off into degree paths after elementary school. Still provide a round education, but slowly incorporate more and more specialized learning. Let kids follow their interests.
But most of all, get them interested.

Make secondary school just that: secondary. If I followed a degree path during primary school that ends up preparing me for a career in medicine, for instance, maybe I could be a nurse right out of primary school. If I want to be a surgeon, a psychiatrist, an obstetrician, then I'd go on to secondary school, which I would pay for. Meanwhile, I could be starting my career with the knowledge that I already have.

It's unfortunate that a lot of us are saddled with student loan debt for degrees that we aren't using. I could maybe -- maybe -- see an amnesty for government loans. The rest, however, are our burden.

9. Jobs for All Americans

From http://www.the99declaration.org/jobs_for_all_americans

"Passage of a comprehensive jobs and job-training act like the American Jobs Act to employ our citizens in jobs that are available with specialized re-training through partnerships between companies seeking employees and community colleges and other educational institutions.

The American People must be put to work now by repairing America’s crumbling infrastructure and building other needed public works projects. These jobs should not be outsourced with cheap foreign labor or using foreign building materials. In conjunction with a new jobs act, re-institution of the Works Progress Administration, Civilian Conservation Corps and similar emergency governmental agencies tasked with creating new projects to provide jobs for the families of the 151 million People living in poverty and low income homes.

Astonishingly, one in four children are living in poverty in the United States while 8.3% of American adults are unemployed and 16% are underemployed. Many others have simply given up looking for work. Special tax incentives should be granted to companies who partner with educational institutions to re-train workers to work in green energy and new sources of American manufacturing to reduce reliance on imported goods and services. A democracy simply cannot survive with more than half of its population struggling to acquire basic needs such as food, shelter, education and health care, a shrinking middle class and a tiny fraction of the population controlling the media and the political process.  This is a dangerous convergence of circumstances."

First off, we will never have "jobs for all Americans." There will always be people who choose not to work or who are unable to work. Because of prejudices, it's incredibly difficult to take someone from the street and put them to work -- they don't look right, there are large gaps in their work history (if they have one), they may not even have the proper documentation (most jobs require a social security card at the bare minimum). So this isn't as simple as "just train people to work."
So, this really should say "significantly reduce actual unemployment numbers." That's fine. We can work with that.

I would agree that training programs can be a part of the plan, but I disagree with specifying what that training should be in. Green energy is nice, American manufacturing is nice, infrastructure repair is nice, but there are plenty of other things that people could -- and should -- be doing. Helping people train for any career is a good thing.

Giving companies incentives to hire could work, but how? If you hand them some cash and say "go hire some folks," there's no guarantee that they will use that money for hiring. They could, on paper, use that money to cover their HR budget, use the money saved there on whatever else they feel like, and say "well, we had to pay HR to find candidates," and technically they used the money for hiring.
We could hand companies cash for every new hire, but that could easily open the door for a revolving pool of do-nothing jobs. Hire ten people, sit them in a room for a week staring at each other, collect a thousand bucks per person, pay them 300, and send them on their way. Repeat forever.
The biggest tool in the government's arsenal here is taxation. Corporations love tax breaks. So we could hike their taxes, but give them tax breaks for new hires. Again, that could cause that revolving pool, so maybe we do tax breaks per employee instead. But then the bigger the corporation is, the less it pays in taxes. So now we've just killed small businesses.

I'm not sure that we really can cause job growth through a government mandate. It's a nice idea, but I'm not seeing anything that's actually going to work, other than direct employment. That's fine, but it means even more government expenditures. I don't see that being a very viable option at the moment.

I would say that we help people get training for their next career, but focus mainly on fixing the economy as a whole. A lot of the other points on the list will help with that. So, let's get the economy back on track, and the jobs will follow.

8. Debt Reduction

From http://www.the99declaration.org/debt_reduction

"Adoption of a plan to reduce the national debt to a sustainable percentage of GDP by 2020. Reduction of the $15 trillion national debt to be achieved by BOTH fair progressive taxation and cuts in spending that benefit corporations engaged in perpetual war for profit, inefficient health care, pharmaceutical exploitation, over-prescribing medications for profit, monopolization of the media by a small group of corporations, the prison and military industrial complexes, criminal banking, securities and financial schemes, the oil and gas industry, and all other corrupt monopolies, entities and individuals that have used the federal budget as a private income stream for decades.  Corporate bribery of politicians can no longer be deemed a cost of doing business paid for a lucrative “return on investment.”  This abhorrent and brazen “pay to play” racket run by Congress, corporations and the top income earners, puts greed ahead of People, resulted in a $15 trillion national debt and an unprecedented downgrade of our sovereign credit rating."

This is one of those areas that I'm admittedly weak in. Some or all of this may be flat-out wrong. I know that Rodger Malcolm Mitchell (over on the99declaration discussion) is going to take exception to everything I'm about to say. Yet I plug on.

From what I can tell, the national debt is comprised of Treasury securities. There are four types, but they all seem to operate like an interest-bearing bank account. The interest is calculated different ways for each. So when someone buys a bond (for instance), they are contributing to the national debt.
This isn't a bad thing. When an American invests in treasuries, they are adding to their feeling of wealth, which could help stimulate the economy. The wealthier one feels, the more likely they are to spend on goods or invest in business.
The downside is that at some point, the government is going to have to pay that money back. If it has to sell another bond in order to do it, it's like paying off a credit card with a credit card. Your obligation is fulfilled to one party, but you have a bigger obligation to someone else.
Almost half of the debt is owned by foreign investors. This is where debt no longer helps our economy. It's nice (and probably necessary) to have an influx of foreign money, but there are no "feeling of wealth" benefits, and at some point someone's going to want to collect. If we have to take money from the American economy to pay debts owed to another country, it's going to hurt.

It seems to be that the main debate over whether to raise taxes or cut the budget to deal with the debt is missing the point. We can be in all the debt we want -- as long as we can pay it back. The more treasuries Americans own, the wealthier they feel. The more foreign countries and investors buy treasuries, the more we have on-hand in the economy. So, I think that the bigger issue is managing the debt in a more responsible way, and ensuring that it can be paid if someone comes to collect it without completely destroying the economy.
If we can make sure that we're at that point,  we can accrue all the debt we like.