The National Debit website has the article Q) Federal Taxes Don’t Fund Spending, right? A) Wrong.. It nicely makes the point of whay I say that MMT proonents should stop using the meme “ederal Taxes Don’t Fund Spending”.

The oft-abused phrase “Federal Taxes Do Not Fund Spending” is not entirely accurate. I don’t question anyone’s motive saying it, to be clear, I am 100% positive that each time it is said by an MMTer (Modern Monetary Theory enthusiast), no question it is to promote MMT. Federal gov’t DEFICIT spending (the spending that is not funded by taxes) was only 15% of total spending last year. Besides not being entirely accurate, saying ‘Federal taxes do not fund spending’ veers off course from that first of Seven Deadly Innocent Frauds, which states that it is incorrect to think that federal taxes “must raise funds through taxation”, and that it is incorrect to think that federal “gov’t spending is limited by its ability to tax” (7DIF pg 13). I interpret that as saying that because the federal gov’t is now spending fiat dollars, there is no longer any constraint on federal spending, nor any solvency risk. I don’t interpret that as saying that federal ‘taxes do not fund spending’, but as meaning that the federal gov’t, while it is taking in tax revenues, while it is indeed spending those funds, because it is the issuer of fiat dollars (instead of a user of gold backed dollars), those revenues, those federal taxes are NOT NEEDED to fund spending anymore, a big difference. ’Federal taxes do not fund spending’ is a deadly innocent misinterpretation of this MMT pillar…

It is a long article. I must admit that I pooped out before completely reading it. However, I think it gets things mostly right, even if there is some quibbling over words. The point that is absolutely right is this quote.

In other words, when saying ‘taxes don’t fund spending’, these MMTers mean well, but unfortunately they are not advancing MMT (they have no idea how ridiculous they sound to a non MMTer)…

If MMTers don’t want to sound ridiculous and turn off anybody who might be tempted to look into MMT, they should stop making themselves look ridiculous right out of the gate.

“From Democracy to Oligarchy” is title of chapter 18 of the Micahel Hudson book Killing The Host: How Financial Parasites and Debt Bondage Destroy the Global Economy.

I think the point is that it is private bank created debt that is a far more serous threat to us all than is federal government “debt”.

Here is an excerpt from near the end of the chapter.

The popular media distract attention from how it has been possible for the Federal Reserve to create what is now more than $4 trillion in Quantitative Easing without spurring price and wage inflation. Morally, why have the banks’ large uninsured depositors, bondholders and gambling “counterparties” been bailed out in a period of debt deflation for the rest of the economy? Why did the Fed not create this credit to pay off the debts? Why were the debts left in place, leading to foreclosures that destroyed entire neighborhoods while the largest banks were rescued to resume their extravagant bonuses and dividend payouts?

Selling out voters to campaign contributors promoting pro-One Percent policies has led both major U.S. political parties to be distrusted by large swaths of the electorate. In view of how the Occupy Wall Street demonstrations won worldwide emulation by catalyzing awareness of how big money has corrupted our government and our economy, it seems remarkable that no Democratic or other would-be left coalition has sought to mobilize the widespread rejection of today’s pro-bank policy. Advocacy of truly socialist policies might stun the beltway class with its popularity, as Syriza has done in Greece (described in Chapter 24 below).

The Tea Party (and libertarians with roots in the anarchist tradition) fail to realize that only a government strong enough to tax and regulate Wall Street can check today’s financial and rentier power grab. Attacking “big government” without distinguishing between Big Oligarchy and a Progressive Era mixed economy – what used to be called socialism – dilutes efforts to regulate and tax wealth, and ends up being manipulated to support the vested interests, Koch Brothers-style.

I am learning some nuances about Modern Money Theory that had escaped me up till now. The economic difference between FED created money and private bank created money is that private bank created money entails debt and interest payments to the private banks that created the money whereas FED created money spent into the private sector does not produce any personal debt to the members of the private sector.

Federal government debt, unlike private, personal debt, does not require any person or corporation in the private sector to pay back that debt. The government sector debt created by deficit spending will be paid with money created by the FED.