The Best of Mosler

Not that I''ve read much, but this is absolutely the best I've read from Warren Mosler:

Why there is a deficit
Posted by WARREN MOSLER on July 26th, 2011

The main reason we have a large budget deficit is because of all the tax advantaged savings plans- pension funds, IRA’s, insurance and corporate reserve.

All of these financial assets, which compound continuously, represent unspent income.

And unless they are offset by some other agent spending that much more than his income, the dollars won’t be there to be saved in these tax advantaged entities.

Pension plans, IRAs, insurance and corporate reserve. Tax-advantaged savings plans. Encouragements to save. Encouragements to remove money from circulation.

(But I don't think they compound "continuously". That's a technical term.)

To live life as we know it, we need money and we need it circulating. That's how we shop, and how we eat, and how we buy our toys, and how we get paid.

Never thought about that? When you receive your paycheck, money is circulating.

If not enough money circulates to us, sometimes we borrow a little. We are, each of us, little versions of the Federal Reserve, creating money by spending it into circulation.

But we do it by borrowing and spending it into circulation. So does the government, actually. Only the Federal Reserve doesn't have to borrow before it puts money into circulation. Apparently, however, the Fed is allowed to circulate it only to people who already have money. Unfortunately, that doesn't fix any problems.

So anyway, with all these tax-advantaged encouragements to save, we lost circulating money and gained sedentary money. Then, to continue living life as we know it, we increased our borrowing and made up for the shortfall that way.

And wasn't it convenient -- There was plenty of sedentary money just waiting to be borrowed.


If you stop and think about it, you might notice that the problem, really, was caused by tax-advantaged encouragements. In other words, the problem was created by Congress. The Federal Reserve, poor bastards, take the blame while Congress points the finger. But most of the problem lies with Congress. And they ought not be allowed to get away with it.

The long and short of it is this: There is an imbalance in the money. An imbalance between circulating money and sedentary money. An imbalance between the quantity of money we receive as income and the quantity we have to pay interest to use. An imbalance between low-cost money and high-cost money. There is an excess of interest cost relative to the amount of spending we do. This is the central problem.

In the process of creating all those tax advantaged savings plans that Warren writes about, we also created a shortage of circulating money and an excess of money in savings. So we have to pay interest to use the money. That extra cost is killing us.


Note that in five lines of text, Warren manages to use the words "tax advantaged" twice. You might take that as a clue as to what the solution requires.