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“The Deficit Myth” - by Stephanie Kelton (SK)


Victor Sperandeo Reviews “The Deficit Myth” by Stephanie Kelton


The essence of the book was to explain how the monetary system really functions today to promote Modern Monetary Theory (MMT) Economics... To quote, “It is, first and foremost, a description of how a modern fiat currency works.” Here she does a good job of explaining it. Her writing is clear, easy to read, and operationally accurate about how the monetary system works. The myths she speaks of e.g., - the “Gov’t should not run its budget like a household” is true in the short run, but not in the long run.

Also “crowding out” and of “needing foreign Gov’ts to finance the U.S. debts and deficits”, are accurately stated as myths. The Gov’t via spending from Congress + the Fed can print/computer stroke an unlimited amount of fiat currency. However, the Fed cannot “spend money “, but it can make loans under most conditions. She does not address this difference. The question is: who will “create” the fiat currency and who will “spend” the dollars to execute SK’s ideas?

SK mentions inflation as the risk of MMT, which is very true, but not totally true... the huge accumulation of debts is also an “Existential Risk” to America’s form of political system, as history clearly demonstrates. Economic crises can, and have, led to dictatorships. Huge debts lead to the printing of paper currency to pay them and that leads to inflation, or hyperinflation, and higher interest rates, which kills nations economically. This can come about with an unknown event like a war or pandemic that then increases the debt “beyond” what is expected, and causes the LOSS OF CONFIDENCE in the currency, and thereby the system.

SK’s belief that the “Govt deficits” are the “people’s surplus” is true yearly, but again, not true in the long run. Also, to imply that certain debts are not good, like defense spending, versus “the Deficits that matter” like deficits for “good jobs, health care, infrastructure, and a sustainable climate”, shows an extreme bias of her ideology. All lives and all debts matter, from the economy’s perspective.

In her trade deficit chapter “Winning at trade” - SK claims, “Reality is: America’s trade deficit is its ‘stuff surplus’”. (Question: don’t debts remain, while stuff is used up?) Although SK outlines the problem of lost manufacturing jobs well, and understands the problem, her answers to lost jobs are to guarantee Gov’t jobs with printed currency, as in her standard solution to unemployment. Of course, manufacturing jobs pay a lot more than her suggested $15 an hour (more below), but SK offers some other incredible ideas!

Talking instead of the “trade war” answer from Trump, SK says: “Instead, we must recognize that the US government can supply ALL the dollars our domestic private sector needs to reach full employment, and it can supply ALL the dollars the rest of the world needs to build up their reserves and protect their trade flows.” Also, and I’m in amazement here... “the U.S. could lead the effort to mobilize global resources for a global Green New Deal, keeping interest rates low and stable to promote global economic tranquility. (Wow!!!??). I am afraid SK has lost all sense of proportion. Just a life-time observation of this mentality -you have a printing press, can manufacture currency, and believe one can use it in infinite ways? This is a very average thinking process that only teenagers without any experience would conclude.

What SK does not do is use the term “printing money”, which would make her argument more real and objective, but not more marketable. She uses a curveball euphemism “(Gov’t) Spending” and “Supplying dollars” instead. However, where do the dollars come from to spend or supply? In SK’s world, the U.S. is a “currency issuer”, who creates it. Please note, to repeat, the Fed cannot spend paper dollars. It can only make certain types of loans like buying Gov’t debt in the market, but not directly from the Treasury. Moreover, only Congress can spend currency, as it has the power to legislate the budget, but now we go back to the Constitution - the Senate and President must also approve that spending budget.

Thereby, the Fed can print dollars to make loans with Sovereign Debt as collateral, and the Gov’t can spend and borrow, but it does not print paper dollars to spend? These are complications that are not discussed.


The major underlying problem of her thinking is, SK mixes and confuses political systems: First, she uses the concept of “Democracy” to identify the U.S. political system, which is 100% inaccurate! (Almost all Democrats use this term “Our Democracy” to describe the U.S. political system.)

From an article ... “Why the Founding Fathers Despised Democracy” by Jim Huntzinger - Dec 07, 2018... “Plato wrote in The Republic, “And so tyranny naturally arises out of democracy.” The Founding Fathers despised democracies (for this reason). They desired democratic principles, but not a “Democracy”. As Plato decrees above, a democracy can easily be commandeered to establish a totalitarian state. The Founders inherently understood this, and wholly rejected forming a Democracy.”

The U.S. elects “Representatives to Congress” by a “democratic process”, but the President is elected by the States via the electoral college, which has nothing to do with the popular vote, otherwise Hillary Clinton would be President. Also, and more important is, we have no Democracy in creating laws. This means the laws are voted by the Representatives (who average about 750,000 people per Representative) and must be Constitutional to be legal! For example, majority rule on taking guns away from owners, means nothing legally due to the “2nd Amendment” reiterating our natural rights. A majority vote cannot override natural rights. The Constitution rules.

Moreover, America is a Constitutional Republic (as is stated in the Constitution Article IV Section 4) and nowhere is the term “Democracy” stated in the “Declaration of Independence” or “Constitution”. As Sam Adams so accurately put it: “DEMOCRACY never lasts long. It soon wastes, exhausts, and murders itself. There was never a democracy that did not commit suicide.” This is the endgame of SK’s economic philosophy, but she does not realize it.

The point is, if you do not accurately understand the social system you are governed by, or “A Constitutional Republic” vs “A Democracy”, how can you promote a monetary system within it? She also interjects Climate Change all over her book as a problem Gov’t should fix, which of course, has nothing to do with monetary theory, but is another program to print currency for that is estimated to cost $9.3 trillion a year under the “Green New Deal” and is in Congress’ control.

Second, SK also never speaks of the concept of “Liberty”, which is the sole purpose of our gov’t creating and being a Constitutional Republic. Thereby, this is based on “The rule of law”, not men, with huge checks and balances that instruct what the Gov’t can do as its main purpose - TO PROTECT THE LIBERTIES OF THE PEOPLE - as its sworn duty. This does not include giving printed paper (Federal Reserve Notes) to a targeted part of society.

With that said, her main goal is noble. The guarantee of a government job by Gov’t using the printing press to pay unemployed people is a fair proposition, but like so many political desires, which are unlimited, it is not Constitutional. In addition, she says to “pay $15.00 an hour, and all benefits” for the guaranteed Gov’t job. The minimum wage is currently $7.25 an hour, correct? That is 107% more? No economist I can imagine would suggest this pay to “backstop a guaranteed Gov’t job”... only an ideological political activist would. Why? This, of course, would force up “all” wages to the new minimum of $15 an hour, and with benefits making the annual pay $38,000-40K a year. A NYC policeman starts at $41K. Thereby, the person who puts food in your bag at a checkout counter at Kroger’s would make virtually the same as many other key startup positions that need skills, and training? The ramifications would be catastrophic to the economy.

What SK doesn’t have any understanding of, is that the “creating of the fiat currency” by the Fed + Banks, and/or the Treasury, is not the primary issue as to why MMT would totally fail in the long run. It is the loss of CONFIDENCE IN THE PAPER CURRENCY that will cause the end of the dollar’s value and cause hyperinflation. Confidence in paper currency exists today due to the “LIMITS” the gov’t self-imposes on what it does. It is not a problem of “creating or manufacturing” unlimited paper currency, or keystroke credits. It is what the market will anticipate will happen, after the fact!! She wants to fund all unemployment, forgive student loans, fund the Green New Deal (i.e., climate change, aka global warming), increase Social Security, Medicare for all, UBI, and more? You will never see the inflation until after the fact. Once the trust in the currency ends, “expectations” of the loss of value occurs, and the loss of confidence begins, then the printing currency scam will end. History is vivid with 100’s of examples of currencies dying from this mentality.


In the book “Fiat Paper Money”, Ralph T. Foster shows 450 currencies by decade that have died from 1900-2010, and I estimate 40 more from 2010-2020. The founding fathers studied all of history and warned of debt and issuing fiat currency, as it has been tried very unsuccessfully since 1024 AD starting with the Sung Dynasty in China. How did all these nations' currencies die? Meanwhile, SK thinks her idea will succeed? Please forgive the comment, but she is way ahead of her skis as an intellectual, not pointing this out.

Moreover, the change of today’s system to SK’s MMT system will end interest payments, and the Owners of the Fed will never allow this. That is the gravy train to the banks. The most powerful institutions in the world and would end her career first?

The USA, the greatest, most successful, and powerful nation in world history, only took 143 years (1791-1933; or if you prefer 1791-1971) before going off the gold Standard completely, or 180 years. What were the magic ingredients that made the USA happen? As stated by another Founding Father: “I have but one lamp by which my feet are guided, and that is the lamp of experience. I know of no way of judging the future but by the past.”, Patrick Henry. Liberty, the rule of law, the Gold Standard (i.e., sound money - till 1933/1971), a Tax system based on what you buy, or Excise taxes, and equal taxation after (not a Progressive Tax System on income), Individual Rights, Capitalism or Private Property, and freedom to act, the Free Market based on the price system, a promotion of “the Family Unit”, limited gov’t, and a religious society based on Judeo-Christian values (i.e. virtues that are axiomatic in their meaning) - these are the ingredients that create the wealth and prosperity of all nations -not the ability to print paper notes. The U.S. has had this ability to print currency since 1884 in an “opinion” by the Supreme Court.

In THE LEGAL-TENDER CASES. “JUILLIARD v. GREENMAN” March 3, 1884, voted 8:1 to allow printing money by the U.S.! The only descent was from Justice Stephen J. Field, which explains exactly what happened going forward and was a true soothsayer! SK might take note. “From the decision of the court, I see only evil likely to follow. There have been times within the memory of all of us when the legal-tender notes of the United States were not exchangeable for more than one-half of their nominal value. The possibility of such depreciation will always attend paper money. This inborn infirmity no mere legislative declaration can cure. If congress has the power to make the notes a legal tender and to pass as money or its equivalent, why should not a sufficient amount be issued to pay the bonds of the United States as they mature? Why pay interest on the millions of dollars of bonds now due, when congress can in one day make the money to pay the principal? And why should there be any restraint upon unlimited appropriations by the government for all imaginary schemes of public improvement, if the printing-press can furnish the money that is needed for them?” No one has stated it better, and more accurately than Justice Field.

SK suggests making things better, we should take printed pieces of paper (tried for almost 1,000 years and has never succeeded), and give them away for her causes? This is at best Socialism, and a Planned Economy - which has NEVER-EVER worked in the history of the world! One can say, well what about China? Their economy began in 1978, under Deng Xiaoping, whose success is still underdetermined, and we’ll have to see. However,look at the approach to Hong Kong, and ask if you would live under this totalitarian state, or that it will continue? China will crash and burn as no one can long plan the economic system for 1.4 billion human beings under complete force, for a long time… see North Korea where people are starving, and as it was depicted would occur today, projecting its politics in “The Road to Serfdom”, by Friedrich Von Hayek. What is very appropriate under the SK vision of economics is outlined in Von Hayek’s book “Fatal Conceit”.

The South Sea Bubble and French Revolution at least offered “land” as backing to their scheme of printing fiat currency dreams. It ended very badly in hyperinflation and then dictatorship with Bonaparte! SK understands that inflation is the problem of MMT... what she does not understand is the speed and suddenness with which it can occur. See this testimony of an actual experience: “In a 1993 interview, Harvard law professor Friedrich Kessler who described what living with Weimar hyperinflation was like: “It was horrible. Horrible! Like lightning, it struck. No one was prepared... The shelves in the grocery store were empty. You could buy nothing with your paper money.”

PS - lightning means in late 1922 it took 190 German Marks to buy one U.S. dollar. In January 1923, it took 18,000; and by November, 4.2 trillion Marks to buy one U.S. dollar.

Good Luck SK, you will need it!!

The statements in this communication are the opinions of its author, Victor Sperandeo, and are not to be relied upon by anyone as the basis for an investment decision. Any investments made by a party in reliance thereon are made at such party’s sole risk. No guarantee of any kind is implied or possible where opinions as to past or future market conditions/events are provided. Past performance is not necessarily indicative of future result

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