There you go again. You haven't said anything new in the five or six anti-MMT posts you've done. You are still using an inapplicable model of the monetary system. Every point you make about it is wrong as I've explained here:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1723198
At any rate, let's look at a few points you've made.
First, if the deficit is too large, why not raise taxes or cut spending? Are you also assuming we wouldn't do that? We don't have any inflation now and we just had a deal to cut over $2T from upcoming budgets, dysfunctional as things are.
Second, you gloss over the key point--"for whatever reason" the Tsy can't sell its bonds except at a significant premium. What are those reasons? That is the core point--you've essentially waved your hands and assumed virtually everything MMT says away. That doesn't prove anything. That says "I win because I assume the other guys are wrong."
Third, banks don't lend currency. Banks don't lend reserves. As I said, your understanding of the monetary system is deeply flawed. If you don't want to take our word for it, go see what Claudio Borio at BIS says about the money multiplier model.
Fourth, no, a deficit financed by "money" is NOT more inflationary than a deficit financed by bonds. There's a very simple reason for this--it is operationally impossible to finance a bond issue with "money" unless you have a zero interest rate target, in which case in your own paradigm you are in a liquidity trap. To achieve a positive interest rate target while printing "money," the Fed would have to pay interest on reserve balances created by the deficit--which would leave the monetary base and tbills as perfect substitute in your own paradigm. Please demonstrate how it is operationally possible for your scenario to occur.
Fifth, yes you're right, you haven't convinced us because you've assumed we are wrong, rather than explaining why you are right about how the monetary system works.
The shorter answer is, Krugman gets it backwards. Selling bonds is more inflationary than just creating money. When the government sells bonds, it destroys money today in exchange for creating that money again plus more (interest) at some future date. When the government just spends money by creating it, it does not pay interest. In other words, it spends less to create the money than to "borrow" the money. There is no mathematical way that "borrowing" money could ever be less inflationary than just creating it. Ever.
Of course, this is why MMT properly sees bond issuance as a separate spending program having no relation whatsoever to traditional government spending (everything except debt). The interest the government pays on bonds is totally voluntary and unnecessary. It is just a welfare program for people with enough discretionary income to exchange money today for money plus a bit more tomorrow.
So is anyone going to defend ryan on the issues ?
