Biden’s Chair of Economic Advisors Can’t Explain How the US Monetary System Works

P. Gardner Goldsmith | May 6, 2024



Perhaps a good way to think about Jared Bernstein is to imagine him as the titular character of a bad network sitcom called, “That’s Jared!” in which, every week, the buffoonish Chief White House Economic Advisor stumbles into another embarrassing, made-for-TV blunder. The canned laughter erupts as credits roll, and we hear the theme close with, “It could only be Jared!

Unfortunately, this isn’t fiction, and it’s not funny.

Gaining web attention Friday, May 3, and continuing to spread like a bad joke, the man whom MRCTV already has cited for exhibiting utter vacancy when it comes to economics, again has made himself a laughingstock by exhibiting a faux-affable, almost clownish, inability to explain how the corrupt and inflationary U.S. government’s fiat monetary system works.

The clip is derived from a film on what many Americans have come to know as “Modern Monetary Theory” or “MMT,” and opens with Bernstein saying, “The US government can’t go bankrupt, because we can print our own money.”

In response, author and Stony Brook University professor Stephanie Kelton, the primary proponent for MMT (details of which we soon will explore) asks a simple question:

“Why, exactly, are we borrowing in a currency we print ourselves? I’m waiting for someone to stand up and say, ‘Why do we borrow our own currency in the first place?’”

Before addressing her questions, or seeing how Jared couldn’t answer them, one can note that she presents us with the false assumption at the heart of every government spending and government-mandated currency problem. She assumes the “WE.” She assumes you and I, by definition of the central authority, are part of her plans and that the diktats of government are something to which we consent.

Jared fares even worse, responding with what starts a series of malapropisms and mental zigzags as he tries to figure out how government spending, borrowing, fiat currency, and logic can coexist.

Hint, Jared, they can’t.

Thus, he says:

“Well, um… The, uh… So, the—I mean… Again, some of this stuff gets—some of theeee… language that the MM (likely meaning MMT)—some of the language and concepts are just confusing.”

Remember that “confusing” part, because it comes in handy for the end of this episode of “That’s Jared”…

“I mean,” he adds, “The government definitely prints money, and it definitely lends that money, which is why, uh—”

At this point, he seems to wonder what he’s saying, then tries to reassure himself, like a blind man trying to navigate a maze of his own creation.

“The government definitely prints money, and then it lends that money by uh, uh, by selling bonds. Uh, is that what they do?”

Not quite, but Jared retains his smile as he offers this meandering exposition.


Pay attention, Americans.

“They—Yeah. They, they, um—They sell bonds— Yeah! They sell bonds, right? They sell bonds, and so people buy the bonds and lend them the money. Yeah.”

He appears to nod, as if reassuring himself that he’s hit on the right point.

And, indeed, he finally got it – or half of it. The US government spends so much that it cannot balance the books solely through taxation, and, thus, it floats bonds, which “people” buy.

Of course, this contradicts what he said at the opening about the government “lending the money.” Sure, the feds hand out plenty of unconstitutional loans to college kids and cozy corporations, to foreign nation-states and international organizations, but when looking at how the US government funds itself, Jared ought to know that it is not through “lending” – it is through taxing, floating bonds (borrowing), and then taxing and borrowing more to pay off the previous issuances of bonds.

Related: Biden 'Economic Advisor' Dismisses Recession Fears: 'I Like Where I Am On That' | MRCTV

And what entity buys those bonds?

The majority of the Treasuries are bought by the bank consortium to which Congress in 1913 gave a monopoly to print what the government calls “legal currency,” that being the Federal reserve. And the Fed doesn’t tell us what it holds in any commodity like gold to be called “reserves” and it just invents the money, more and more, to, you got it, buy US bonds and (since the CARES Act of 2020) to buy the bonds of cozy corporations (the names and balance sheets of which they are not required to divulge to us troglodytes).

Part of this shell game gets appropriate attention from proponents of MMT, and this is part of Professor Kelton’s logical trap for Bernstein. Of course, Bernstein already has trapped himself by believing there is anything morally acceptable, constitutionally proper, or economically laudable about the Federal Reserve cartel.

But before Ms. Kelton prods him some more, he continues:

“A lot of times… A lot of times, at least to my ear, with MMT, the language and the concepts can be kind of unnecessarily confusing, but there is no question that the government prints money, and then it uses that money to um—uh—uh—.”

He flips back to his original confusion. It’s incredible.

“So… Um…” (There’s a jump-cut in the video there, so perhaps the producers were being kind, and eliminating a long gap, as he pondered, and thunk…)

“Yeah. I—I—I guess I’m just—I don’t—I can’t really tal—And I—I don’t get it. I don’t know what they’re talking about, like, ‘cause… It’s like.”

He pauses, perplexed by this incredible conundrum.

This is the Biden Administration's head of Economic Advisors.

“The government clearly prints money. It does it all the time. And it clearly borrows, otherwise we wouldn’t be having this defi—this conversation, so… I don’t think there’s anything confusing, there.”

And…that’s it. Biden’s great instructor in economics is all set.

And remember, even though he admitted it’s confusing, it’s not confusing.

To supply some clarity, let’s bring him and Ms. Kelton into economics class.

First, we’ll address the error in Kelton’s premise, offered in her “trapping question,” which is the idea that “we” are “borrowing in a currency we print ourselves.”

Having already noted her inexcusable use of the conscriptive pronoun “we,” one can remind her and Bernstein that the U.S. government does NOT print its own money. The Fed does that, and then buys the government debt that Congress keeps issuing. This, by definition, is an inflation of the money supply, which bids up prices for goods and services, bids down the buying power of the Federal Reserve Notes we already have, inspires malinvestment into projects, hirings, and the use of resources that normally would not see such investment, and leads to an eventual bust, as people pull back their spending, the investments are revealed to have been made on false economic assumptions, and prices must drop to liquidation levels.

The Constitution does allow the U.S. Treasury to coin money – rather than print it -- but the Constitution does not say the government money shall be the sole, mandated currency, nor does it grant the federal government any magic power to license a bank cartel as the monopoly fiat money printer.

Bernstein’s inability to either grasp, or articulate, these facts is infuriating, but not surprising, and his inability to address the arguments made by MMT proponents is just as contemptuous.

MMT-ers pose such questions because, essentially, they carry the inflationary baton handed down by John Maynard Keynes, who advocated for what he called “full employment” through massive government spending, rather than through productivity gains allowing for savings, which then could be invested in new ventures, employing new people. In fact, Keynes despised the idea of savings, believing that people who put their money in the bank should have the government spend it to, of course, employ people that the government deemed amazing investments.

The entire paradigm of Keynesian economics is arrogant, assumes for earners how to invest, when to invest, and why, and results in massive inflationary price increases.

And the new crop of central-planners pushing MMT embrace Keynesianism, but add two caveats. They think there is no need for a central bank to engage in the money-printing, because the US treasury can do it; and they think that the way to control the inflation caused by government-created-money is to tax the real money away from us.

You read that right. As Joseph Solis-Mullen has written for the Mises Institute:

“Stephanie Kelton, the chief economist for Bernie Sanders’s campaign in 2016 and a leading MMT economist, has explained it in terms of a bathtub being filled up with water. The spigot is the federal government; the water is money; the tub is the economy; and the drain is taxes. According to MMT, when the Federal government needs money it simply “turns on the water” by contacting the Treasury, which contacts the Fed, which credits the federal government’s account at the Fed for that amount. The government then spends that money into the economy; to continue the metaphor, water is filling up the tub. Now there is only so much space in the economy for additional money. This is because, as we all know, more money chasing the same amount of goods causes inflation. To manage this, according to MMT, the government taxes money out of the economy as necessary—'draining the water.’”

And Solis-Mullens notes that MMT theory has no use for the Fed, since the Treasury can do all the magic.

This already has been tried, in most part, by the Roman Empire, which called back government-created coins and also got them from taxation. The government then shaved off small amounts of the silver, made extra coins, and reissued the old coins, claiming they were worth just as much as before.

It’s a cozy way to throw the albatross of inflation around everyone’s necks, and it not only inflates the money supply and causes all the boom-bust problems we noted, it takes real money from our pockets and replaces it with fake fiat cash.

How about this, instead: how about Bernstein and Kelton leave us out of their mandates and taxes and fake money plans?

That would be a lot more enjoyable than more reruns of this tragi-comedy, headed by Jared and supported by a cast of MMT pretenders who want to take the stage.

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