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In the USA there is nothing to prevent the Treasury from ordering the Comptroller of the Currency from printing more, and even larger, bills. The Greenback dollars from the Civil War period were produced by an agency of the US Government and we could do so again.

But the far more significant power is for the government just to credit checking accounts for purposes it chooses. It currently does this with income tax refunds, Social Security payments, Medicare, etc. The vast majority of "money" is just electronic credits and debits.

Modern Monetary Theory holds that governments can spend on socially necessary functions, especially in times of unemployment, up to the level that will start to produce increases in the cost of labor without having any inflationary effect. What happens is that socially needed tasks get done by labor that otherwise would have been unemployed. The economy and society thus benefit from production that otherwise would have been lost forever. People who are capable of doing useful  things cannot go back and work on a previous day when they were involuntarily unemployed.

Bill Mitchell at BillyBlog and Randal Wray, Michael Hudson and others at New Economic Perspectives have written extensively on this subject. Crediting someone's account actually does not "print money" although the account holder could certainly turn the credit into cash should they so wish. A better term for this would be that by so doing the Government "spends money into creation", while taxes take money out of the economy. I don't pretend to understand all of the details of this but I can see that theories of economics that include monetary models that are not congruent with how the system actually works are not going to give good or useful results. Those who would criticize government spending in times of recession always resort to arguments based on false premises as to how our monetary system works.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Oct 8th, 2010 at 12:54:19 PM EST
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