Draft New York Times Op-Ed article

February 9, 2021

By Frans Verhagen

There are three approaches of paying for the enormous costs to combat the coronavirus-19 pandemic and the looming climate catastrophe:

1. the traditional approach of raising taxes and borrowing,

2. the present approach of Central Bank funding, called quantitative easing (QE) or monetary financing and

3. the emerging transformational approach that moves from monetary financing to the sovereign approach of financing by the creation of money.

Most citizens are familiar with Approach #1 because everyone hears discussions of the size of relief and stimulus packages and the implications for the national debt. Almost all nations are engaged in this type of deficit spending that increases their national debts. Once the economy has come back, the argument goes, economic policies will be devised to reduce the debt.

Because the costs for the COVID-19 and climate emergencies are so high, an additional approach of deficit spending is being used to provide liquidity, mostly to the markets. The US Fed, US Treasury and Congress work together to bring financing together from taxing and borrowing, and from monetary expansionary programs through the purchase of bonds from banks, hedge funds, pension funds etc. This monetary approach of mostly Fed resources as opposed to the fiscal approach in Approach #1 does not contribute to the national debt because this debt appears on the Fed’s balance sheet.

Very few politicians are discussing about how both the national debt and the Fed’s negative balance sheet are going to be resolved. Here Approach #3 comes into view where money is created in the quantities and qualities that match the needs for dealing with the COVID-19 and climate emergencies. Given that the financial needs are so high, the national economy and the world economy are not in danger of leading to an inflationary spiral. Disciplined imagination will be the limit of spending in this sovereign money approach, not inflation dangers or bank runs.

Note the radical differences between the three approaches in the following four statements:

1. Scarcity in Approach #1 and to a lesser extent in Approach #2 is replaced by abundance or ample money in Approach #3;

2. Privately-owned banking systems are only in Approach #3 operating on 100% reserves and cannot operate anymore on the fractional reserve system the misuse of which has led to most of the financial crises in the last 400 years;

3. Monetary authorities such as the Fed become part of democratic institutions guided by representative democracy and stakeholder democracy in the sovereign money approach;

4. National and regional monetary authorities in this interconnected and interdependent world partner up to form a Federated Global Sovereign Monetary Authority (Global Fed), a modern version of a global central bank, that, unlike the IMF, is part of the UN system. This Global Fed structure forms an essential element in the Tierra Monetary Theory that expands the Sovereign Monetary Theory and the Modern Monetary Theory.

In Verhagen 2012 The Tierra Solution: Resolving the Climate Crisis through Monetary Transformation I have argued for a decarbonization-based international monetary system with a monetary standard of a specific tonnage of CO2e per person. In Ample Money: The what, why, and how of a sovereign global money system I give details on content and process. I plan to have this sequel published shortly before the Glasgow Climate Conference in November. In that Ample Money book, I have also proposed the reformist monetary measure of decarbonization/optimal solarization as a third monetary mandate to be added to the dual mandate of price stability and maximum employment that each nation can implement without waiting for others.

More importantly, however, the Ample Money book presents the Global 24 Initiative which is a highly participatory instrument for national conversations in brainstorming, discussing and agreeing on 4 reformist measures for each of the financial, fiscal and monetary subsystems of the world economy which can lead to 4 transformational policies in the financial, fiscal and monetary sectors. These 12 reformist measures and 12 transformational policies would be the outcome of the discussions in each group in governments, business and civil society; comparing and synthesizing each group’s structured outcome can lead to stakeholder-grounded reformist and transformational proposals that can be acted upon by governments in assemblies such as the Glasgow Conference and meetings for the UN Agenda 2030 with its 17 Sustainable Development Goals or SDGs.

Many observers of the COVID-19 and climate emergencies are proposing programs for a New Social Contract, Green Energy Deal, Great Reset, etc. They can be valuable contributions to the just and sustainable global governance system that is proposed in the Tierra Monetary Path and its Ample Money sequel where the global monetary system is the primary context of the global financial and fiscal systems of the world economy.

Frans C. Verhagen, M.Div., M.I.A., PhD. is a sustainability sociologist of international development at International Institute for Monetary Transformation doing research comparing the Tierra Monetary Theory(TNT) with the Modern Money Theory (MMT) and the Sovereign Monetary Theory (SMT).

Dr. Verhagen will be the guest at an AFJM Coffee House on February 22, 2021, of which the discussion article (with two appendices A & B) are available. The recording and study stack are forthcoming. See here for details about the coffee house.

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Paul Lebow
Paul Lebow
12 days ago

There seems to be a presumption of complete global cooperation that does not exist currently. The UN is completely at the mercy of the Security Council and I don’t see many countries willingly giving up sovereignty at this point. I think a process that can be inspired by the implementation of few key players initially will have a greater chance of succeeding.

Ralph Musgrave
Ralph Musgrave
12 days ago

I don’t see how QE pays for the costs of anything: Covid, climate change or whatever. QE simply involves the Fed in printing $Xbn and buying $Xbn of bonds (normally government bonds). Given that the above new money and govt bonds yield an approximately zero rate of interest, there isn’t much difference between the two: it’s like the Fed offering everyone one two $10 bills for each of their $20bills. As Warren Mosler, founder of MMT, said, govt bonds are essentially just term accounts at a bank called “government”. So if option No2 in the above article, i.e. QE is… Read more »

Paul Lebow
Paul Lebow
12 days ago
Reply to  Ralph Musgrave

The notion that somehow taxes control inflation is a gross oversimplification. Taxes are first a means of recirculation of existing money. Taxes could be neutral, inflationary or deflationary depending on the targeted sector. For instance, if the wealthy are taxed and the middle incomes are not, the transformation of low velocity money to high velocity money could actually lead to inflation. So the MMT claim is deceptive and naive.