Can government print more money without causing inflation?

BS! it's only 16 pages long. You just lacked the nous to deal with the issues raised by MMT, so you decided to continue the discussion from the POV of your obsolete neoliberal perspective.

{Note: the UNICEF today commented on how the massive covid-19 destruction in incomes is having a disastrous effect on the world's children. Entirely unnecessary, because most countries have sufficient food and accommodation, regardless of the economic lockdown. But neoliberalism requires you get money before you eat...regardless of whether you can get work...)

After running away when the discussion was in full swing, so you can hide behind your neoliberal orthodoxy

Seems??
Note: this has nothing to do with government increasing money that can be spent on available, or potentially available resources (via increased productivity) that are currently not being used. That's the central issue of MMT; sustainable use of resources alongside guaranteed real full employment. Neoliberal NAIRU mythology, based on debt-money creation in the private sector alone has a different view of resource use (determined by the "invisible hand")..

hmm..."natural deflation" ... so let's see where this story is heading...[one thing for sure: an economy based on debt - public and private - will eventually collapse because interest has to be paid on money, requiring new money to be created.

Yep, in this hypothetical economy without government..

I would have thought prices, determined via supply and demand, are settled in the private sector market; any government intervention in this market, in order to manage inflation/deflation, is only necessary after the fact.

Your error derives from accepting the neoliberal (classical) proposition that full employment occurs at market clearing prices.

The correct statement is:
Sovereign currency-issuing governments can issue debt-free money, without causing inflation, provided the resources on which the government wants to spend this money (which is NOT 'taxpayer money') are available for sale.

OMG ...the ups and downs, and ins and outs... courtesy of neoliberalism...


What we do know is neoliberalism gave us the GFC.... and God knows how less well-off workers are going to survive, as the world slowly emerges from this pandemic, with many businesses likely to remain closed forever, if not destroyed by debt beforehand... anyway let's continue with this neoliberal nightmare...

Please define the "natural deflation rate"

yeh, well most of that was dealt with in the MMT thread which you abandoned....Certainly, the macro economy is of course complex and the past is not necessarily a good indicator for what is achievable.

And meanwhile neoliberalism, based on private bankster-issued debt money,
is currently wrecking another generation of young and insecure workers, as the effects of the lockdown play out.

 

So...please define "the natural inflation rate". I'm always ready to learn.

Whereas inflation of the currency over time seems to be the norm.

And so, the way out of this neoliberal nightmare:

Sovereign currency-issuing governments can issue debt-free money, without causing inflation, provided the resources on which the government wants to spend this money (which is NOT 'taxpayer money') are available for sale.

 

In neoliberal orthodoxy yes. Guess what...business cycles are the norm in neoliberalism.

But the stagflation in the 70's was caused by increasing competition from post WW2 low wage Asia leading to the 1st world rust belt; and also the geopolitics of the ME leading to supply inflation due to petrol price hike. Keynesian full employment was abandoned, in favour of erroneous supply side theory.

 

Thanks for the warning about your post:

Yep, you were right: that's twaddle.

You were right again: that's twaddle, too.

You did it again: more twaddle!

And still more twaddle! You are on a roll!

Careful. That would not be twaddle if smoking were not harmful most of all to the smoker. But smoking is harmful most of all to the smoker, so it is twaddle. Congratulations!

Yep: still on the twaddle.

Aaaaaannd... twaddle.

Thanks for the warning. But is your twaddle really zero content? Don't be so hard on yourself!

Yes, but negatively.

So that's... more twaddle. Well done.

And rounding out your post: more twaddle. Good on yer!

 

That depends on the money system and how you measure inflation.

 

I'm not interested in your flamebaiting. You're clearly struggling.

 

Quite so.
Actually I meant to ask Kazenatsu to define "the natural rate of DEFLATION" which is a favourite term of his which popped up in his OP.

 

*ie, the MMT proposition that "printing" debt-free money ie sovereign currency-issued money, rather than private bank-issued money, will NOT cause inflation given certain conditions.

Please define this "natural deflation", which according to you is due to "natural economic growth", assuming a fixed money supply.

Note: re "a fixed money supply": this is the antithesis of MMT, which rejects the neoliberal "quantity theory of money", with its associated "loanable funds theory".

Anyway, let's see your defintion of "natural deflation"

 

Like any type of inflation, it's very hard to actually define precisely, and at best I could only give a vague description to give you a general idea what type of thing I'm referring to.

One example would be if over a period of time, the population doubled, the amount of money remained fixed. There would basically be twice as many people using the same amount of money as you had before, and so each unit of money would become more valued. Naturally, there is a tendency in most any economy to grow over time (though we can argue about the actual rate of this growth), and so there will be a tendency towards a "natural rate of deflation".

Well, I suppose I meant there's a natural pressure towards deflation (a very slight pressure), in the absence of any government increase in the money supply.
If the government does increase the money supply, the "natural rate of deflation" may help cancel out some of that inflationary pressure that would otherwise have been caused by the increase in the money supply.

I don't mean it will inevitably end up leading to a deflationary outcome overall, but simply that it carries some deflationary effect, if that makes sense.

Anyway, a better world, this seemed to me to be your argument, the way I was able to understand it.

I find it strange that the only part in your argument that seemed to make sense to me, when I tried to understand it and put it into my own words, you now seem to be disagreeing with.

 

There is no natural rate of anything. The language harps back to the monetarist attempts to bludgeon supply side guff. Based only on a fake debate over the Phillips Curve, it only ensured long term misery such as hysteresis in unemployment. The narrative with 'natural, is clear: to pretend macro analysis can be neatly integrated within market fundamentalist micro. Intellectually, and practically, cretinous.

 

OK Got it. That's why you assumed fixed money supply (in the OP).

Please note: in neoliberal economies, private banks create money when they write loans for credit worthy customers; the reserve bank (independently of government) will issue reserves via ESA's to ensure smooth running of the entire financial system. This field is complicated, but nevertheless, we can see it's not simply government that increases the money supply.

Exchange Settlement Accounts (ESAs) are the means by which providers of payments services (eg private banks) settle obligations that have accrued in the clearing process. This document outlines the Reserve Bank's policy on ESA eligibility; and provides additional information on management of an ESA and the application process. etc
(google if interested. I'm personally not interested in the details of reserve banking)...).

Probably because I reject neoliberal banking orthodoxy.
In MMT, the quantity (and development) of resources, not the quantity of money, is the significant feature.

ie, government is released from the false restraint of "how can we afford to pay for it", and instead focuses on how can we develop the nation's available resources.

So your analysis of inflation and deflation will be entirely different, than when a sovereign currency issuer can issue debt free money, to complement variable business-cycle money creation in private banks.

But that's not the topic of your OP.....

 

I think I've already explained in the past why I believe private banks creating money does not (in general) cause inflation.

(Although it can in the case of housing bubbles, when there are not truly assets to back that new money up)

 

"I believe" is when economics fails. If you haven't got a school of thought behind you, you might as well be pishing in the wind.

 

Do you have any facts to support your belief? Are you not aware that a private bank's financial incentive is to create as much new money as possible in order to charge interest on it? And I assume you are aware -- because I have explained it very clearly and patiently, multiple times -- that this creates positive feedback, as the new money entering the asset market increases asset prices, leading to an expectation of capital gains, which stimulates even more borrowing -- i.e., private bank money creation -- to get in on the windfalls. What on earth could possess you to imagine that process is not inflationary?

There are houses to back it up. Houses that cost $1M instead of $100K because the land value is $500K instead of $5K. That is kinda the point.

 

No, but I had common sense, and an intelligent perspective to be able to look at this subject overall, in the bigger picture of things.

Are you aware that more "money" doesn't necessarily cause inflation, in all situations?

The actual mathematics are a little complicated, so I prefer not to approach it from that perspective, because that typically won't convince anyone here of anything.
But here is one way I can approach it for you. If the creation of more money in bank accounts creates money, wouldn't the creation of more debt have the opposite effect, and cancel that out?

What I mean is, in the bigger picture of things, when banks "create" money in bank accounts, they're not really adding any additional amount of money overall into the economy.
(Except of course when there are big problems and the loans were bad)

However, I'm going to refuse to talk to you about this here, because we already have a thread devoted just to this topic. I don't like repeating myself over and over again, and having to go into long off-topic explanations in other threads.

Is fractional reserve banking inflationary?

 

Because banks are simply drawing on depositor's accounts, to find the money to lend at interest, rather than creating money "ex nihilo"?

 

No, that interest is coming from the people who took out the loans.

Economics can be pretty complicated, and it seems a lot of people in general are not good at connecting all the important points together and identifying meaningful patterns, or at least correctly and appropriately identifying them.

 

True, but I was referring to the notion held by many people that the banks lend money held in depositors accounts. In fact, banks create money "ex nihilo" when they write loans for credit worthy customers; and banks must settle their own accounts with the reserve bank at the end of each day, in highly complex processes.

Quite so.

That's why I'm in favour of enabling the sovereign currency-issuer (via its treasury and central bank) to create debt free money, and then using taxation to control inflation, inflation which is ALWAYS really about excess demand on available resources, not anything to do with quantity/supply of money.

….turning mainstream economics on its head, as noted by investment banker Warren Mosler.

 

You seem to be conflating two different things. When banks lend money to someone else from depositors accounts, that does not create money.
The money is basically going from the depositor to the borrower.

There are laws in place that banks are not allowed to lend money they do not have assets backing for (meaning a bank can create money out of a loan, but they can't so literally create money out of absolutely nothing).

 

https://www.researchgate.net/public...ing_-_The_Theories_and_the_Empirical_Evidence




Can Banks Individually Create Money Out of Nothing? – The Theories and the Empirical Evidence

• 
  
  

Abstract
This paper presents the first empirical evidence in the history of banking on the question whether banks can create money out of nothing. The banking crisis has revived interest in this issue, but it remains unsettled. Three hypotheses are recognised in the literature. According to the financial intermediation theory of banking, banks are merely intermediaries like other non-bank financial institutions, collecting deposits that are then lent out. According to the fractional reserve theory of banking, individual banks are mere financial intermediaries that cannot create money, but collectively they end up creating money through systemic interaction. A third theory maintains that each individual bank has the power to create money ‘out of nothing’ and does so when it extends credit (the credit creation theory of banking). The question which of the hypotheses is correct has far-reaching implications for research and policy. Surprisingly, despite the longstanding controversy, until now no empirical study has attempted to do so. This is the contribution of the present paper. An empirical test is conducted, whereby money is borrowed from a cooperating bank, while its internal records are being monitored, to establish whether in the process of making the loan available to the borrower, the bank transfers these funds from other accounts within or outside the bank, or whether they are newly created. This study establishes for the first time empirically that banks individually create money out of nothing. The money supply is created as ‘fairy dust’ produced by the banks individually, out of thin air.

……..

This article is very long.

But as you can see from the paragraph above, the issue of how money is created (in the government sector or in commercial banks) is not as straightforward as you might claim.

 

OK, so you don't actually know anything money or banking, and are just guessing. Check.

So what? Using heroin doesn't necessarily cause addiction in all situations either. What's your point?

Huh? Money is created in bank accounts as a liability to balance a new debt asset. So it is precisely the creation of the debt that creates the money. You seem to think it is somehow the other way around, so we know you have no idea what you are talking about.

YES THEY ARE.

Wrong again.

Let me try to explain it to you as simply as possible. When someone borrows from a non-bank lender, the lender gives them cash, and accepts their IOU in return. The cash simply changes hands, so no money is created. When someone borrows from a bank, by contrast, the bank does not give them cash, it just writes a higher number in their demand deposit account. That higher number is a liability to the bank that balances the new loan asset. But the demand deposit balance is generally accepted in exchange, so it is money, while the loan asset is not money. If there were only one bank, no money would be created because the bank would have to give its reserves to whoever the borrower gave the loan proceeds to, cancelling its demand deposit liability. It would in effect act like a non-bank lender. But because all the private banks are doing this, and they just swap reserves around to effect payments, it turns out that the aggregate outstanding bank loan principal is added to the money supply.

I'll look at that thread and try to figure out where you went wrong.

 

For reasons of practicality a bank has until the end of the day to secure assets vs loans.

If at the end of the day it has lent out more than it can legally cover, (used it's fractional reserves), it must borrow that money to make good.

Or... lose it's banking lisence.


It is very straight forward.

People who wish to con you, attempt to blind you with complications.
That is how a con works.

There is no magic money tree.
Wearing underpants on your head won't allow you to see it.

 

http://bilbo.economicoutlook.net/blog/?p=45091&cpage=1#comment-68194

Unfortunately, central banking including reserve management and clearing functions IS complicated. Here is Bill Mitchell's MMT view.

"The money multiplier myth also leads students to think that as the central bank can control the monetary base then it can control the money supply. Further, given that inflation is allegedly the result of the money supply growing too fast then the blame is sheeted home to the “government”. This leads to claims that if the government runs a fiscal deficit then it has to issue bonds to avoid causing hyperinflation. Nothing could be further from the truth.

That is nothing like the way the banking system operates in the real world. The idea that the monetary base (the sum of bank reserves and currency) leads to a change in the money supply via some multiple is not a valid representation of the way the monetary system operates".

What IS very simple is that sovereign currency-issuing governments are constrained by resources available for purchase (in the nation' currency), NOT money.

 

I am in full agreement with Bill Mitchell, whoever he may be, when he states

The idea that the monetary base (the sum of bank reserves and currency) leads to a change in the money supply via some multiple is not a valid representation of the way the monetary system operates".

The first paragraph however,

"The money multiplier myth also leads students to think that as the central bank can control the monetary base then it can control the money supply. Further, given that inflation is allegedly the result of the money supply growing too fast then the blame is sheeted home to the “government”. This leads to claims that if the government runs a fiscal deficit then it has to issue bonds to avoid causing hyperinflation. Nothing could be further from the truth.

Not so much.

Governments printing money has an inflationary effect.
Dur.
Government bonds are indeed a way for the government to borrow money without issuing it to itself by quantitative easing and hence pursuing the path to hyperinflation.

 

Bill Mitchell is one of the originators of MMT (Modern Monetary Theory)

http://www.politicalforum.com/index.php?threads/mmt-overcoming-the-political-divide.569365/

Qualifications:

Mitchell holds the following degrees: PhD in Economics, University of Newcastle, 1998; Bachelor of Commerce, Deakin University, 1977; and Master of Economics Monash University, 1982. He completed a Master's Preliminary at the University of Melbourne in 1978 (with first-class honours).

But one thing we know about (macro) economics: it is a highly contested body of knowledge....

Unless the resources which the government wants to buy with that money are available for purchase (in the nation's currency)

Hyperinflation is ALWAYS the result of a deficit of resources on which to spend the money, as noted above, rather than a surplus of money.

1. Weimar: confiscation of German factories by France after WW1.
2. Zimbabwe: loss of food production after confiscation of farms by unskilled workers.
3. Venezuela: devaluation of oil reserves.