MMT: overcoming the political divide.

So, you are talking about private banks under our current debt money system.

No, that is absurd nonsense. Governments are no less accountable to the citizens for funding if they issue money than if they obtain it by taxation. In both cases, the citizen holds the government to account by voting.

 

http://bilbo.economicoutlook.net/blog/?p=45208

Neoliberalism is likely to survive yet another crisis

Unfortunately true, meaning ongoing austerity as governments attempt to rein in deficits despite elevated unemployment.

And if ever the capacity of the sovereign currency-issuer to issue debt free money needs to be utilized, it is now (but the denial of that capacity continues):

"The European Commission received a mandate from EU Governments on Friday to negotiate advance purchases of promising coronavirus vaccines, the EU’s top health official said, but it was unclear whether there would be enough money available" .

So, we are in a life-threatening crisis that is destroying jobs and lives at a rate not seen before in our distant memory and the EU’s top official is not confident there will “be enough money available” to purchase a vaccine, should one eventuate.

Despite the fact the ECB could buy enough vaccines for the entire world if it wanted to. One click of a computer key with sufficient numbers entered on the screen would do it!

 

The mainstream media is catching on:

Broadcast by NPR

https://www.npr.org/podcasts/478859728/think


JUNE 15, 2020
The Argument For Increasing The National Debt
Modern Monetary Theory is a policy position that asks whether the federal government should operate like a household with a balanced budget or more like a change agent. Stephanie Kelton, professor of economics and public policy at Stony Brook University and former Chief Economist on the U.S. Senate Budget Committee, talks to host Krys Boyd about using the national debt as a tool in service of a higher standard of living for all Americans. Her book is"The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy."

 

Here is the reply to Iranian Monitor's ('IM') post #417 from the thread: "End the Scourge of White Supremacy.

a better world:
Sovereign currency issuing governments with their own treasury and reserve bank can issue money to fund specific public programs, other than by selling interest bearing bonds to the private sector.

Commercial banks of course charge interest on loans; whereas the sovereign currency-issuer can fund itself with interest free 'loans' , provided the resources on which to spend the funds are available for purchase.

IM:

The entire system is based, ultimately, an illusion. And the illusion requires sometimes the notion that there is something to 'back up' the currency being issued, even if it is merely debts or bonds. Just changing the digits in the banks the Federal Reserve injects money into, without the illusion, is not (IMO) going to address anything in particular. [/QUOTE]

abw : I have already confirmed a nation's fiat money is sought by citizens because they need it to participate in the nation's economic life. That is the "back-up", pure and simple, regardless of the "value" - however measured - of the currency).

IM:
1- even tied to bonds, the US government is actually able to create as much illusory wealth (with no devaluation) as it could by simply changing the digits in the manner you have alluded to.

abw:

No; the limit is it's capacity to produce real goods and services.

IM:

The reason:Paul Samuelson and others (including, at his death, Milton Friedman) have maintained that the overseas demand for dollars allows the United States to maintain persistent trade deficits without causing the value of the currency to depreciate or the flow of trade to readjust. But Samuelson stated in 2005 that at some uncertain future period these pressures would precipitate a run against the U.S. dollar with serious global financial consequences.[2]
https://en.wikipedia.org/wiki/International_use_of_the_U.S._dollar

And they are right. As long as the 'debt financed' currency does not exceed overall worldwide demand for the US dollar (in light of the USD's role as the reserve currency of central banks around the world and the currency for international trade and more), the US can effectively 'change the digits' you mention and pretend it is doing so backed by something (even if it is just debt).

abw:

I would say the US has avoided the scenario (so far) pointed to by Samuelson, is related to the tremendous success of Silicon Valley companies. ($trillion companies whose business is transacted globally). There was a time when the value of land in Tokyo was greater than the entire US...silicon valley certainly saved the US dollar from complete collapse.

IM:

2- Whether this is done by changing digits or by selling bonds/debt, the cushion the US has to effectively 'print money' is great. It is great because the US basically takes actual things of value produced elsewhere beyond it sells to anywhere else and gives those selling these items US paper money in return. It is a good scheme: others toil and work to produce, while you hand them paper you print. And they accept the "exchange" because they can use that 'paper' to buy things from others even when you aren't, yourself, producing as much as they could use with that paper.

abw:

I think you are discounting the success of the FANGS


MI:

3- If the US doesn't "print" even more than it does (whether through the way it does now or by doing what is suggested by MMT), is ultimately connected to a host of very complicated issues going to the heart of the present international global economic system. One of those (but not the only one) is the fact that abusing this privilege too much (beyond the huge cushion) it can expose the Ponzi scheme and make some people say: I want a real product and not the paper money/statements (or digits) you are issuing (or transferring through the MMT model you propose).

abw:

addressed above. The wealth of the FANGS is based on real products and services.

IM:
Another reason (and there are still more) is that, even if the US could totally eradicate poverty, illness, and more, and guarantee all of its citizens a basic standard of living (it would be, ultimately by robbing Peter to pay Paul, or more like robbing Kim and Mohammad and others internationally, as both Peter and Paul are already enjoying in their own way things they could not get through a system that used barter for exchange), it would only create a situation where it has less (not more) control over the behavior of people whose basics are now assured.

abw:

Disputed above. The US has more than enough resources to implement an above poverty JG, as ELR (employer of last resort), without robbing anyone. It's a matter of how those resources are managed, but no-one need be "robbed".

IM:

Losing that control has the same ramifications as splurging your dog with food and treats regardless of whether he is learning and following your commands: this would not be an obedient dog. It is the same with people. The real issue is what tricks is this master trying to teach his dogs?

abw:

No the real issue is government implementing policy desired by the electorate, consistent with/limited by the nation's productive capacity.

IM:

Anyway, we each have our own view of these issues.

abw:

Yes, and it my contention you are conflating productive capacity of the nation with with financial capacity of the citizens.

In fact it would be possible for a government to manage an economy without money, if that government had perfect access to all necessary information, in conjunction with some basic principles agreed by the citizens.

IM:

Ultimately, if you peel one layer after another, you get to very fundamental questions. The kind that, if you are convinced that the material world is the 'be all and end all of everything", leads to totally different results than if you imagined that we are on an evolutionary path that has some meaning and purpose beyond the material world.

abw:

As someone else has noted, you are introducing unnecessarily complication into the argument: either there are sufficient resources to employ everyone and eliminate poverty or there aren't.

And I have already addressed your concern that a guaranteed above poverty level of support might adversely affect individual motivation: children have higher aspirations than that basic level.

IM:

On this latter point, for me, there is no denying the forces and realities of the material world. What I dispute is that these are the only forces that exist or the only ones that "matter" (poor term, which reminds me of the quip, "never mind, no matter" and its origins in philosophy)? And when you dig deep enough, my own answer to the latter is that the material world is only a small part of the real universe, even if it is the visible and knowable part of it. Our evolutionary progress as humans (and why I have referenced some medieval Persian thinkers), to me, is meant to bring us closer (we can't at this point) in understanding the other, non-material, part and forces in the universe. For now, we either have faith they exist and for a purpose that is "good" or we don't. And if we don't, 'humanism' that at the same time teaches that ultimately there is no larger good, isn't going to work on 'tricking' the more intelligent who learn that its dictates are more hindrance than use for them personally, as they seek to advance the interests of the pack and then the self.

abw:

None of which counters the veracity of MMT.
Fiat money, desired by citizens, and which is backed by real productive capacity, enhanced by utilisation of everyone's abilities (including the person maintaining the amenity of a public park) - need not be incompatible with the mysteries and glories of the "immaterial world".

MI:

Some science that isn't about any of this, but isn't irrelevant to it either:
https://science.nasa.gov/astrophysics/focus-areas/what-is-dark-energy
roughly 68% of the universe is dark energy. Dark matter makes up about 27%. The rest - everything on Earth, everything ever observed with all of our instruments, all normal matter - adds up to less than 5% of the universe. Come to think of it, maybe it shouldn't be called "normal" matter at all, since it is such a small fraction of the universe.

abw:

Macroeconomics is a 'soft' science. MMT reveals neoliberal orthodoxy to be obsolete, in a post gold standard era.

Case in point:

It seems a 2nd wave of covid-19 might cause economic havoc - and even possible economic collapse, as whole industries are forced to close down again.

MMT supplies the answer to avoiding that collapse, via the 'magic money tree' available to government, without burdening future generations with interest-bearing debt owed to rich bond holders.

 

Iranian Monitor wrote (in post #585, in 'End the scourge of white supremacy' thread

I think you will see (from my points in post #554 above) that MMT does not consider the "only issue is the distribution of wealth".

MMT considers we can ALL contribute, with reward according to merit and effort, AND participate at above poverty level regardless of innate ability.

 

@a better world,

Let me start with I consider the 'easier' aspect of the issue:

No it is not. The limit is, instead, faith (by those who are willing to accept US dollars and IOUs/bonds) in the US continuing to remain the global economic hegemon sitting on top of the Ponzi scheme that produces the paper money. That faith is tied mostly to the US military and political powers in the world. The economic component of the issue is that the total quantity of paper money and bonds cannot outstrip the total good and services produced in those parts of the global economic system that use the dollar for trade. It is a Ponzi scheme because the US could (like any other individual on top of any other Ponzi scheme) have next to zero capacity to produce real good and services, and as long as it can maintain that faith and avoid a run by people to demand 'real goods and services' in lieu of paper money and bonds, and no law or law enforcement to break up the racket, the Ponzi scheme runs on what others are actually producing.

I am sorry but you are bringing things into the equation that are relevant to some things (productivity) but irrelevant to the actual theoretical concept of why -- as long as the US dollar is the currency of international trade -- the US is and able to print money and IOU without devaluation. And misreading Paul Samuelson in the process, as his main point isn't the limits on the ability of the US to run trade deficits (meaning produce less than what others want) but its reverse. The theoretical limit to it by Paul Samuelson is the worldwide demand for the US dollar.

Until we can to understand this part, some of what you find 'magical' and 'distinguishable" about "MMT" will continue to grip you and lead you away from the real points that matter.

 

ie your claim that the value of fiat currency is illusory because it is based on the global hegemony of the US ponzi economy.

I already stated: ".... a nation's fiat money is sought by citizens because they need it to participate in the nation's economic life. That is the "back-up" (ie, "worth"), pure and simple, regardless of the "value" - however measured - of the currency).

However, this is from google:

"The value of fiat money is derived from the relationship between supply and demand* and the stability of the issuing government, rather than the worth of a commodity backing it as is the case for commodity money. Most modern paper currencies are fiat currencies, including the U.S. dollar, the euro, and other major global currencies."

*supply and demand determined by productive capacity.

The google account in no way diverges from my assertion that the citizens within a nation desire their fiat currency, regardless of its value via a vis other nations' currencies.

Yes well the US was the sole superpower and largest CREDITOR nation for a time after WW2, but even though the US is now
the largest DEBTOR nation, it still has sufficient productive capacity to claim status of reserve currency, with the FAANGS being the largest companies in the world, some of which produce REAL goods and services. eg Amazon, Apple, Google. And the US still maintains the largest military, a REAL force depending on the US's productive capacity. China does not have the productive capacity to rival that military superiority at present, though it is rapidly catching up.

Yes, but the US is also producing massive export value via the companies outlined above. The fact that the US is importing the labour component of many goods does not minimize the massive value of US intellectual property, in the globalised production chain. (btw, China's currency will rival that of the US in the coming decades, if China realises its plans in AI).

Addressed above.

Addressed above.
The US dollar is at present the world's reserve currency. But that will change when China becomes more productive (and "wealthier") than the US.

I have addressed your so called real points above.

Meanwhile, the capacity of sovereign fiat currency issuers to issue debt free money, to spend into the economy, can be separated from the conventional method of money creation via the capacity of commercial banks to create deposits when they lend money at interest to credit worthy customers in the private sector.

Nothing magical about it, though it might appear that way to the average householder who thinks the government's budget is like their own budget.

 

@a better world,
I am not going 'reinvent the wheel' here and go over the entire field of economics. The role of the US dollar in giving the US the cushion I mention, and its reason, is already well understood, from economists coming from different schools, including Milton Friedman and Paul Samuelson. If we can't agree on that much, we aren't going to progress far in anything else.

 

But not from the MMT school, which supersedes both of them........

Meantime I have exposed the errors in your proposition of an "illusion of fiat" based on US hegemony.

Neither Samuelson nor Friedman would have accepted that proposition, because they would not accept that fiat, per se, is illusory.

 

You are right, MMT is a disaster waiting to happen, they are desperately trying to plug holes but it's an avalanche in the making

 

Canada used a partial MMT system until 1974: the Bank of Canada issued new money to provinces for infrastructure investments and other purposes in return for provincial bonds at very low rates. Part of the reason was to equalize monetary flows between provinces and prevent escalating inter-provincial inequality. Both provincial and federal (as well as private) debt have exploded in the decades since that monetary facility was privatized, while private bank profits have increased by nearly an order of magnitude as a fraction of GDP.

 

Yes well, Witchie, I'll wager you have had even less exposure to economics than Lil Mike; but regardless, this pandemic certainly makes the issues excruciatingly simple to understand.

ie inflation is the giant bogey-man raised by orthodox economists re MMT.

But when the economy has been forced to contract to the necessities, there is no reason in common sense (and I dare you to try to dispute this) why the sovereign currency issuing government cannot change the digits in the bank accounts of laid-off workers, for as long as is necessitated by the pandemic, to enable these idled workers to pay their bills (other than non-essential purchases).

ie, the government doesn't need to borrow ONE CENT from anybody (least of all from investors seeking the security of interest-bearing government bonds).

As opposed to the MSM banging on about how government will be forced to pay back these massive loans for the next 2 decades.
Not only foolish, but complicit in an unnecessary and immoral transfer of funds from ALL taxpayers to wealthy private financiers.

 

I'm totally unfamiliar with that system. Could you point me to any references about it?

 

I'm sorry, what were your economic credentials again?

 

My credentials or yours or Witchie's are not important in this instance. as I already observed in my post to her.

So even you can try using your brain - as I challenged Witchie to do: ANYONE can do it - to confirm or refute the basic common sense idea of MMT - re the capacity of the currency issuer - that handling this pandemic can be achieved without burdening future generations of taxpayers as the MSM are trying to deceive us into believing, given the deflationary environment of the lock-down.

http://understandingcanada.ca/2019/11/much-ado-about-1974-the-bank-of-canada-in-the-70s/

I haven't read it yet; will tackle it later, looks very informative.

 

Your post explicitly called out my exposure to economics, and since you won't divulge your credentials while talking down my economics background, I'll assume you don't have one.

 

No i didn't do that at all: I said to Witchie she probably has less economic credentials than you, which is a different thing altogether.

If you can't see the difference you certainly won't be able to tackle my common sense challenge to ANYONE; and in the meantime you will be able to hide behind your proposition above, to avoid the issue (which is my prediction of your course of action...)

Addressed above. Now go and hide....

 

"Yes well, Witchie, I'll wager you have had even less exposure to economics than Lil Mike; but regardless, this pandemic certainly makes the issues excruciatingly simple to understand."

You for some reason called me out, but now want to pretend this doesn't mean anything?

AGAIN: Please explain what credentials that you have in economics, particularly since you are suggesting a radical overhaul of monetary policy with no studies, testing, or real world observations?

 

Here is an article by Professor Bill Mitchell, written at the beginning of the covid-19 pandemic when global economic collapse loomed as a real possibility:

http://bilbo.economicoutlook.net/blog/?p=44572

“We need the state to bail out the entire nation”

 

Central banking is notoriously arcane and complex, but here's a reasonably straightforward explanation of what happened in Canada:

http://prudentpress.com/finance/history-bank-of-canada/

Many Canadians are still angry about what Trudeau (the current prime minister's father) did in 1974, regarding it as a sell-out to private banks.

 

The uninformed babble between you and Witchie (in #560) was the reason I mentioned you at all :

ie

..........

My credentials are the same as yours; a couple of years at tertiary level.

But more to the point: I have linked professor Mitchell's article re this pandemic, in # 569 above.

“We need the state to bail out the entire nation”

Which outlines the "excruciatingly simple" MMT solution for funding the pandemic....

So even you can try using your brain - as I challenged Witchie to do: ANYONE can do it - to confirm or refute the basic common sense idea of MMT - re the capacity of the currency issuer - that handling this pandemic can be achieved without burdening future generations of taxpayers as the MSM are trying to deceive us into believing, given the deflationary environment of the lock-down.

 

Here is another article on the same topic which might be easier to read (looks very informative; I will look at it later).

http://understandingcanada.ca/2019/11/much-ado-about-1974-the-bank-of-canada-in-the-70s/

 

OK I read your link, “We need the state to bail out the entire nation” and it didn't provide an MMT solution to the current crisis, so maybe you should take up your own challenge, confirm or refute?

 

yeah thanks for the opening insult... how would you know what my background is and what it isn't... I'll just assume you are a frog in the pond then we can call it quits

No they are going to inflate the debt away... so no one is saying they are going to pay back their loans. What happens when they inflate debt away, Superannuation funds & savings lose its value.... workers who saved up for years to retire suddenly find their savings can buy far less than they can now afford.

Also

no inflation is not the problem, hyperinflation is the problem... there's a big difference.

So what happens when you keep printing currency.... you devalue it,

The Fed has two mechanisms for preventing hyperinflation (well two that I know of)

1. buy/sell foreign currency to reduce or increase the $ inside the US or
2. buy/sell shares

I believe there is a third way which is purely my own opinion... it involves quantitive easing from other countries who then use their currency to buy or trade in the US$ and in doing so removing the excess dollars in the country. For example Australia's A$95 million fuel storage purchase in the US. So with quantitive easing Australia negate the loss of income from China and use the excess money to buy US$ solving the US problem at the same time.

They keep finding ways to stop the collapse of the $ but one day they will run out of workable solutions.

How long can they do this for....for as long as other countries still trade in US$ and that will end once other countries start collapsing. btw there are several countries already not trading in US$ which is of course the reason behind much of the "current day conflict". The US$ as reserve currency and the Swift system provides America with leverage... it provides America with its power to sanction.

MMT is the bullshit they sell you to stop you from panicking... or asking question they don't want you to ask.

 

How is this remark "insulting":

"I'll wager you have had even less exposure to economics than Lil Mike",

..when it's nothing more than a light-hearted estimation of your abilities as an economist, following on from your presumed capacity to pronounce:

"You are right, MMT is a disaster waiting to happen, they are desperately trying to plug holes but it's an avalanche in the making".

Well, at least you deigned to take up my challenge, so I will reply in good faith.

1. "No they are going to inflate the debt away... so no one is saying they are going to pay back their loans".

I see you are more advanced than the hysterical MSM "the-debt-will-destroy-our-children" fools.

In fact economists like Krugman are now adopting the view that, given likely low interest rates for the foreseeable future, governments can borrow big time.... which is a change from his (and Rogoff's) former orthodox stance re government debt (ie such debt is always "bad").

2. "What happens when they inflate debt away, Superannuation funds & savings lose its value.... workers who saved up for years to retire suddenly find their savings can buy far less than they can now afford".

You are jumping the gun here; low inflation - c.2% - is considered desirable by most central banks.

OTOH, if the government simply changes the digits in the bank accounts of laid-off workers, in this pandemic, how is that going to cause any extra (undesirable) inflation?

Full marks for that observation! (....provided you aren't thinking it has anything at all to do with MMT, see next)....

Not if the the resources which the government wishes to purchase are available for purchase, because the extra spending will be absorbed by the economy, creating more overall wealth.

Addressed above: hyperinflation is not the issue, least of all during this pandemic in which overall economic activity has been deliberately constrained by the government.

A third way to avoid hyperinflation?
Not relevant to the simple proposition of my MMT-based challenge re how inflation will occur when government changes digits in bank accounts of laid -off workers whose wages have literally disappeared into thin air.... as a result of the mandated lock-down of the economy.

[It is true that if OZ closed the c. $15 billion thermal coal export industry - and transit to a green economy - the result would be a once-off devaluation relative to other currencies; but central banks often try to achieve this sort of devaluation to increase export competitiveness of other goods. But such devaluations mainly affect people wanting to travel overseas; and in any case is not relevant to considerations of debt and inflation in this particular pandemic scenario I am attempting to get you to examine].

True, and on that day you will be begging for MMT.

It's a real possibility that if a 2nd covid-19 wave forces another lock-down of the non-essential economy, ALL countries currencies, including the US, will collapse, as government rescue-package debt spirals out of control.....even while there remains plenty of food and housing to support everyone. Understand?

Then you would be begging for MMT....

We will see about that...

So...... E- ......., since you failed to demonstrate how it is possible for inflation to arise in the current circumstances in which:

“We need the state to bail out the entire nation”:

(written by professor Bill Mitchell, in early March when global stock markets were imploding and unemployment queues were stretching around entire city blocks..),

..by legislating the treasury and central bank to credit the bank accounts of laid-off workers.