MMT: overcoming the political divide.

Discussion in 'Economics & Trade' started by a better world, Mar 12, 2020.

  1. Zorro

    Zorro Well-Known Member

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    Yup. Magic Money Theory is all about authoritarian control, and nothing else. We lose the ability to restrict the growth of government by making sure they come to us for funding and we lose all control over government.
    No. They won't give that up, that's for sure.

    Crypto Clubbed Overnight - What Happens Next?
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    BTC buyers have a couple of key issues to watch in the days/weeks ahead...
     
  2. a better world

    a better world Well-Known Member

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    Witchie's misconstrued comment about productivity was already answered in post #822:

    "In a pandemic, the necessity is to minimize social contact; this means closing-down the non-essential economy.
    ie, deliberately causing much of the economy's (potential) productive capacity to be NOT used."

    Of course she chose to ignore that post...for obvious reasons (ie, she can't refute it).

    As for MMT being all about "authoritarian control", you might look in the mirror to see that your delusional 'sovereignty of the individual'** ideology is causing as much destruction in the community as any authoritarian regime.

    ** an 18th century over-reaction (by the Colonists) to rule by the despised 'Divine Right' of the British king.
    In fact good governance, necessary to avoid anarchy among self-interested individuals, requires a balance of interests between individuals and community cohesion/well-being, achieved under rule of law.

    (link)

    The Case for a Job Guarantee | Wiley

    "One of the most enduring ideas in economics is that unemployment is both unavoidable and necessary for the smooth functioning of the economy. This assumption has provided cover for the devastating social and economic costs of job insecurity. It is also false.

    In this book, leading expert Pavlina R. Tcherneva challenges us to imagine a world where the phantom of unemployment is banished and anyone who seeks decent, living-wage work can find it - guaranteed".


    You have it back to front.

    Under current neoliberal monetarist arrangements, the public don't have the ability - via their elected government - to direct public policy, BECAUSE government has to go begging to private sector money bags (via taxation and borrowing).
     
    Last edited: Feb 7, 2021
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  3. a better world

    a better world Well-Known Member

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    Central banks should just write off all their government debt holdings – Bill Mitchell – Modern Monetary Theory (economicoutlook.net)

    "One such proposal emerged last week in the form of a letter to the major European newspapers signed by more than 100 economists and politicians calling for the ECB to write-off its massive public debt holdings, which currently amount to around 25 per cent of total outstanding public debt. It is a good idea but some of the framing leaves a lot to be desired. At any rate, central banks everywhere should be buying up massive amounts of government debt and hitting the keyboard with zeros and writing it off. The world would be a much better place if they did that."
     
  4. Patricio Da Silva

    Patricio Da Silva Well-Known Member Donor

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    MMT is not new, it's basically, 'Hey, we can print money, what's the problem'.

    People who believe that are scary.

    Yes, I've read a lot on MMT, so don't go there.

    Whether the gov collects taxes, borrows, prints money to pay bills,

    OR,

    Appropriates spending bills, deficit spends and then prints and borrows and
    then collects taxes to shrink the money supply to keep it from expanding too much.......

    it doesn't matter. the end result is the same.

    Here's where I disagree with MMTers.

    They believe you can create value out of thin air, by printing currency, that because they are a currency issuing nation, there is nothing to worry about the deficit. That is so wrong I don't know where to begin, because it's an attitude that, hey, deficits? Who cares, as long as we can print money, what's the problem?

    No, you can't, wealth and value does not come from printing money.

    At some point in the process of value creation, someone has to actually do some work. Without effort to start the economic process, nothing will follow. A number of factors contribute to the value of money, but without production, and the labor involved, there will be no value to anything, life just stops. printing money, basically, is theft. If you and I do it, we will be put in jail, for good reason.
    You can't get something for nothing, someone pays.

    Now, when the government does it, it's legal. but, if they do it on a large enough scale, it devalues the currency and the holders of that currency are short changed. so, in other words, the gov prints money, and the currency holders foot the bill because their currency is devalued. The ONLY thing that can provent that from happening is for production to advance in pace with the money creation. Get ahead of it, and money starts to devalue.

    If you do that and do it too long and too much, you devalue the currency, which, over the last few hundred years, is what has been happening.
     
    Last edited: Feb 21, 2021
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  5. a better world

    a better world Well-Known Member

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    cancel.
     
    Last edited: Feb 21, 2021
  6. a better world

    a better world Well-Known Member

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    I'm always interested in examining why progressive people like yourself are frightened of MMT (..."scary people").

    Let's see if I can allay your fears.

    Wrong. In the 2nd case (MMT), government as employer of last resort can offer above-poverty employment aka the Job Guarantee, to workers not able to find employment in the private sector.

    "Appropriates spending bills" is the important detail; ie, government enabling spending via money creation in its own central bank alongside spending determined solely in private sector markets, with money created in private banks.

    1. All banks, public or private, create money out of thin air. That's how the money supply increases, eg if the population increases. Note: money is not a real resource; fiat currencies are created out of thin air and have value related to a nations' productive capacity and available real resources which CANNOT be created out of thin air. How difficult is that to understand?

    2. Indeed the government deficit per se is not important; what IS important is the sustainable development of the nation's available resources and productive capacity.

    So your above paragraph has misconstrued the reality; we DO have to worry about available resources and productive capacity, but NOT deficits per se.

    Disproved above. "Wealth and value" are created by developing resources via the application of labor (mental and physical). Money is only a convenience in the process of economic development.

    By now you should realize your initial assumptions about fiat currencies have led you into the errors in that paragraph...which is why I beat you to the observation that labor (mental and physical) acting on resources is the basis of wealth.

    In fact money is not required at all, as shown in simpler barter economies like illiterate iron-age Britain which managed to develop wealth in the form of iron farming and military implements without use of money.

    Note my underlined; the point is government spending IS limited by goods and services available for purchase.

    So total spending - whether public or private - must not exceed the nation's potential output.

    The currency is devalued only IF government spending results in excess demand on available resources.
    Indeed your last two sentences above are correct.

    Doesn't matter. The purchasing power of the inflation-adjusted value of the currency is generally maintained over time. (Hyperinflation is always associated with a collapse in output/available resources - eg Weimar republic (when the French confiscated German factories in the Ruhr valley as war reparations), or resource value - as in Venezuela relying on the collapsing price of ONE resource, namely oil; or in Zimbabwe where food production collapsed when farms were taken from experienced white farmers and given to inexperienced black farmers).

    Eg an average wage can purchase as much - or more, today - than it did a century ago. The real problem is the Friedman supply-side economic orthodoxy which has seen workers wages, in purchasing terms, stay flat over the last 4 decades, with more or less continuous un/under employment, and soaring inequality.

    MMT offers a way out of this Friedman strait-jacket, by allowing government to offer full real employment with an above-poverty minimum wage. The real difference is in management of private sector free markets, for the benefit of public policy, as well as for the benefit of the private sector players themselves.
     
    Last edited: Feb 21, 2021
  7. Patricio Da Silva

    Patricio Da Silva Well-Known Member Donor

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    Prices rising because of lack of supply (excess demand, as you put it) is not devaluation ( inflation ), as price fluctuation owing to supply and demand is not inflation or deflation. Inflation / devaluation is where money in circulation rises higher than goods being produced. On a trend line, supply and demand are going to fluctuate and prices will fluctuate accordingly, but if aggregate money supply increases as demand increase ( due to population increasing and unemployment falling ) proportionally, the trend line will be flat. When money supply trend line goes up, where the average fluctuations trend upward, that is because of more money than goods and services, and that is what inflation / devaluation is. Some argued that this isn't true by pointing to three QE examples in the last 20 years where it didn't result in inflation. No, it did, but slowly. Prices don't necessarily rise directly from QE, but they do over time.
    Only if wages keep up on the bottom rung of the of the economic. Otherwise, to any degree someone benefits for inflation, ( and they do ) someone has to pay for it ( and they do, at the bottom rung of the economic ladder)
    Gradual inflation benefits two groups: the source ( government ) and those who can hedge.
    Those who cannot hedge pay for inflation. so, inflation is a transfer of wealth from those who cannot hedge to those who can, and the government. For the non-rich, investments like buying a house, help smaller folks from being burned by inflation, over time.
    But, inflation is paid for by those who are poor and cannot hedge, as the currency they are holding is devalued over time, and the items they purchase are not asset increasing purchases ( such as a car, goods, services, etc ) but it is paid for primarily because a wages are not keeping up ( which is why the minimum wage must be increased ). That is where I disagree with you.

    Inflation is a tax on the poor, essentially. To solve the problem, I feel they should be compensated for it ( paid back, in essence). If we increase the minimum wage, now, to $15 an hour, that doesn't compensate those for the years their wages lagged, so I'm for a compensation package to make up for inflation theft.
    First, I understand the special circumstances that led to hyperinflation, and I'm not talking about that, nor am I afraid of it. We are not in that circumstance.

    And...
    I'm opposed to milton friedman. His brand of economics has done this nation more harm than just about any economist in history, which has come to be known as neoliberalism.

    But, I'm not seeing anything particularly different than keynesian economics what you are talking about.

    Job gaurantee, that for me is just a more liberal policy.

    Personally, I don't think guaranteeing a job is a good thing, unless the job is for something society really needs. Just hiring people for one big useless 'do' isn't wise.

    Deficits are not a myth. I think the point of Shelton's book is that deficits are not a problem. There are limits, so deficits can be a problem if it gets out of hand.

    So, when I hear deficits are a myth, it gives me the idea that MMTers are very capable of letting things get out of hand because of that attitude. So, to me, MMT is keynesian economics PLUS a 'deficits are a not a serious problem' attitude.

    Printing money doesn't create wealth out of 'thin air' it creates currency out of thin air, and the distinction is important, because printing money ( faster than production can keep up with it) merely redirects resources from one sector to another. Wealth has to come from production, 'ultimately' ( that is the operative word). If it isn't doing it (causing inflation) immediately it's because demand has drastically fallen, and so the fiat currency (QE) is preventing deflation, it's propping up prices by giving people money to spend. I support that, but when job market improves, and the economy recovers, all that extra dough in circulation will cause devaluation, unless they pull currency back down, unless they can rev up the economy to suck up the excess currency and that's going to be area trick, be wary of booms and busts, by over revving an economy like what happened in the 'roaring twenties.

    What I do not like about MMT is how it's followers think of it like cult followers think of their cult. But how it is not Keynesianism with the added 'deficits are not a problem' attitude? It's like, they think MMT is some kind of magical box, just rub the MMT genie and all your problems go away.

    It's very cult like, and that is troublesome.
     
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  8. a better world

    a better world Well-Known Member

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    Which is the same thing as there being excess demand (or too much money in circulation and able to be spent) on available resources/products/services.

    Well a guaranteed above poverty job automatically eliminates the problem of the "poor" being disadvantaged by inflation. (see the Job guarantee link at the bottom of this post). Everyone is entitled to work and be paid above poverty level. That is the first requirement of any 'functioning' economy which is worthy of the name.

    [btw most economists consider inflation benefits borrowers (the real value of their debt decreases over time due to inflation) and harms savers (the real value of whose savings decrease over time due to inflation), and therefore private bankers - and politicians dealing with public debt - like some inflation...]

    Addressed above. The important thing is that everyone works and no-one is "poor" ie, not able to make ends meet without welfare or charity.


    Your first two points are correct.

    But Keynes was only introduced to the concept of MMT in the very last years of his life;

    "Keynes, in a letter to fellow economist James Meade written in April 1943, said of Lerner, “His argument is impeccable. But heaven help anyone who tries to put it across”.

    " Abba Lerner articulated a fiscal strategy for the Federal Government which traces Keynesian macroeconomic analysis to its logical conclusion. It is presented here as one extreme of the debate concerning the surpluses and deficits of a national government."

    It's the absolute necessity to eradicate unemployment and hence poverty.

    Beware of equating 'value' to that which is only produced in private sector free markets. Caring for the elderly in their own homes, public garden/park maintenance, etc, are all desirable social/economic activity. OTOH, much purely profit- driven private sector activity is worse than useless and wasteful of resources eg the grog, tobacco, sugary drink and junk food industries (and associated advertising and transport/sales)

    Stephanie Kelton's point is that public deficits per se are not the problem; resource scarcity or loss of productivity loss are the problems.

    Addressed above. But I suppose it's still scary...

    MMT doesn't contradict anything you wrote in that paragraph. Apparently you didn't understand anything i said about fiat currencies and how such currencies posses value, and production of wealth depending on exercise of labor plus resources, which happened in barter economies without money at all; and finally, MMT manages inflation by reducing money supply when necessary, while maintaining full employment.

    It's very cult like, and that is troublesome.[/QUOTE]

    It's not a cult. it does describe the public policy choices available to sovereign fiat currency-issuing governments.

    You are on the right track rejecting Friedman.

    Now look at the Job Guarantee:

    (link)

    Should the Feds Guarantee You a Job? - The New York Times (nytimes.com)
     
    Last edited: Feb 22, 2021
  9. Patricio Da Silva

    Patricio Da Silva Well-Known Member Donor

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    It's not a cult. it does describe the public policy choices available to sovereign fiat currency-issuing governments.

    You are on the right track rejecting Friedman.

    Now look at the Job Guarantee:

    (link)

    Should the Feds Guarantee You a Job? - The New York Times (nytimes.com)[/QUOTE]

    I'm open to job guarantee, as long as the production is for things that society really needs, and is not arbitrary 'make work'.

    Also, as for minimum wage shouldn't it be different in different regions? You can't live on $15 an hour in NYC but you can in Galveston (probably very well) and you can barely live on it in San Diego. Shouldn't there be a federal baseline, and studies done to adjust for different regions?

    Also, MMTers argue that the federal discount rate ( the rate between banks and the fed ) should be zero (I think they call it the 'prime rate' now?). The discount rate is the gas pedal for increasing, maintaining, shrinking the money supply. Right? Keep it to zero and it has forfeited that control, and will allow money creation to expand faster than production, thus devaluing the currency. Since it has been zero for so long, prices have doubled ( even more ) since the late nineties compared to now, and wages have not kept, and so that is a transfer of wealth from the poor to the rich ( or anyone who can hedge ). Even in the last 10 years, the value of my manufactured home has doubled. I have kept up with it, as a homeowner, but many poor folks are not able to (but I won't be able to cash in unless I sell it, which I don't want to do) I'm a business, so my prices for services have kept up, but not by a lot. Moreover, when a bank pays practically nothing on savings, no one saves, and is that good? In the 60s, a savings account typically paid 4%. Now, I don't know the details of that argument, I have to study it more.

    Here is a universal truth about inflation: someone benefits, and someone else pays. That has to be true, because printing money does not create a thing a value, it robs from one sector to pay for another sector. Recall what happened to the gold mining towns in the 19th century, where, owing to the flood of gold in a small town, the prices of goods soared far beyond the rest of the nation. Inflation is caused by increasing the money supply faster than production can match it. QE doesn't cause inflation when demand falls, it merely props up prices ( which is what is happening during covid, but that cash will still be in circulation when the economy recovers,) and are they going to pull that cash back out ( by taxing the rich, who benefited the most from the inflation and the tax largesse by Trump ) when the economy recovers post-covid ? That, in my view, is the correct action.

    Also, a friend of mine, a staunch MMTer, told me that 'taxes' are not kept for funding purpose, they are done to pull money out of circulation that the fiat currency of deficit spending caused, and when you pay a tax, the government destroys the currency ( digital deletes, these days) when it it collect, so is this true? If so, what actual proof of this can you provide? I ask because it's hard for me to believe that the gov destroys digital currency ( we know they do on paper currency, as they must, but they replace old bills with new, right? ) . I'm talking here about digital currency, of which is what most of the economy is, these days.

    MOreover, should we do away with the fractional reserve system?
     
    Last edited: Feb 22, 2021
  10. Patricio Da Silva

    Patricio Da Silva Well-Known Member Donor

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    I'm all for it, but what about the cost aspect? Conservatives are going to scream 'socialism' and try and scare the bejeezus out of the not adequately educated. And, I'd love a government job, but $15 an hour doesn't go very far in San Diego. I would need $20 an hour here. Also, I can't do work standing up for more than 60 minutes. Are they going to give me a desk job? That's about all I'm good for ( in my retirement. Before retiring, I was a wedding photographer, mostly).
     
  11. Lil Mike

    Lil Mike Well-Known Member

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    ...and that's where a "job guarantee" falls apart. If the government needed people to clear brush in national forests, that could be a "guaranteed job" but what happens when everyone has their "but?" I'm disabled, I have child care, I'm scared of wolves, I need wifi... That is hard difficult work that needs to be done, but you couldn't get too many people to do it. So how do you guarantee a job when people don't want to do the job?
     
  12. a better world

    a better world Well-Known Member

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    MMT of course explains how the government itself can fund the JG...using its sovereign currency-issuing capacity (by authorizing its own central bank and treasury to create and spend money, alongside money creation in private-sector banks; while ensuring TOTAL spending in the economy doesn't exceed the economy's productive capacity).

    [I recall Keynes' remark: "Heaven help the person who tries to explain it" ....but here I am trying to explain it...].

    Now who cares if Conservatives scream "socialism"....it's time for mature debate based on truth, rather than outmoded mythology that conservatives typically cling to.

    The JG would be administered at the local level, with local councils matching identified local needs to the abilities of job-seekers (not covered in the private sector) with an above-poverty wage in that locality funded by the Federal government as explained above. (A subsidized public housing scheme could deal with differences in living costs in different states).

    Here is a proposal more specifically related to the GND:
    (link)
    pavlina tcherneva job guarantee - Bing

    "The case for a Job Guarantee: Pavlina Tcherneva proposes a job guarantee program in the US which would employ 11m people at a $15/hour standard wage in green care and conservation sector jobs. The US minimum wage is thereby automatically doubled to $15/hour. The program is deliberately countercyclical so that the job goes when the economy rebounds (p19,49). Her proposal creates economic growth valued at millions of dollars ...

    [People with physical disabilities can be allocated to desk jobs; and a good government which oversees advances in national productivity can always fund above-poverty retirement pensions.]
     
  13. a better world

    a better world Well-Known Member

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    See the post above: local councils matching local needs to job-seekers' abilities.

    But as to your specific scenario outlined above, no doubt there are plenty of strong lads, currently unemployed, who would jump at the chance to earn above-poverty income, if the scheme was properly managed including accommodation and transport away from home, etc.
    People prefer to earn their own income via their own contribution , rather than depending on morale destroying welfare.

    Certainly, the idea of a "social contract" between a nation's government and its citizens ought to be nurtured; namely, reward for contribution. rather than reward depending on whether you are lucky enough to be able to successfully compete, in the private sector.
     
  14. Lil Mike

    Lil Mike Well-Known Member

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    Good luck with the "local councils."
     
  15. a better world

    a better world Well-Known Member

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    Well truth does have a way of emerging (despite Keynes' famous warning: "[Lerner's] argument is impeccable, but heaven help anyone who attempts to explain (MMT)" ....)

    Just yesterday congresswoman Ayanna Pressley presented a proposal for a Job Guarantee...it shouldn't be too long before Jerome Powell himself sees the light, when the country's legislature itself is examining the proposal.

    https://twitter.com/i/status/1364019849605697539

    Toward the end of the video, Powell (speaking at a congressional hearing) says: "(Full employment) is our goal of course"....but he has yet to face the fact that real above-poverty full employment is impossible under the current Friedman, supply-side, economic orthodoxy.
     
    Last edited: Feb 23, 2021
  16. Patricio Da Silva

    Patricio Da Silva Well-Known Member Donor

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    Abba Lerner wrote the book 'Functional Finance'. I don't think he even used the term "MMT", but MMT draws a lot from it, and that of a few others. Your quote, to be more precise:

    http://community.middlebury.edu/~colander/articles/was_keynes_keynesian.pdf
    A letter dated April 25 from Keynes to James Meade, Keynes wrote:

    I recently read an interesting article by [Abba] Lerner [1943] on deficit
    budgeting, in fact, this does not mean an infinite increase in national debt,
    since in course of time the interest on the previous debt takes the place of
    the new debt which would otherwise be required. (He, of course, is thinking
    of a chronic deficiency of purchasing power rather than an intermittent one.)

    His argument is impeccable. But heaven help anyone who tries to put it across
    (to) the plain man at this stage of evolution of our ideas

    As the PDF article states, Keynes, himself, was more timid in his advocating his policies whereby he understood practical limitations of applying his principles when they conflict with prevailing political winds, whereas, Lerner was not. Thus when Keynesian policy become under fire in the late 60's and early 70's it was Lerner's idea of functional finance *most people were attacking (*Including Milton Friedman).
     
    Last edited: Feb 24, 2021
  17. a better world

    a better world Well-Known Member

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    [I put MMT in brackets, recognizing Keynes was referring to Functional Finance, which is a forerunner of MMT].

    As to Keynes specific comment on Lerner's Functional Finance, namely, "this does not mean an infinite increase in national debt, since in course of time the interest on the previous debt takes the place of
    the new debt which would otherwise be required.",
    I think Keynes has misunderstood the implications of money creation in the public sector as espoused by Lerner , partly because, as was said, Keynes understanding of economics was more "conservative".

    In fact, government debt CAN be periodically written off; and interests rates CAN be set at zero.

    http://bilbo.economicoutlook.net/blog/?p=46891

    "One such proposal emerged last week in the form of a letter to the major European newspapers signed by more than 100 economists and politicians calling for the ECB to write-off its massive public debt holdings, which currently amount to around 25 per cent of total outstanding public debt. It is a good idea but some of the framing leaves a lot to be desired. At any rate, central banks everywhere should be buying up massive amounts of government debt and hitting the keyboard with zeros and writing it off. The world would be a much better place if they did that."
     
    Last edited: Feb 24, 2021
  18. Patricio Da Silva

    Patricio Da Silva Well-Known Member Donor

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    Originally, the discount rate ( Im using older terminology, I think they now call it the prime rate? ) was the mechanism by which money supply was controlled, the higher the rate, the less fiat currency finds its way into the market place ( notwithstanding other reason to raise and lower the rate, and not so simply, but in ultimate terms, that is the result, and changes take about 6 months to propagate with interest rate changes )

    So, if we remove that control, then the only other way to control the money supply is to pull money out of circulation, via taxation, which, I think is the MMT idea. But, taxation is once a year and four times a year, depending. so, less freewheeling so is it a better method? So, MMT wants to rid America of treasury bonds (which are sold to foreign investors as well?) Without that incentive, other countries will have little incentive to prop america up and thus no reason to continue making dollars the world currency reserve, and end that, America tumbles.

    No?



    .
     
    Last edited: Feb 24, 2021
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  19. a better world

    a better world Well-Known Member

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    Sales taxes to control an overheating sector of the economy can be introduced at any time as the need arises.

    Treasuries are nothing more than corporate welfare ie a guaranteed return on savings. They should be abolished.
    And America doesn't need the savings of overseas investors to "prop it up". The US has the productive capacity to create a very prosperous community at home.

    [The WTO should be formulated to enable this outcome in all countries, by overseeing trade with this very goal in mind. In the meantime the US is in as good a position as any, re its productive capacity].
     
    Last edited: Feb 25, 2021
  20. Patricio Da Silva

    Patricio Da Silva Well-Known Member Donor

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    Those are mostly state taxes, right? Not a federal control. states spend sales taxes, i.e., not a money supply control at the state level, correct?
    But the point was losing the incentive to keep the dollar as the world currency reserve. Won't getting rid of treasury bonds contribute to that outcome?
     
  21. bringiton

    bringiton Well-Known Member

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    Those are two slightly different things. The prime rate is the rate at which private commercial banks can borrow reserves from the central bank (or each other); the discount rate is the yield available on government securities (bonds), which is controlled by the market prices of such securities. The "yield curve" describes the discounting on securities with different maturity dates.
    No, the prime rate is considered a way to govern private commercial banks' issuance of new debt money, not fiat currency, which only government can issue under modern debt money systems.
    Tax payments to national governments are made constantly, as are issuances of new fiat currency by those governments. The MMT idea -- which is just a fact -- is that the latter is not dependent on the former.
    AFAIK, MMT advocates continuing the issuance of government debt instruments to satisfy private investors' demand for risk-free returns. I haven't been able to get a satisfactory answer as to why government should be in the business of giving risk-free income to people who are already so rich they can't find any productive avenue to invest their spare cash.
    In essence. The world needs a convenient currency to trade in, but the power to issue such a currency is, in deGaulle's words, an exorbitant privilege whose monopolization by a particular nation's government is unlikely to end well.
     
  22. Patricio Da Silva

    Patricio Da Silva Well-Known Member Donor

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    In the 60s, when I first started poking my head into the subject of economics, I believe the rate the Fed charged banks was referred to as the discount rate,

    According to investopedia:
    The Discount Rate:
    Depending on the context, the discount rate has two definitions and uses. First, the discount rate refers to the interest rate that the Federal Reserve offers to commercial banks and other financial institutions. Second, the discount rate refers to the interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows.


    The Fed charges the discount rate to other banks and financial institutions for their short-term operating needs; they use the loaned capital to fund any shortfalls, prevent potential liquidity problems or, in the worst-case scenario, to avert a bank’s failure.


    The Prime Rate

    Generally, the prime rate is reserved for banks' most qualified customers—those who pose the least potential for default risk. Prime rates may not be available to individual borrowers as often as to large corporate entities. Because a bank's best customers have little chance of defaulting, the bank can charge them a rate that is lower than the rate charged to a customer who has a higher probability of defaulting on a loan.

    So I was correct, I think. The discount rate is the rate the fed charges to banks, who, in turn, loan to customers at either the Prime rate or higher rates, depending on the customer's status with the bank.

    Is not that what Investopedia is saying?

    The stated reason, in addition to tax collecting, bond sales to raise cash to fund the government. So add these together, the degree they fall short of government spending is said to be the deficit paid for by fiat currency. Now, MMTers are saying something else. but, whatever is the truth, I'd like to see evidence beyond just vacuous claims by advocates of what is considered a fringe economic theory.
    Perhaps, but as long as the dollar is the world currency reserve, foreign countries have a vested interest in Americas economic health. AFAIK, elimination of treasury bonds sold to foreign governments would contributes to the idea that foreign nations would no longer, or have less of a vested interest in our economic health. But, I'm no expert.
     
    Last edited: Feb 25, 2021
  23. Lil Mike

    Lil Mike Well-Known Member

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    This may be the first time I've clicked "like" on a progressive's economics post.
     
  24. a better world

    a better world Well-Known Member

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    In MMT, taxes or regulation to control price pressures would fall to the national government, because resource demand is a nation-wide phenomenon.

    The concept of the US dollar as the world's currency reserve is past its use-by date.

    This year EU-China trade exceeded EU-US trade.
     
  25. Patricio Da Silva

    Patricio Da Silva Well-Known Member Donor

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    You said 'sales taxes', AFAIK, are levied by states, not federal.
    You are saying we should do away with the dollar as world currency reserve.

    But, because of the WCR being dollars, countries have a vested interest in our economic health.

    Change it to something else, and many things we enjoy won't be as cheap.

    Is that a good thing? Maybe it's a necessary thing,

    America is like the spoiled child, foreign countries have been financing our debt, and our cheap goods are done on the backs of foreign countries propping us up. The day will come when the dollar is no longer the WCR, but it's going to be wake up call when that happens, and America will no longer be able to spend more than it takes in. I think we will be in for a whole world of hurt, when it does happen. The ramifications are explained in detail here. How will MMT change the lens through which Mr. Harkey views the situation? I mean, reality is reality, so, the question is, is the scenario Mr Harkey describes below, is this reality?


    http://danharkey.com/what-happens-if-the-usa-loses-the-world-reserve-currency-status/
    [...]
    Most Americans have grown accustomed to the US having dollar strengths and having a good standard of living as a result. The government has financial tools available to prop-up the strength of or weaken the dollar as desired. But what will happen one day when the US wakes to find that its privileged status has been circumvented? What happens when world economic participants refuse to buy any more of US compounding debt? This may occur over an intermediate time frame such as 3 to 5 years. Some will argue that the end is closer. The spoiled rotten kids are going to be knocked down quite a few notches. What will happen when the kids wake up and find that they can no longer spend 25% more than they take in, and use unlimited credit cards and continuing to accrue short-term and long-term debt?

    The value of the dollar will drop “like a rock”. The US government only has so many financial methods to prop up the dollar. All of a sudden, the US could be forced to get serious about eliminating deficit spending and to cut-up the unlimited credit card. You can image the day that our leaders must tell the populous the ugly truth that the US will cut spending by 25% across the board. You have heard the terms, “squealing pigs.” All the false entitlements, unearned freebies, corporate crony handouts, tax preferences for friends of the system, and free lunches will cease to exist. Since about 2/3rds of the population look forward to government transfer payments and redistribution benefits in multiple forms, there could be riots on the street. “You can’t take away what I am entitled to, even though I did not work to earn it.”

    All products, goods, and services will cost more because the value of each dollar will go down. How much depreciated value will occur of the dollar’s purchasing power remains to be seen. My guess is that our purchasing power could go down by 40% to 50% in a 3 to 5-year time frame. The question remains if and when. Also, if nothing is done hyperinflation will eventually erode all quality of life in America except for the top 1% who will continue to make money on financial repression.


    Dan Harkey
    Business and Private Money Finance Consultant
    (reprinted here under 'fair use' copyright law, and consent given on the above webpage)
     
    Last edited: Feb 26, 2021

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