Friday, December 23, 2011

We WON!!! MMT got everything right...EVERYTHING!!!



Modern Monetary Theory (MMT) scored a knockout this year, correctly predicting all the major economic events and their outcomes.

From the downgrade of the US credit rating and the resulting interest rate decline, to the lack of hyperinflation from QE, to the increase in deficits in Eurozone countries imposing austerity, MMT had it all right...EVERYTHING.

The other guys have egg all over their face and continue to look like ignorant fools.



33 comments:

Mario said...

Yeah!!!

Mike...as a retail investor I'd personally LOVE for MMT to come out with some thoughts and educated musings on 2012 and how to proceed with wealth management.

What kind of a scenario (other than the Fed raising rates) could cause T-yields to rise next year? Technical mean reversion perhaps?

It would be pretty neat to have an MMT wealth management newsletter or thoughts available to peruse.

Mike Norman said...

I'm working on it as we speak. Feel free to contact me:

email address

Anonymous said...

Nice job.

Two words though, to improve video quality: lapel mike.

bosscauser said...

Now what?

roger erickson said...

Thanks Mike. Made my year!

Joe Firestone said...

Lots of reason for optimism! But what do we do when they believe in MMT, but won't use it anyway?

Unknown said...

Nice one, Mike.

MMT has money the right way around.

Now we need Modern Fiscal Theory to go with it.

If we switch from a private money supply which is mainly backed by land, to a public money supply mainly backed by direct and indirect taxes on labour, there'll be problems......

Mike Norman said...

lapel mic. Good idea!

Dan Kervick said...

I have a Fed operations question: I was under the impression that the Fed could not legally buy treasury bonds in the primary market but that it had to purchase them in the secondary market. But I believe I read somewhere recently - perhaps here - that the Fed is permitted a limited amount of primary market purchases each year. Can anybody direct me to an authoritative answer to this question. I'm under the gun to get a correct answer because I need to get it right in an essay I'm publishing. Thanks in advance for any help!

libertyrevival said...

There is no hyperinflation if the newly printed bucks stop at the bank's balance sheet or used by the Chinese to purchase interest-bearing treasury bonds.

Hyperinflation would require the banks to approve your dog's request to borrow unlimited amounts of money to purchase dog treats and your cat's request to borrow unlimited amounts of money to purchase cat nip.

libertyrevival said...

you don't need income taxes to "regulate" a public debt-free legal tender. you only need to declare it declare it legal tender for payment of debt. requiring it for payment of taxes is also helpful, but any tax would do. you don't need the awful negative trade tariff on domestic production called income tax. i wish the troll would get a life who thinks you need an income tax to regulate a public debt-free legal tender.

libertyrevival said...

the 1933 gold reserve act revoked gold as legal tender for payment of debts to help control deflation. you could still use gold to pay your income taxes until nixon. however, people stopped using gold notes because it was no longer legal tender for payment of debts. what was important was payment for debts, not payment for taxes. nonetheless, a land value tax would be much better than an income tax.

nice point to mention that our current money supply is really backed by land. better than backing it by gold. land is more useful than gold.

dave said...

i read awhile back that gold is not much use to people unless you are in the electronics industry, and that the usefull commodity is food

Anonymous said...

A complementary currency ---and a new economics value theory.

http://personales.ya.com/kapitalverdad

Thanks.

beowulf said...

"nonetheless, a land value tax would be much better than an income tax."
You're probably right but there are two problems with a federal LVT, one legal and the other political.
There's a constitutional restriction on direct taxation of property that would kneecap a federal LVT. A workaround here would be to use the income tax to levy annually the imputed rental value of land (It would take a brave congressman to sponsor that bill).

However even with a workaround, any effort to levy federal taxes on land would lead to the state governments waging Jihad on Congress. Regardless of party, state governors will line up shoulder to shoulder to keep the Feds from stepping on their monopoly on taxing real property.

So what can be done?
Federal taxpayers are already given an income tax credit for foreign taxes paid (and the estate tax used to credit state inheritance tax paid).
If Congress understood MMT, there'd be no reason not to create a federal income/payroll tax credit for any state LVT paid (as with the foreign tax credit, phased out for higher incomes).

It would take state governors and legislators about 10 seconds to figure out that every dollar of tax burden they shifted onto land was a dollar their residents could legally avoid paying those suckers in Washington.

Unforgiven said...

@Dan Kervick -

I'm coming up with this and that on the subject (I'm not well versed in it).

Here's something fairly recent:

http://www.newyorkfed.org/markets/lttreas_faq.html

Looks like there's a limit on the number of offers per issue as well.

Perhaps try this query in google:

fed "primary dealer" 35 site:nyfed.org

Or the like. Anything after "site:" will limit the results to pages from that site. No space after the colon.

Perhaps someone else here can chip in some more info?

Unforgiven said...

@Dan Kervick -

You might also want to pose the question on moslereconomics.com. I'm sure Warren could give you some good leads on this.

Anonymous said...

you won what? i didn't know there was a contest...you're a little over the top, don't you think>

beowulf said...

Dan, there was authority from 1942 to 1979 for direct purchases that was rarely used. The WWII interest rate peg was maintained with OMO. I'll let Marriner Eccles break it down. Merry Christmas. :o)

If Congress appropriates more money than Congress levies taxes to pay, then, there is naturally a deficit, and the Treasury is obligated to borrow. The fact that they cannot go directly to the Federal Reserve bank to borrow does not mean that they cannot go indirectly to the Federal Reserve bank, for the very reason that there is no limit to the amount that the Federal Reserve System can buy in the market. That is the way the war was financed.

Therefore, if the Treasury has to finance a heavy deficit, the Reserve System creates the condition in the money market to enable the borrowing to be done, so that, in effect, the Reserve System indirectly finances the Treasury through the money market, and that is how the interest rates were stabilized as they were during the war.. So it is an illusion to think that to eliminate or to restrict the direct borrowing privilege reduces the amount of deficit financing. Or that the market controls the interest rate.

Neither is true... money is created by debt—either private or public debt—and to the extent that the banking system creates deposits through the purchase of Government securities or through the lending of money, either way, it is a process of monetization.
You monetize private debt, but there can be no objection to that so long as the debt that is created is increasing production and employment.
There may be such a thing as private debt that is purely speculative, such as the stock market, or real estate or other operations which are creating no employment and creating no production. It certainly is not a very desirable situation to have money created through that form of debt.

http://fraser.stlouisfed.org/docs/historical/house/1947hr_directpurchgov.pdf

Dan Kervick said...

Thanks beowulf. That's good enough for me!

Rodger Malcolm Mitchell said...

More than 10 years ago, I wrote a book (Free Money) that was fundamentally MMT, and today I run a site (www.nofica) called Monetary Sovereignty, that also is fundamentally MMT.

There is one major difference between Monetary Sovereignty and MMT, and that is in the treatment of inflation. MMT would cut deficits. Monetary Sovereignty would raise interest rates (which MMT says is inflationary) and cut deficits only as a last resort.

The Fed has raised interest rates successfully to fight inflation. I believe cutting deficits to fight inflation not only is slow, unwieldy and not incremental enough, but historically has caused recessions. In short, that "cure" for inflation would cause a stagflation, at best.

Would you care to comment?

Tom Hickey said...

Rodger, as I am sure you know, MMT opposes the use of monetary policy for managing the economy for several reason. First, monetary policy is a blunt instrument while fiscal policy can be tightly targeted. Secondly, the Fed inflation management policy is based using employment as tool to control inflation as a target — Taylor rule, natural rate of employment, buffer stock of unemployed, etc.

According to MMT, the Fed's policy is based on an economic theory that is seriously flawed and an economic policy that is wasteful and unnecessary in that full employment and price stability can be achieved using chiefly fiscal policy. Conversely, along with neoliberal economists, the Fed assumes that full employment (everyone willing and able to work has a job offer) and price stability are inherently incompatible.

This is a core position of MMT as I understand it. It is a major reason that a job guarantee lies at the heart of MMT. The JG ensures full employment (less frictional) while establishing the floor wage-benefit package as a price anchor to control inflation.

How do you propose to achieve and maintain full employment and price stability relying chiefly on monetary policy?

Mike Norman said...

Thanks, Beowulf!

Hugo Heden said...

@Rodger, the deficit cutting is preferably automatic, as in automatic stabilizers, where government spending automatically responds to business cycle fluctuations - in a counter cyclical manner.

A good example is of course the Job Guarantee.

The JG is a price stabilizing anchor in that it effectively is a currency peg: the currency is pegged to the value of "unskilled" labor hours. (The government offers to purchase idle labor much like it offers to purchase "idle" gold under a gold standard.

libertyrevival said...

Thanks Beowulf for your input on the LVT issue. I originally sided with the idea that the LVT should be done on the state level. I don't think there would be a constitutional problem, but there would be a problem for the states since many states, with NH strictly relying on property taxes. That is why I originally sided with the idea that LVT should be done on the state level.

I felt the national government should rely on MMT, excise taxes on natural resources or one less prone to political corruption, the flat and universal excise tax of a national sales tax made progressive with a citizen dividend to compensate for economic injustices.

The reason why I switched my position after discussion with geolibertarians, is that fixing the monetary problem is equally important to fixing the land problem. Solving one problem would make the other problem worse.

I felt monetary reform should be sold as a package of tax reform in a populist package of the single tax plus monetary reform.

To make the LVT reform on the state level would require overcoming the tyranny of the many who are landed, though at this time it would be easier considering the landed majority have been handed losses due to land speculation rather than hanging onto undeserved income of increasing increments of land values.

Considering your concerns, it might be best to find a way to find a mixed way of implementing LVT for both states and the national government or a way to push states towards LVT reform in a constitutional way.

Monetary reform alone at the national level would alone allow us to get rid of the income tax. This would be quite an accomplishment. We would be left with corporate taxes and such, but the income tax would be history.

I'm not sure of the solution and how to sell monetary reform and tax reform as a single package.

I should probably leave the solution open-ended in a recent article that I wrote. Though Georgists would like to have LVT done on the national level, my original practical concerns are probably valid that it probably should be done on the state level.

libertyrevival said...

the idea of making lvt a deduction on income taxes while eliminating other deductions for property taxes would probably work, though that would probably meet a bit of resistance and not work if mmt eliminated the income tax anyway.

libertyrevival said...

One problem I have for having deductions for LVT paid would be that would defeat the purpose of LVT.

Another option would be a package where a national LVT would be used to fund state governments. This would likely run into constitutional problems because the national government is essentially telling the states who to collect taxes to property respect property rights, but I'm sure it would be more agreeable if the national government collected LVT and distributed the collected rents to the states. The states would then be able to eliminate taxes with the new funding source.

libertyrevival said...

Wish I could go back and edit the typos in my previous comments and perhaps condense my thoughts.

I went ahead and added a brief paragraph towards the end of the article and left the solution more open-ended.

Thank you again Beowulf for your input.

libertyrevival said...

Re: Discussion on deficit spending, interest rates, and inflation....

Interest rates should be set by the free market. If using a monetary authority which provides reserves for lending, such interest rates should be fixed at the average rate for money market accounts, savings accounts, and cash deposits so that it competes fairly with free market sources.

Inflation is not a bad thing if it isn't based on credit. Inflation motivates the free market to invest and create jobs. It is easily "corrected" by the free market with job creation. Inflation is in fact necessary for job creation. If you don't have inflation you get a stagnate economy. You don't get "stagflation," you get "stag-economy."

Inflation can also be "corrected" with immigration.

Deficit spending can be used to stimulate inflation and job creation if unemployment is high. The key of course to create jobs in the public sector is to use it to fund infrastructure projects rather than send it overseas or to fix bank balance sheets. Otherwise, the money is not as efficient at creating jobs and is crony capitalism if you're favoring the Chinese government or Bank of America. Deficit spending would provide the environment to create jobs both in the public and private sector.

Deficit spending should be the last resort for emergency situations or for job creation and it would remain that under a debt-free monetary system.

The government would be held in a real world check from wealthy and powerful interests since such interests tolerate inflation only when it benefits them through the usury of a debt-based monetary system. Inflation does not naturally benefit the wealthy and powerful. It is a natural enemy to the wealthy and powerful. They did fund the Austrian School of Economics to wage war against inflation and spread myths about inflation and deflation.

Clonal said...

Just reposting Beoulf's response that was in a wrong thread

Blogger beowulf said...

Libertyrevival, you're welcome.

A federal credit for LTV paid that phases ouut with higher income (remember a 100% tax credit is worth more than an at most 35% tax deduction) would divide the economic interests of the vast majority of property owners-- middle class homeowners who'd pay dramatically lower federal taxes -- from the tiny minority of very wealthy land barons who'd still be paying full freight on their federal incomes as well as their new state LTV.

The purpose of the LTV tax credit isn't to replace the federal income tax with a federal LTV (which is impossible in any event for the reasons I mentioned above) but to bribe state governments into shifting their tax burden off of sales, incomes and property improvements and onto land value.
I would like to think that furthers the purposes of the LTV admirably.

BaldApe said...

I have a serious philosophical issue with a land value tax. What if I want to buy a piece of land, build a small house, and live off of my small pension, growing my own food, and generally wanting to be left alone.
If the basis of taxation is the value of my land, and my neighbors build mansions, increasing the nominal value of my land, I can't afford to stay there because I suddenly can't afford to pay taxes on it.

In my opinion, that poses a serious social justice problem. A person who is not dependent on others ought to be allowed to be left alone if he wishes to be.

Mario said...

you don't need income taxes to "regulate" a public debt-free legal tender. you only need to declare it declare it legal tender for payment of debt. requiring it for payment of taxes is also helpful, but any tax would do. you don't need the awful negative trade tariff on domestic production called income tax. i wish the troll would get a life who thinks you need an income tax to regulate a public debt-free legal tender.

this is a great point it seems to me.

We could get income taxes away so long as we had something in there that required regular payment in said currency. Great point liberty

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