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If Soros is right, Turner is saying that monetary and fiscal policy should be combined. I.e. in a recession, government should borrow and spend, while the central bank prints money and buys up government debt. That amounts to the government / central bank machine just printing money and spending it in a recession. That’s what MMT advocates isn’t it?
The cb printing money and buying existing bonds to increase the monetary base does nothing fiscal, that is, doesn't add to consolidated non-govt NFA in aggregare, and it also doesn't affect lending causally as the money multiplier theory says it will. QEis supposed to stoke inflationary expectations but that has not worked wrt goods inflation but it has stoked asset appreciation due to low borrowing costs (margin, mortgage rates, etc.).
What needs to happen in money creation through bond issuance is the cb buys new bonds, crediting the Treasury account for increased spending, which adds to consolidated non-govt NFA in aggregate and offsets demand leakage to saving due to elevated saving desire.
"What QE does is to reduce the debt burden by 1) inflating away the debt stock, or at least slowing the rate of deflation, 2) bending the debt trajectory downwards and 3) lowering "real" borrowing cost. And yes, Japan's "real" rates have been much higher than in the US, UK, France, or Germany. That is part of the problem. Repeat after me a thousand times: QE REDUCES DEBT, compared to what it would otherwise be. It mitigates debt crises. It does not cause debt crises"
Quantative easing in which govt exchanges bank resereves for govt bond does nothing but change composition of financial assets, it does not add to non-govt NFA in aggregate. It is is monetary not fiscal. How long it is gong to take for folks to get this?
Qualitative easing, in which the cb buys risky private sector assets, for its balance sheet is "quasi-fiscal" and raises asset prices. See Robert Farmer, Qualitative Easing: How it Works and Why it Matters
In "monetizing the debt" the cb exchanges reserves for bonds with the Treasury to enable govt to spend into the economy, this is fiscal and increases consolidated non-govt NFA in aggregate. If the debt is not counted because it is owned by consolidated govt, it doesn't raise the national debt in the sense of indebtedness that must be repaid and interest paid to non-govt, so it is costless. It's prohibited in the US, but I don't know about Japan. If it is, they could easily change the law. This is really the only thing that would work to fix the issue that Japan is facing.
4 comments:
So Japan might adopt MMT. What took them so long?
If Soros is right, Turner is saying that monetary and fiscal policy should be combined. I.e. in a recession, government should borrow and spend, while the central bank prints money and buys up government debt. That amounts to the government / central bank machine just printing money and spending it in a recession. That’s what MMT advocates isn’t it?
@ Ralph
Yes.
The cb printing money and buying existing bonds to increase the monetary base does nothing fiscal, that is, doesn't add to consolidated non-govt NFA in aggregare, and it also doesn't affect lending causally as the money multiplier theory says it will. QEis supposed to stoke inflationary expectations but that has not worked wrt goods inflation but it has stoked asset appreciation due to low borrowing costs (margin, mortgage rates, etc.).
What needs to happen in money creation through bond issuance is the cb buys new bonds, crediting the Treasury account for increased spending, which adds to consolidated non-govt NFA in aggregate and offsets demand leakage to saving due to elevated saving desire.
@ Tom
I would be interested in your take on the article on Abenomics by A E-P:
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100023922/abenomics-is-the-only-way-to-stop-japans-debt-compound-crisis/?utm_source=dlvr.it&utm_medium=twitter
"What QE does is to reduce the debt burden by 1) inflating away the debt stock, or at least slowing the rate of deflation, 2) bending the debt trajectory downwards and 3) lowering "real" borrowing cost. And yes, Japan's "real" rates have been much higher than in the US, UK, France, or Germany. That is part of the problem.
Repeat after me a thousand times: QE REDUCES DEBT, compared to what it would otherwise be. It mitigates debt crises. It does not cause debt crises"
Quantative easing in which govt exchanges bank resereves for govt bond does nothing but change composition of financial assets, it does not add to non-govt NFA in aggregate. It is is monetary not fiscal. How long it is gong to take for folks to get this?
Qualitative easing, in which the cb buys risky private sector assets, for its balance sheet is "quasi-fiscal" and raises asset prices. See Robert Farmer, Qualitative Easing: How it Works and Why it Matters
In "monetizing the debt" the cb exchanges reserves for bonds with the Treasury to enable govt to spend into the economy, this is fiscal and increases consolidated non-govt NFA in aggregate. If the debt is not counted because it is owned by consolidated govt, it doesn't raise the national debt in the sense of indebtedness that must be repaid and interest paid to non-govt, so it is costless. It's prohibited in the US, but I don't know about Japan. If it is, they could easily change the law. This is really the only thing that would work to fix the issue that Japan is facing.
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