Wednesday, May 22, 2013

Mark Gongloff — Bernanke Tells Congress Fighting Unemployment Is A Better Cure For Government Debt Than Austerity

"The loss of output and earnings associated with high unemployment ... reduces government revenues and increases spending on income-support programs, thereby leading to larger budget deficits and higher levels of public debt than would otherwise occur," Bernanke said....

Bernanke's comments draw comparison to a year-old paper, "Fiscal Policy In A Depressed Economy," by Berkeley economist Brad DeLong and Harvard's Larry Summers. The paper has received new attention lately.
A sort of antidote to the research of Harvard economists Carmen Reinhart and Kenneth Rogoff, which helped convince Congress to deliver austerity in the first place, the DeLong-Summers paper suggests that extra government stimulus spending in the short term could actually lower government debt levels in the long run.
But even after the Reinhart-Rogoff view has been discredited, the DeLong-Summers-Bernanke view can't seem to get any traction in Congress. 
The Huffington Post
Bernanke Tells Congress Fighting Unemployment Is A Better Cure For Government Debt Than Austerity
Mark Gongloff

21 comments:

Dan Kervick said...

I love how when Bernanke says something totally fucking obvious - people without income don't pay income taxes - the press feels the need to back it up by appealing to some academic paper by two prima donna geniuses - two neoliberal stalwarts who by the way helped deliver the deregulation of the 90's that delivered the collapse of 2008.

It's like we live in the movie "Idiocracy." The obvious is now regarded as a bold and somewhat confusing theory that only a couple of premier Economographers understand.

Ralph Musgrave said...

Bernanke should not even make the concession to deficit terrorists that the objective is to “cure” government debt. That implies there is something wrong with government debt (or monetary base – the two are much the same).

The truth, as most MMTers understand, is that the total of government debt and monetary base (i.e. “private sector net financial assets”) has to be whatever the private sector wants it to be.

I.e. if the private sector wants a stock of PSNFA that is three times what it wanted ten years ago, then government will just sodding well have to supply that PSNFA. If it doesn’t, then the private sector will just attempt to save, which results in Keynes’s “paradox of thrift” unemployment.

y said...
This comment has been removed by the author.
y said...

I love how he said "we are paying the banks interest on their reserves for technical reasons". The "technical reason" being that the banks must always, at all costs, at all times, have a constant stream of free unearned income, or else Jamie Dimon and friends might have to buy one less yacht next year, which would be sad.

What he didn't say, of course, is: "we give free money to the banks every day. That's what government bonds are you fools - free money for the rich. When we 'tighten' monetary policy, that means we increase the amount of free money we hand out to the rich, by raising the amount of welfare interest we pay them for no reason. That's what 'tightening' means, you suckers."

Matt Franko said...

This Gongloff misses the whole point too that govt "debt" is not something that needs a "cure"... like its an 'ailment' or something... (again false metaphor appears and Gongloff remains clueless...)

Hey Gongloff: The whole system runs on govt 'liabilites' if you must think of it in accounting terms... the dollar in your wallet is a 'liability' of govt just like a Treasury security if you must use accounting terminology to understand our system which at core is just a calibration and measurement system for the implementation of PUBLIC PURPOSE.... sober up man!





Tom Hickey said...

@y

Perfect. It just happens that the banks and savers are the beneficiaries of monetary policy and citizens at large, who the policy is supposed to serve, not so much.

Tom Hickey said...

This Gongloff misses the whole point

The "progressive disease."

y said...

According to this Fed paper, those selling treasuries and MBS to the Fed as part of QE are not then moving into stocks, but rather into corporate bonds, commercial paper, and municipal debt and loans.

So the stock market boom is apparently being driven by others... Margin debt in absolute terms and as a percentage of market value is also reaching near-all-time highs, which suggests the stock market may be a debt-fueled bubble. This is Keen's argument. Any thoughts?

http://www.federalreserve.gov/pubs/feds/2013/201332/201332pap.pdf

Bob Roddis said...

I love how he said "we are paying the banks interest on their reserves for technical reasons". The "technical reason" being that the banks must always, at all costs, at all times, have a constant stream of free unearned income, or else Jamie Dimon and friends might have to buy one less yacht next year, which would be sad.

Hell has frozen over and the earth stopped spinning.

I totally agree with this statement of "y". If LK shows up and asks me: Do you agree with that statement from "y", the answer is YES.

Of course, this is the reason we have a fiat funny money system in the first place.

y said...

Here's a quote from the Fed paper:

“In this paper, we tried to uncover the investor classes are the ultimate source of the securities that the Federal Reserve buys and how these investors then rebalance their portfolios. Understanding these questions points to parts of the mechanism through which the Federal Reserve’s asset programs affect financial markets. We find that not all investor types sell to the Fed uniformly. Households (the group that includes hedge funds), broker-dealers, and insurance companies appear to be the largest sellers of Treasury securities when the Federal Reserve buys these securities. Households, investment companies, and to a lesser extent, pension funds, are the largest sellers of MBS when the Federal Reserve buys. When selling to the Fed, the households seem to rebalance their portfolios toward corporate bonds, commercial paper, and municipal debt and loans, while pension funds shift their portfolio toward repurchase agreements, or very short-term assets".

http://www.federalreserve.gov/pubs/feds/2013/201332/201332pap.pdf

y said...

"Households (the group that includes hedge funds)"

wtf?

Next they'll be referring to hedge funds as "workers".

y said...

"Of course, this is the reason we have a fiat funny money system in the first place".

I suppose bankers really hated the gold standard, huh?

Bob Roddis said...

I suppose bankers really hated the gold standard, huh?

To the extent that it constrained their lending, of course they did. The Fed was created so the bankers could make excessive funny money loans, and when the shit hit the fan, the FED would bail them out as "lender of last resort". Same principle as now, just different methods.

Oh, and there was no "gold standard".

http://socialdemocracy21stcentury.blogspot.com/2013/03/the-classical-gold-standard-era-was-myth.html

y said...

right... so when was there a 'pure specie standard'? The middle ages?

y said...

"To the extent that it constrained their lending, of course they did".

Who do you think owned all the gold, Bob? "Average people"? No, they had to borrow it. Hence fractional reserve banking.

F. Beard said...

Of course, this is the reason we have a fiat funny money system in the first place. Bobby R

Fiat is the ONLY ethical money form for government debts.

As for private debts, gold is too silly to survive in a true free market of private money creation. That's why Gary North, a so-called "libertarian", wrote this?

"The government does have the right to establish the form of money that citizens must use to pay their taxes. The government should limit itself to a statement regarding the weight and fineness of the tax coins. If private enterprise produces coins that meet these standards, the government must accept such coins as valid for the payment of taxes. The government lawfully controls the form of taxation; but it should not have any power to monopolize the production of coins. Governments have always asserted this authority, and they have always done so to the detriment of liberty." Gary North from http://www.lewrockwell.com/north/north895.html [bold added]

The above makes North a fascist since he wants to allow private gold owners to create government money. Perhaps he should re-read the Bible, especially Matthew 22:16-22? Or does North want to have his own image on some government coins instead of Caesar's?

F. Beard said...

Note though that North calls fascism "liberty."

See the folks you're hanging with, Bob?

Tom Hickey said...

According to this Fed paper, those selling treasuries and MBS to the Fed as part of QE are not then moving into stocks, but rather into corporate bonds, commercial paper, and municipal debt and loans.

So the stock market boom is apparently being driven by others... Margin debt in absolute terms and as a percentage of market value is also reaching near-all-time highs, which suggests the stock market may be a debt-fueled bubble. This is Keen's argument. Any thoughts?


I've been saying it's the low cost of margin for some time, just as the play in gold is due to low rates, too.

Low rates result in carry trades, which then blow up as rates rise eventually.

y said...

Tom, a lot of people seem to think that people are getting money from the Fed through QE, and then putting that money into the stock market.

However as you say, it's the low cost borrowing (available to some) which is apparently being used for stock market speculation.

JK said...

Wait, people can take out loans to invest it in the stock market?

Or… wealthy people and businesses can simply just take out loans for whatever because of their accumulated stock of wealth as collateral... so they are just borrowing money at low rates to chase returns in the market?

F. Beard said...

Yep, people borrow new, temporary "money" into existence (so-called "credit") and use it to drive up stock (and other) prices. It's called "bubble blowing" or "musical chairs." One needs to know when to exit, though the music can play for years.

All given to you courtesy of the government-backed credit cartel.