With MMT really breaking out into the mainstream now and dispelling many of the popular myths about economics you'd think some of the more educated and otherwise informed economic pundits and market mavens would stop with their misguided pronouncements and pleadings.(I stopped 11 years ago, when I met Warren Mosler.)
Barry Ritholtz is probably one of the most widely followed market mavens around and he's certainly very smart and seemingly rational as well. That's why it's hard to fathom why he continues droning on with his false understanding of the Fed and monetary policy. (It's not that hard, Barry!)
In this video he talks about why rising rates are "inevitable." He even agrees with the dim-witted Yahoo! Finance host that the Fed "can't continue to buy Treasury securities forever." You can even discern a noticeable amount of frustration in their pleadings as in, "How has this been going on for this long??"
Well, Barry, if you understood MMT you'd know that the central bank can buy government securities in unlimited quantities for as long as it wants. Moreover, the central bank is the rate setter and often uses asset purchases to set the rate or whatever it wants and keep it there for as long as it wants.
This is all due to the fact that a sovereign currency issuing country, with its central bank as agent, is a monopolist in its own money. And anyone who studied monopolies in Econ 101 (chapter 1) probably knows that a monopolist can charge any price it wants.
The very fact that the US/Treasury/Fed pays any interest at all is superfluous. It needn't pay anything for use of its own fiat.
Really, it's not that hard, bro.
14 comments:
Mike,
He and Josh Brown are close. Don't know if you run in to each other, but he might be a good one to bring around fully.
I guess the question is not whether the Fed has to let Treasury rates rise, but if and when they will let Treasury rates rise?
Otherwise smart people that don't see the obvious are usually blindsided for some reason. Many people that believe strong in the free market just can't see that the sovereign is the currency monopolist in a non-convertible fixed rate system in which it doesn't obligate itself in a currency it does not issue. They really really want the private sector to be in control and the market to discover price. Sorry, folks, it just in not that way.
However, it is apparently very difficult for many people to see that the sovereign is has a monopoly on its currency. As Warren says, this was his key insight, the one that got MMT going in the first place. This is an insight that still escapes most people, even people with intimate knowledge of the field.
I think there will be a major bond rally if we could get the fed to just exit the marketplace finally and stop "getting a good deal on the bonds for the taxpayers" by setting the price of the securities at ever lower levels...
Mortgages may eventually go to <3% if they would just get the hell out of the way....
rsp,
"Many people that believe strong in the free market just can't see that the sovereign is the currency monopolist in a non-convertible fixed rate system"
Right Tom exactly... this is like the crux of it for me.
I think we have to point out this "blind spot" they have to them as step one... like Mike is perhaps trying to do here with Ritholtz.
He asserts "they cant buy them forever" well ah, yes, I'm afraid they can if they want to... (not that QE helps but that is another story)
rsp,
"I guess the question is not whether the Fed has to let Treasury rates rise, but if and when they will let Treasury rates rise?"
You nailed it.
Don't mean to change the subject but the ramifications from this will send shock-waves though state and local governments around America. Workers are going to get screwed in ways they never imagined. Illinois worker in particular if this template is followed:
http://www.detroitnews.com/article/20130718/METRO01/307180103/Detroit-files-Chapter-9-bankruptcy?odyssey=mod|breaking|text|FRONTPAGE
Mal,
Just saw that this is nuts... but "we're out of money" after all...
We have to stop doing this to ourselves somehow...
rsp,
Matt, Seriously, I'm physically ill after reading that announcement.
Detroit bankruptcy and the student loan "deal" just agreed to are evidence of insanity.
the belief is that if the cb holds interest rates below 'natural' 'market' rates for too long the result will be high inflation (or even hyperinflation), or at the very least unsustainable asset price bubbles.
Suppressed interest rates* transfer wealth from those who can't or won't borrow to those who can and do.
Ain't it fun being in a perpetual argument over what interest rates should be when the Bible forbids usury from one's fellow countryman in the first place? And when common stock as money requires no borrowing or lending, much less at interest?
*In a government-enforced money monopoly for private debts.
The American elite wants to put each and every one of us into receivership. Detroit is their model for fixing everything.
Just like the above "can't continue to buy Treasury securities forever." nonsense, Mervyn King witters on in similar vein. Word search for “The steady reduction…” here:
http://www.bis.org/review/r100621b.pdf
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