An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
Paul, if you have time and inclination, why not continue to post here on a regular basis. We need more of this kind of analytical approach.
That goes for others, too. There are many good comments on just about every post here. Why not thinking of posting yourself, at least irregularly.
There's a link in the left column under Become a contributor to Mikenormaneconomics
Or, if you post elsewhere, crosspost here. We want to make MNE anMMT hub that is not restricted just to matter directly related to MMT but encompass policy, etc.
Hi Mike, Thanks for referencing my posting. I've updated it since to ask the following:
The argument is often made in MMT circles that no matter what the size of any government deficit, or debt, the government can never involuntarily default. It is the ‘government checks never bounce’ argument which is now well established.
But, if the US doesn’t have a debts problem, could it have an assets problem? Could the size of assets (stored money) held by the private and overseas sectors ever become so large they threaten to destabilise the US economy? The owners of these assets are could well consider that what we argue are necessary fiscal measures to reduce unemployment levels, to be highly inflationary. They may well be wrong in thinking that, but is it possible they could bring about that inflation by spending wildly, on anything and everything, outside of government control, before the $ lost too much of its purchasing power?
A little extra inflation would probably be a good thing but could it get out of hand?
I honestly don't know the answer so would welcome any discussion.
"They may well be wrong in thinking that, but is it possible they could bring about that inflation by spending wildly, on anything and everything, outside of government control, before the $ lost too much of its purchasing power?" - Peter M.
I'm not Mike but I have a technical answer to your question that I believe is logical, and way more plausible than uncontrolled spending scenarios…
Those funds are held by mainly rich people and foreigners, or are tied up in money funds.
Before it would be possible to spend 1 dollar of those savings the agents involved would have to spend all of their income…literally.
…it's impossible to spend down savings until your income is exhausted, because your income is savings until you spend it.
This event is so unlikely it can be assumed to be impossible.
The problem I see with all of that savings is the power it gives elites to take control of the system. For that reason I advocate marginal tax rates well over 60%.
Progressive taxation was conceived and implemented (by Teddy Roosevelt no less) to reduce the power of elites. Failure to implement that policy has consequences.
Sorry but this apparently accepts the loanable funds doctrine. But the government-backed credit cartel cannot be safely ignored.
But, if like the banks, we ALL dealt ONLY in reserves the model would be fine, imo.
The problem is that ONLY the banks are allowed to deal in reserves since individuals and businesses cannot have reserve accounts at the Fed nor do they need them since the monetary sovereign provides deposit insurance to the banks.
So why can't we all have accounts at the Fed? What need then for deposit insurance?
I know why and it's a filthy reason. It's because the general population MUST be denied a convenient storage and transaction service for its fiat lest reserves drain out of uninsured banks almost as fast as they create new liabilities.
"Sorry but this apparently accepts the loanable funds doctrine. But the government-backed credit cartel cannot be safely ignored." - F.Beard
F.Beard, the model is a perfect representation of the sectoral balances identity.
The sectoral balances identity does not ignore credit, it is simply invisible until the abstraction of x-x is recognized, splitting 0's into assets and liabilities.
This only seems complicated because people aren't looking for it.
peterm, MMT economists say that with enough stupidity anything is possible. Analysis doesn't overcome that wild card. Usually, stupidity is at the bottom of many if not most of these counterfactual scenarios offered as objections.
For example, the MMT analysis shows that it is impossible for a currency sovereign to be forced into default operationally. However, voluntary default is always possible, as we are now dealing with the debt ceiling.
There are a lot of dire scenarios that can be constructed and the question is how plausible they are given the likely context.
One of the great instances of stupidity in economics is fallacies of composition. When one person saves, for instance, it is considered thrift and is praised. But when too many save, then the demand leakage leads to economic contraction. Of course, government can offset this if it has the policy space, but under a fixed regime it may not have the space, which is a reason that fixed systems are stupid, and even under a flexible system TPTB may be to stupid to do so.
The sectoral balances identity does not ignore credit, it is simply invisible until the abstraction of x-x is recognized, splitting 0's into assets and liabilities.
This only seems complicated because people aren't looking for it.
paul,
I made a crude attempt to look directly at it, to try and map the debt/credit and deficit relationships to each other. I could use some feedback (from anyone who feels like chiming in really) on whether it it explains or confuses the picture.
You ask whether spending by the private and foreign sector could “get out of hand” and cause excess inflation. My answer is “yes”: it’s possible. And you don’t even need an increase in “private sector net financial assets” for that to happen. It would happen given a big increase in private sector confidence or “irrational exuberance”.
The velocity of circulation of money in New York State in 1932 was one third what it was in early 1929. So presumably that could go the opposite way: i.e. if velocity trebled over the next year, we’d get rampant inflation.
"I made a crude attempt to look directly at it, to try and map the debt/credit and deficit relationships to each other." - geerussell
geer, seems like we had a discussion on this a year or so ago. I have a bunch of charts I've made also. Yours look interesting, will have to spend some time thinking about them.
My goal was to show grapically that the credit balance followed deficit spending (or spending) and that when it exceeded it we had banking crises.
It seemed obvious to me that credit can't "suck" money out of Congress.
Will have to go back and look at my charts again too.
"It would happen given a big increase in private sector confidence or “irrational exuberance”. - Ralph
Without a corresponding increase in NFA this kind of growth could only lead to a vacuum*, or bubble, which later on would have to give the gains back somewhere in the economy.
I don't call that growth, and any inflation created would also reverse itself.
*…I prefer vacuum to bubble because the force created is liabilities that, when great enough, suck the life out of the economy…a few people win, everyone else loses.
Any government-backing for banks violates equal protection under the law since the ability to repay stolen purchasing power (plus interest) DOES NOT justify the theft.
"Any government-backing for banks violates equal protection under the law since the ability to repay stolen purchasing power (plus interest) DOES NOT justify the theft." - F.Beard
F.Beard, you're spitting into the wind here.
It's been this way for over 200 years and it isn't an accident. The fact that these conditions have persisted for so long tells us the powers are entrenched.
Our only hope is to create a widespread recognition of the realities of banking systems and who controls them.
Phrases like "stolen purchasing power" repeated as a mantra just turns people away from your message.
Please find a different marketing slogan. Show us how banks hurt us, detailing the salient points, so we can learn something.
This to me is another widely-misunderstood concept…
velocity should not be expected to increase 300% for no reason, and it can't, logically.
To say velocity increases would have to mean people are drawing down on their savings…something that almost never happens.
Velocity is proportional to dollars available for spending (MMT HPM…h/t Matt) and moves in the same direction. Velocity doesn't go up when people have less money to spend.
It makes no sense to say that if people have less money they can make up for it by spending more.
The MV=PQ equation is pretty much useless, as it tells us very little about the real world, and in fact creates confusion over how real systems function.
I always get the feeling that in general mainstream economic thinking, there is this fear that all of a sudden, people who have savings are going to just have some sort of flip of an internal switch and suddenly start to spend like banshees like there is no tomorrow or some shit... where do they come up with this? This would be some sort of "velocity" increase ...
I think if people save for retirement, they usually give up their wage income and start to spend down the savings, but having given up their wages, they only have their savings to spend so they are still frugal about their spending and want to get a good deal on things they buy.... not going all around spending willy-nilly or something, and then the out of paradigmers thin this is going to cause 'inflation' or something...
The fact that these conditions have persisted for so long tells us the powers are entrenched. paul meli
It's an idealogical struggle mostly. And it's immentily winable since banking rests on such corrupt and unstable foundations.
For our struggle is not against flesh and blood, but against the rulers, against the authorities, against the powers of this dark world and against the spiritual forces of evil in the heavenly realms. Ephesians 6:12
A simple example to point out the government-backed banks are thieves:
Suppose A has $100,000 in cash and B has no cash but land valued at $120,000 which secures a credit line for that amount. Now suppose both go to an auction. Then why should B be able to outbid A because some bank, by virtue of government privileges, is able to create $120,000 in new purchasing power for him? Has not A been cheated? Is it at all morally relevant that B is so-called creditworthy simply because he has land or other collateral to secure a loan? So that the bank can sell that collateral in case of loan default? No, it is morally irrelevant since the ability to return stolen purchasing (plus interest) DOES NOT justify theft.
Thus the money system steals from the less or non so-called creditworthy for the benefit of the more so-called creditworthy and, of course, the banks themselves.
21 comments:
Been there, done that already, more than a year ago.
Nice to see others are (independently) taking this approach.
Yes, we need more of it.
Paul, if you have time and inclination, why not continue to post here on a regular basis. We need more of this kind of analytical approach.
That goes for others, too. There are many good comments on just about every post here. Why not thinking of posting yourself, at least irregularly.
There's a link in the left column under Become a contributor to Mikenormaneconomics
Or, if you post elsewhere, crosspost here. We want to make MNE anMMT hub that is not restricted just to matter directly related to MMT but encompass policy, etc.
Hi Mike,
Thanks for referencing my posting. I've updated it since to ask the following:
The argument is often made in MMT circles that no matter what the size of any government deficit, or debt, the government can never involuntarily default. It is the ‘government checks never bounce’ argument which is now well established.
But, if the US doesn’t have a debts problem, could it have an assets problem? Could the size of assets (stored money) held by the private and overseas sectors ever become so large they threaten to destabilise the US economy? The owners of these assets are could well consider that what we argue are necessary fiscal measures to reduce unemployment levels, to be highly inflationary. They may well be wrong in thinking that, but is it possible they could bring about that inflation by spending wildly, on anything and everything, outside of government control, before the $ lost too much of its purchasing power?
A little extra inflation would probably be a good thing but could it get out of hand?
I honestly don't know the answer so would welcome any discussion.
Peter
"They may well be wrong in thinking that, but is it possible they could bring about that inflation by spending wildly, on anything and everything, outside of government control, before the $ lost too much of its purchasing power?" - Peter M.
I'm not Mike but I have a technical answer to your question that I believe is logical, and way more plausible than uncontrolled spending scenarios…
Those funds are held by mainly rich people and foreigners, or are tied up in money funds.
Before it would be possible to spend 1 dollar of those savings the agents involved would have to spend all of their income…literally.
…it's impossible to spend down savings until your income is exhausted, because your income is savings until you spend it.
This event is so unlikely it can be assumed to be impossible.
The problem I see with all of that savings is the power it gives elites to take control of the system. For that reason I advocate marginal tax rates well over 60%.
Progressive taxation was conceived and implemented (by Teddy Roosevelt no less) to reduce the power of elites. Failure to implement that policy has consequences.
Sorry but this apparently accepts the loanable funds doctrine. But the government-backed credit cartel cannot be safely ignored.
But, if like the banks, we ALL dealt ONLY in reserves the model would be fine, imo.
The problem is that ONLY the banks are allowed to deal in reserves since individuals and businesses cannot have reserve accounts at the Fed nor do they need them since the monetary sovereign provides deposit insurance to the banks.
So why can't we all have accounts at the Fed? What need then for deposit insurance?
I know why and it's a filthy reason. It's because the general population MUST be denied a convenient storage and transaction service for its fiat lest reserves drain out of uninsured banks almost as fast as they create new liabilities.
"Sorry but this apparently accepts the loanable funds doctrine. But the government-backed credit cartel cannot be safely ignored." - F.Beard
F.Beard, the model is a perfect representation of the sectoral balances identity.
The sectoral balances identity does not ignore credit, it is simply invisible until the abstraction of x-x is recognized, splitting 0's into assets and liabilities.
This only seems complicated because people aren't looking for it.
Not sure I agree since with the banks the assets are real but the liabilities are mostly virtual. Can apples and oranges be compared?
Still, I'll give it more thought later perhaps (Not today!)
But thanks for the food for thought, Paul.
peterm, MMT economists say that with enough stupidity anything is possible. Analysis doesn't overcome that wild card. Usually, stupidity is at the bottom of many if not most of these counterfactual scenarios offered as objections.
For example, the MMT analysis shows that it is impossible for a currency sovereign to be forced into default operationally. However, voluntary default is always possible, as we are now dealing with the debt ceiling.
There are a lot of dire scenarios that can be constructed and the question is how plausible they are given the likely context.
One of the great instances of stupidity in economics is fallacies of composition. When one person saves, for instance, it is considered thrift and is praised. But when too many save, then the demand leakage leads to economic contraction. Of course, government can offset this if it has the policy space, but under a fixed regime it may not have the space, which is a reason that fixed systems are stupid, and even under a flexible system TPTB may be to stupid to do so.
The sectoral balances identity does not ignore credit, it is simply invisible until the abstraction of x-x is recognized, splitting 0's into assets and liabilities.
This only seems complicated because people aren't looking for it.
paul,
I made a crude attempt to look directly at it, to try and map the debt/credit and deficit relationships to each other. I could use some feedback (from anyone who feels like chiming in really) on whether it it explains or confuses the picture.
F,
"ONLY the banks are allowed to deal in reserves"
Should be:
Only LEGALLY RECOGNIZED FISCAL AGENTS OF THE US GOVT are allowed to deal in reserves...
You write as if 'the banks' are a rogue operation by design...
Peter M,
You ask whether spending by the private and foreign sector could “get out of hand” and cause excess inflation. My answer is “yes”: it’s possible. And you don’t even need an increase in “private sector net financial assets” for that to happen. It would happen given a big increase in private sector confidence or “irrational exuberance”.
The velocity of circulation of money in New York State in 1932 was one third what it was in early 1929. So presumably that could go the opposite way: i.e. if velocity trebled over the next year, we’d get rampant inflation.
"I made a crude attempt to look directly at it, to try and map the debt/credit and deficit relationships to each other." - geerussell
geer, seems like we had a discussion on this a year or so ago. I have a bunch of charts I've made also. Yours look interesting, will have to spend some time thinking about them.
My goal was to show grapically that the credit balance followed deficit spending (or spending) and that when it exceeded it we had banking crises.
It seemed obvious to me that credit can't "suck" money out of Congress.
Will have to go back and look at my charts again too.
"It would happen given a big increase in private sector confidence or “irrational exuberance”. - Ralph
Without a corresponding increase in NFA this kind of growth could only lead to a vacuum*, or bubble, which later on would have to give the gains back somewhere in the economy.
I don't call that growth, and any inflation created would also reverse itself.
*…I prefer vacuum to bubble because the force created is liabilities that, when great enough, suck the life out of the economy…a few people win, everyone else loses.
You write as if 'the banks' are a rogue operation by design.. Franko
"Banking was conceived in inequity and born in sin ..." Josiah Stamp
"You write as if 'the banks' are a rogue operation by design.. Franko"
Matt, taking into account human nature I would have to say yes, they are rogue operations.
That's why they need to be regulated like a nuclear reactor.
Any government-backing for banks violates equal protection under the law since the ability to repay stolen purchasing power (plus interest) DOES NOT justify the theft.
"Any government-backing for banks violates equal protection under the law since the ability to repay stolen purchasing power (plus interest) DOES NOT justify the theft." - F.Beard
F.Beard, you're spitting into the wind here.
It's been this way for over 200 years and it isn't an accident. The fact that these conditions have persisted for so long tells us the powers are entrenched.
Our only hope is to create a widespread recognition of the realities of banking systems and who controls them.
Phrases like "stolen purchasing power" repeated as a mantra just turns people away from your message.
Please find a different marketing slogan. Show us how banks hurt us, detailing the salient points, so we can learn something.
"if velocity trebled over the next year" - Ralph
This to me is another widely-misunderstood concept…
velocity should not be expected to increase 300% for no reason, and it can't, logically.
To say velocity increases would have to mean people are drawing down on their savings…something that almost never happens.
Velocity is proportional to dollars available for spending (MMT HPM…h/t Matt) and moves in the same direction. Velocity doesn't go up when people have less money to spend.
It makes no sense to say that if people have less money they can make up for it by spending more.
The MV=PQ equation is pretty much useless, as it tells us very little about the real world, and in fact creates confusion over how real systems function.
Paul,
I always get the feeling that in general mainstream economic thinking, there is this fear that all of a sudden, people who have savings are going to just have some sort of flip of an internal switch and suddenly start to spend like banshees like there is no tomorrow or some shit... where do they come up with this? This would be some sort of "velocity" increase ...
I think if people save for retirement, they usually give up their wage income and start to spend down the savings, but having given up their wages, they only have their savings to spend so they are still frugal about their spending and want to get a good deal on things they buy.... not going all around spending willy-nilly or something, and then the out of paradigmers thin this is going to cause 'inflation' or something...
rsp
The fact that these conditions have persisted for so long tells us the powers are entrenched. paul meli
It's an idealogical struggle mostly. And it's immentily winable since banking rests on such corrupt and unstable foundations.
For our struggle is not against flesh and blood, but against the rulers, against the authorities, against the powers of this dark world and against the spiritual forces of evil in the heavenly realms. Ephesians 6:12
A simple example to point out the government-backed banks are thieves:
Suppose A has $100,000 in cash and B has no cash but land valued at $120,000 which secures a credit line for that amount. Now suppose both go to an auction. Then why should B be able to outbid A because some bank, by virtue of government privileges, is able to create $120,000 in new purchasing power for him? Has not A been cheated? Is it at all morally relevant that B is so-called creditworthy simply because he has land or other collateral to secure a loan? So that the bank can sell that collateral in case of loan default? No, it is morally irrelevant since the ability to return stolen purchasing (plus interest) DOES NOT justify theft.
Thus the money system steals from the less or non so-called creditworthy for the benefit of the more so-called creditworthy and, of course, the banks themselves.
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