Monday, July 6, 2015

Bill Mitchell — The ECB has to maintain ELA to Greek banks

Despite the shamelessly dishonest press barrage from the conservative owners of the highly concentrated Greek media (the ‘oligarchs’) to vote YES; despite many articles popping up in world newspapers about how the Greeks are to blame for their own problems because they overspend and undertaxed; despite the lies coming from other European leaders about what the vote was about (it was not about leaving the Euro but rather about whether the Greek people wanted further failed austerity); despite the ridiculous claims of the German SDP about “bridges being burned” (that party should change its name because it is a disgrace to the social democratic tradition) – despite all of that and heaps more, the Greek people voted overwhelmingly NO to reject austerity as a viable policy model for their country. This is a case of democracy coming head to head with the dominant political-economic ideology within which the Greek nation is situated – the Eurozone. It also demonstrates the flaws of the democratic process – the people have voted for an end to austerity but also consistently tell opinion polls they want to remain in the Eurozone, a monetary system that is built on austerity. They voted yesterday to reject the very basis of the monetary system they want to stay in – which tells us they don’t really understand the nature of the system and therefore how informed is the NO vote.
That was the fault of the Syriza leadership. Like the Greek people and other Europeanists, they also seem to believe strongly in a contradiction being possible.

Bill Mitchell – billy blog
The ECB has to maintain ELA to Greek banks
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia


mike norman said...

Thank you, Bill Mitchell. It is exactly what I have been saying.

Malmo's Ghost said...

You can't have your cake and eat it too. Staying in the euro and no austerity for Greece are mutually exclusive propositions. Expecting one's sociopathic overlords to somehow become benevolent angels was always naive. Like Michael Hudson wrote below, YV and Tsipras had plenty of time to educate the plebs, but choose not to because they are true believers in the euro project, and thus were blinded to its contradictions.

Matt Franko said...

Bill is the (sadly rare) form of human that has been equipped with BOTH a heart AND a brain....

Matt Franko said...

Ramanan re-tweeted this the other day:

21 year old female Greek! 21!

She says: "We are called to exercise democracy without having any tangible explanation of what will follow each decision"....

This young person is telling us what the problem is.... the problem is lack of education... its a massive systemic cognitive breakdown...

Perhaps buy Bill's new book (500 pages!) if you cant figure it out on your own.

Dan Kervick said...

Greece can rebuild its economy with tax-and-spend, and substantial debt relief will help to create more fiscal space for an ambitious program. What matters is who gets taxed and where the spending goes. Greece needs to wipe out the massive tax dodging, fill the national treasury to the brim, and then pour the money right back out into long term national capital development strategies, which can also employ its many, many, many unemployed people in the project of rebuilding and adding to national wealth, while keeping much of it in public hands. Leaving the Eurozone is not a necessity if the Eurozone and its banking system will just return to sensible macroeconomic policies and ditch the stagnation formula.

There is no compelling empirical evidence connecting the size of deficits and growth, and many countries in the modern era have experienced periods of dramatic growth fueled by aggressive state-driven investment coupled with very modest deficits, an approach which pays attention to both the supply and demand "side" of the economy. Greece isn't going to fix its massive problems with just some generic consumerist "demand"-goosing fueled by a banana republic fiat currency flood without any kind of industrial development strategy.

The world needs a lot more than hydraulic Keynesianism right now, including the kind being hawked by the monetary cranks and amateur enthusiasts with their endless fiat junk economics. We are faced with the challenge of rebuilding our global system, and that means focusing on on directed saving and re-investment in the new infrastructures and forms of wealth that the 21st century needs. We need to re-tool the planet in a seriously organized and more planned way, and not just "stimulate" the opening of more burrito chains and adult toy stores with inflationary quick fixes.

The MMT political strategy seems to be to convince rich people they and everybody else are overtaxed, and that all problems can be solved if we will just agree to cut taxes and also turn on the printing presses at the same time. That seems like a nifty plutocrat-populist compromise strategy. But it is all backed up with a pseudo-scientific mashup of incoherent monetary theories and junk macro cooked up by rich guy Warren Mosler. It's a fraud. Mosler's string of mistaken predictions show that he really doesn't know what he is talking about when it comes to analyzing economies. His idea that the government as the currency monopolist actually sets the price for goods and labor is ludicrous. His right-wing "non-interventionist" version of the job guarantee can only set a floor on prices not a ceiling. To call his theories "incomplete" is charitable.

The rich people are in themselves a big part of the problem. The excessive flow of national incomes in their directions constitutes a massive mis-allocation of resources and is the major driver of four decades of neoliberal failure.

Malmo's Ghost said...

"Leaving the Eurozone is not a necessity if the Eurozone and its banking system will just return to sensible macroeconomic policies and ditch the stagnation formula."

I agree, but what are the chances that the EZ will become sensible? Zero?

Matt Franko said...

Dan dont forget about the on going maintenance costs of the infrastructure once its built...

The material systems we construct also have to be maintained or they quickly fall into disrepair. .. e.g. see the Olympics facilities in Greece... weeds everywhere, rust, etc...

The way they have things operating over there, a lot of Greek flow ends up in the surplus nations and then there is not enough domestic income left in Greece to maintain the infrastructure once its built.. while funding Greek savings and other domestic priorities...

A process of "run>default>reset>run>default>reset... " just doesn't seem to be the best way to run things generally .... you typically dont want to end up in default mode as part of normal operations...

The problem with the current arrangements seems to be the "foreign claims " that are allowed to be established.


Dan Kervick said...

I think there is some chance. The world can't afford and tolerate the weak, unstable and stagnant Europe the Eurocrats have engineered. Time for global leaders to start banging heads together. It's the Eurocrats now against almost all serious global economists.

Dan Kervick said...

Matt, countries can maintain the stuff they build. Better infrastructure and real capital resources makes Greek more productive. A more productive economy generates more national income. More national income means more income to tax; and more taxed income means more income to be cycled back into capital maintenance and improvement. It just takes a commitment by the Greek government to allocate sufficient income to itself via the tax system to reinvest adequately in their own country rather than allowing all of that income to be used to buy consumables from abroad. Gross capital formation in Greece is abysmal, and that needs to be changed via government policy.

Tom Hickey said...

Gross capital formation in Greece is abysmal, and that needs to be changed via government policy.

Syriza wants to increase taxes on the wealthy, but the neoliberal eurocrats won't sign on to that because that would reduce investment.

The neoliberal demand for "reform" means cutting taxes on the wealthy and businesses, and raising taxes on workers while cutting wages and benefits.

That's what the negotiation has been about as in my travels today, I see it is still the case.

The only way out is to revolt against neoliberalism and replace it with social democracy.

Greece will not be able to do that and remain in the EZ, unless the other EZ countries throw out the neoliberals and replace them with actual social democrats rather than neoliberal parties masquerading as social democratic ones.

Brian Romanchuk said...


I have doubts that infrastructure investment is the way forward for Greece. We are no longer in the 1930s, where you could hand unemployed people shovels and they would dig ditches. Modern infrastructure development is capital intensive, and only generates a handful of highly paid jobs. In the United States, it's the Democratic party's preferred version of Keynesianism, as compared to the Republican showering money on the defence industry. Since the problems that Greece faces revolves around external constraints, a binge of imported capital goods which are not used to support exports seems like a fairly risky strategy.

If your argument that "the world" should get its act together, well it's hard to argue with that. Unfortunately, that presupposes a global political convergence that I can see no evidence of whatsoever. Greece was unable to get support to end insanely crushing austerity, never mind trying to get a consensus on some new global economic paradigm.

Finally, not sure why everyone has gotten so harsh on Mosler. But it's wrong to attribute all of MMT to him; it's a fairly coherent body of thought that fits within the broad post-Keynesian tradition.

Tom Hickey said...

I see I neglected to put "reduce investment" in quotes to indicate it is bonkers.

Dan Kervick said...

Brian it's not just big infrastructure investment that Greece needs, but real capital formation of all kinds, including ordinary state-driven "business" investment or industrial policy leadership. Greece's economic system has persistently failed to build wealth and maintain the foundations for its effective participation in the evolving global economy. They need to stop looking the other way as tax-avoiders bleed wealth out of the country and put it elsewhere, including into excessive consumption, and steer more of that wealth into national wealth-building.

If fat cats won't build the Greece industrial and service base, Greece needs to command the capital resources and do it themselves.

Tom Hickey said...

The world has two major problems today.

1. Neoliberalism as the dominant political paradigm. Even so-called parties of the left or center-left are essentially neoliberal.

2. Neoclassical economics as the dominant economic paradigm. Even Krugman and DeLong self-identify as neoclassical. Neoclassical economics is foundation to neoliberalism, whose aim is to replace the welfare state with the market state, with market states controlled by transnational corporations and technocratic international institutions.

"The powers of financial capitalism had (a) far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent meetings and conferences. The apex of the systems was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations. Each central bank... sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."
Carroll Quigley (1910-1977) | Professor of History at Georgetown University, member of the Council on Foreign Relations (CFR), mentor to Bill Clinton, in Tragedy and Hope

Carroll Quigley, Tragedy and Hope: A History of the World in Our Time (free PDF)
Volumes 1-8
New York: The Macmillan Company, 1966
Chapter 7, page 324

BTW, Quigley is describing the period between 1922 and 1930 in this chapter. It's been a longterm project with TPTB.

How about this. Remember Hjalmar Schacht?

When the economic crisis began in 1929, Germany had a democratic government of the Center and Social Democratic parties. The crisis suited in a decrease in tax receipts and a parallel increase in demands government welfare services. This brought to a head the latent dispute over orthodox and unorthodox financing of a depression. Big business big finance were determined to place the burden of the depression the working classes bv forcing the government to adopt a policy of deflation—that is, by wage reductions and curtailment of government welfare expenditures. The Social Democrats wavered in their attitude, but in general were opposed to this policy. Schacht, as president of the Reichsbank, was able to force the Socialist Rudolf Hilferding out of the position of minister of finance by refusing bank credit to the government until this was done. In March 1930, the Center broke the coalition on the issue of reduction of unemployment benefits, the Socialists were thrown out of the government, and Heinrich Briining, leader of the Center Party, came in as chancellor. Because he did not have a majority in the Reichstag, he had to put the deflationary policy into effect by the use of presidential decree under Article 48.....

Ibid. p. 430

Same playbook almost a century later.

Matt Franko said...

" rather than allowing all of that income to be used to buy consumables from abroad."

Dan that is the source of the "foreign claims" I am talking about... the integral of a flow dt is a stock, etc... they have to establish some form of "capital controls" which seem at the moment to not be allowed under the treaties... again there is a basic incompetence at work here... an inability to discern some basic contradictions.... an inability to recognize systemic imbalances...


"Syriza wants to increase taxes on the wealthy, but the neoliberal eurocrats.... blah, blah, blah...."

It wont nearly be enough even if you taxed all the "wealthy" Greeks at 100%.... rsp,

Add it up on the back of an envelope....

Tom Hickey said...

Matt, that was only one aspect of the reform program that Syriza presented. The troika stuck to their position of no new taxes on wealth or business, and wage reduction and benefit cuts for the middle class including pensioners, and reduction in welfare for the poor. It was Dickensian and they haven't revised it. From what I can see today so far, they are not backing down. They are laying all the blame on Syriza and applaud the dismissal of Varoufakis as a step forward in "regaining trust." The buzz words are "reforms" and "regaining trust," meaning that Syriza has to regain the trust of the eurocrats by accepting eurocrats' neoliberal reforms.

Tom Hickey said...

Oops. That link to Tragedy and Hope is no longer operative. has revised their site. The new link is

Downloadable free in several formats.

Matt Franko said...

Tom here:

Greece gdp e16,300 per... its NOT enough... tax it all from the 1% and create a Picketty utopia and everybody still gets 16,300 per year... its simply not enough to live adequately in 2015 in any western nation.... this is bullshit what is going on over there...

They have to get this up by increasing the leading flow of govt spending in Greece... there is no other way to do it operating under a state currency system.... and dont tell me "lending" as banks cant increase lending if income is not increasing first...


Tom Hickey said...

Corruption is out of control with the wealthy throughout the world. It's virtually legalized under neoliberalism. The result is huge rent extraction (crime is rent extraction, too). Greece is hardly an exception but it is a poster child.

There is no way forward politically without taxing rent and reducing inequality of income and wealth. A government that is a currency sovereign can always accommodate saving desire with deficits but it is not sustainable politically for the simple reason that the wealthy will not permit it. They are fine with increasing their share but the way they do arithmetic, that has to come from someone else's share. If it doesn't, then their share is not big enough.

These people are NEVER satisfied. They don't understand the meaning of enough.They are psychopaths.

Of course it is unnecessary to tax to get money for sovereign currency issuers. But that this not a reason to incentivize rent extraction, corruption and outright crime.

For a functional society either redistribution or predistribution is required. I prefer predistribution but lacking that, redistribution is necessary to avoid social dysfunction, political capture, and hoarding at the top.

Tom Hickey said...

I keep emphasizing that this is essentially political rather than economic.

Neoliberalism is a political theory based on economic liberalism. It is about market rule with the ownership class controlling markets.

"Free market" to them means being able to do what they want free of government control.

"Free market" is often confused with "competitive market."

The last thing the ownership class wants is competitive markets because that squeezes out rent. Extraction is based on market imperfections arising from economic and financial power, and that is based on institutional power.

The neoliberal aim is therefore state capture and over above states through internationalism and transnationalism.

This is blowing up the so-called liberal world order based on democracy.

If it continues, it is going to get ugly.

Unknown said...

Predistribution will not work without bringing back the high marginal income tax brackets and the estate tax brackets of the late 1950's

If you don't have that, the wealth shall accrue to powerful individuals, increasing their power, as well as accumulate over generations, and lead ultimately to feudalism.

Dan Kervick said...

Matt, taxation doesn't just have to be a tool for redistributing income in ways that don't impact the overall growth of income. If you tax wealth and income away from wealth-consuming activities and direct it toward wealth-building activities, you can increase the rate of annual income growth.

I agree Greece also needs a functioning banking system, and the ability to run deficits. If they want to do that while staying in the Eurozone, they are going to need to have the ability to issue and sell low yield debt. The best mechanism would be to have the ECB buy that debt directly, which requires a change in EZ central banking philosophy.

This is about more than Greece. The pressure right now should be placed on the EZ by other global leaders to end the reigning German-inspired philosophy of stabilization through contraction. This has been a disastrous approach that has given the world a weak Eurozone of chronically high unemployment and chronically miniscule average growth rates. This rotten and woefully underperforming economy, which some crazed EU leaders seem willing to label a "success", is acting as a giant weight around the neck of the world economy, and the rest of us simply can't afford it any more. Somebody needs to knock some heads together and force some change before Europe tanks the scuffling global economy.

Letting the Germans succeed in punting Greece out of the EZ might (after a very painful re-adjustment period) help Greece somewhat, but it doesn't do anything about the larger European disaster that the Eurocrat brain trust continues to foist on their strangled continent - and by extension the rest of the world whose economies are interdependent with the European economy.

Tom Hickey said...

Predistribution will not work without bringing back the high marginal income tax brackets and the estate tax brackets of the late 1950's

Or you change institutional rules the prevent rent extraction. This is not about us deserts but unearned gains resulting from social and institutional power.

The problem is that it means changing the very foundations of society. This is going to happen one way other another. The present course is not sustainable. Either corporate state totalitarianism increases as it is now, or the people are going to have to take back power.

BTW, historian Carroll Quigley was convince from his study of history that democracy requires an armed citizenry that is not outgunned by the government, which seldom happens. Many Americans understand that. The problem is now the government greatly outguns citizens going to technological innovation. In addition, unprecedented governmental control is now being exerted through surveillance.

This is a big problem going forward, but so far only "the crazies" has woken up to it.

As global warming bites and resources get scarce, there is going to be conflict over who gets them, and TPTB intend to be the people that decide.

Brian Romanchuk said...


I agree that there is a fundamental problem with short-sighted behaviour by the Greek elites. This cannot be easily changed.

The problem with an increasing role of the Greek government in running businesses is that this runs against EU rules. These interventions will end up looking like non-tariff barriers, and against the rules of the common market. They could only be seriously undertaken if there is a political shift EU-wide, or if Greece exits the EU. The Greeks and Syriza do not want to leave the EU, even if they might be willing to exit the euro. The best that can be done within the system may be to push for supranational investment.

I would split and regain sovereignty, but I have Canadian political instincts, not modern European.

NeilW said...

"If you tax wealth and income away from wealth-consuming activities and direct it toward wealth-building activities, you can increase the rate of annual income growth."

If you have to tax to that extent then you have your economy set up wrong. It is insufficiently competitive and overly concentrated in big oligopolies.

Taxation for redistribution represents a system failure. A failure to have competitive markets that largely do the job for you.

Plus there is the simple political problem. If you try and soak the rich, they will use their wealth to stop you and you become just another sad socialist/marxist ranting from the sidelines.

The trick with all these changes is to find some nearly rich people that are being prevented from getting on by the very rich and promise that they will be the new very rich. They then fund you to make the changes necessary to cripple the very rich and get them out of the way so the newly very rich can take their place.

The changes necessary are to become pro-market rather than pro-business, with a bubble up philosophy. Those that get rich from that are those providing real things that people at the bottom need and those doing the R&D necessary to make the production more effective.

MMT shows that if you put the banks in a box that frees up massive amounts of space for tax cuts and spending. So you clip the vampire squid wings of the finance sector and move the velocity elsewhere in the economy. It is the people in that elsewhere position that you need to talk to promising them riches beyond their wildest dreams - if only they will fund the political philosophy.

Tax and spend and infrastructure spending are the misguided policies of the past. They have never got any traction and they never will except amongst the terminally angry.

To get a political philosophy in place you need to identify who you will promote to be the new owners of Downton Abbey.

Matt Franko said...

"If you tax wealth and income away from wealth-consuming activities and direct it toward wealth-building activities, you can increase the rate of annual income growth."

Dan this is sounding a bit 'perpetual motion machine' like... the income growth has to come from somewhere, under a state currency system it has to come from increases in leading govt spending (no one can go out and dig up gold....) ... 'savings' is not a 'wealth consuming activity'... for various reasons many people like to save they should be accommodated (even tho I would remind them that they cant take it with them, "like a camel thru the eye of the needle", etc...)


Matt Franko said...

Look this is Bill from today (via the NIA framework emphasis mine):

"To repeat myself (for the nth time, where n is a large number):

A basic rule of macroeconomics is that spending equals income, which leads to output and employment.

Someone’s spending is another person’s income. There has to be growth in spending for income and output to grow.

If there is unemployment it means that total spending is insufficient to generate enough output and hence jobs to satisfy the preferences for work of the unemployed.

The solution is always for the government to either directly increase spending to lift sales in the private sector and stimulate further income and/or to cut taxes, which might lead to higher private spending."

Pretty simple. This should not be hard to understand if you are not a libertarian... rsp,

Dan Kervick said...

Matt, I think when I use terms like "income", "savings" and "wealth", you are thinking about money, and I am talking about other kinds of stuff.

Consider the global economy as a whole. Clearly it can and does grow over time. It adds to its wealth. Does that wealth have to come from somewhere outside the economy? No. There is no outside.

What makes the difference between a global economy that is growing robustly and one that is stagnant? The difference lies in the degree to which existing wealth is being invested in the generation of more wealth, versus the degree to which that wealth is either being (i) saved without being invested, or (ii) consumed.

This is not perpetual motion. This is just the standard economics of growth and wealth creation. It has nothing to do with money. You can read and understand the description above without employing monetary concepts. Despite the fact that money is an extremely important part of modern economic systems, most economic processes are not monetary processes. Money isn't want you eat, live in, drive in or sleep on. And for most of us, money isn't the stuff that our jobs directly make.

A lot of people in the MMT community seem to come from the worlds of banking, money managing or money trading. That's a very useful and important perspective. But it can also lead to paying to much attention to a lot of the green foam that floats on top of the economy and not the underlying economy itself.

Dan Kervick said...

If you have to tax to that extent then you have your economy set up wrong. It is insufficiently competitive and overly concentrated in big oligopolies.

Well, yes, it does mean that it is set up wrong Neil. Greece's economy is fantastically weak and inefficient and needs to be set up better. It's not just a matter of too many oligopolies, but poor and ineffective government, widespread corruption, waste, severe under-investment. Greece needs an activist government with a real plan to transform Greece and make it stronger.

Dan Kervick said...

The solution is always for the government to either directly increase spending to lift sales in the private sector and stimulate further income and/or to cut taxes, which might lead to higher private spending.

One way the government can increase spending is to tax wealth from people who are not spending it, or who are not spending it wisely, and to then spend that wealth, or at least spend it more wisely.

Ignacio said...

Dan is right, we are not producing enough energy in a sustainable manner to offset entropy right now. This is the #1 problem for humanity right now on the "middle term" (this century). It's an engineering and physics problem, not financial, not economics.

That said, the short term (#2) problem in Europe (and elsewhere) is that we have too many idiots in charge. Without understanding that we are not running out of money neither we can, the #1 problem cannot, ever, be solved. As it requires investment and organization in a level not seen since WWII, but probably one order of magnitude or two higher. The challenge is huge for us humans.

But if we cannot tackle problem #2 caused by ordoliberals and completely illiterate population we are doomed.