Adair Turner has just released a new paper – The Case for Monetary Finance – An Essentially Political Issue – which he presented at the 16th Jacques Polak Annual Research Conference, hosted by the IMF in Washington on November 5-6, 2015. The New Yorker columnist John Cassidy decided to weigh into this topic in his recent article (November 23, 2015) – Printing Money. The topic is, of course, what we now call Overt Monetary Financing (OMF), which simply means that all of the unnecessary hoopla of governments matching their deficit spending with bond-issuance to the private bond markets, as if the latter are funding the former, is dispensed with. That artefact from the fixed exchange rate Bretton Woods system is maintained as a voluntary procedure by fiat-currency issuing governments but only provides financial assets to the non-government sector in the form of ‘corporate welfare’. The debt issuance of debt has nothing to do with funding the spending and is used by all and sundry to attack such spending for creating so-called ‘debt mountains’. OMF brings together the central bank and the treasury functions of government into a coherent framework whereby the central bank merely credits private bank accounts on behalf of the government to indicate the spending initiatives implemented by the Treasury.…Bill Mitchell – billy blog
Overt Monetary Financing – again
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
7 comments:
Although some MMTers are in favor of some kind of OMF if it is called that, when it is called something else (e.g., sovereign money, digital greenbacks etc,) they do not seem onboard. The main split is whether private credit money should be allowed simultaneously. I still think Steve Keen's work especially demonstrates the dangers in private credit money. I explore these issues here
Endogenous Money, MMT, Positive Money, & Financial Reform
(Of course Neil will chime in that pure OMF is a nefarious plot by bankers to rule the poor by elites, as if that is not the case now. Sigh...)
Tradeoffs.
What is one willing to trade to get what?
Parties differ on that for a variety of reasons since there is no agreed upon criterion for an optimal alternative to the existing system.
Tom. Agreed. But I would still like to hear a crystal clear exposition of why MMT does not think State Money should be a true monopoly, w/o private credit money doing what I think Keen's work clearly shows it does.
The basic tradeoff is between state power and private power. Some that that all power should reside with the private sector with the state merely a "nightwatchman." Others think that a republic is democratic enough to trust all power to the state. The middle ground is a balance of power between the state and private sector.
There are a lot of options along this range.
The choices on the table are a technocratic control of money creation in the side of government as exclusive, that is, the various "full reserve" plans. At the other end of the spectrum it the Libertarian proposal for abolishing central banking and fractional reserve, and going to free banking and gold backing, with a return to the bullion standard for international trade.
Another choice is keeping the existing system.
Some MMT proponents have put forward other views. Warren Mosler proposes keeping the existing system of reducing the power of the banking and financial system with tighter regulation and oversight, e.g., regulating private credit extension for the asset side of the balance sheet.
Bill Mitchell would address it by nationalizing the banking system and operating.
The basic criticism that MMT economists have made of the various proposals is that the proponents of the those views are confused.
"The main split is whether private credit money should be allowed simultaneously."
It's not a matter of whether it is allowed. It is simply that you cannot stop it from being allowed and it is delusional to think you can. It's entirely an illusion of the mind - like free-markets.
There is no operational difference between a insured system and an in-specie system. No additional control points. Nothing.
Complete waste of time and money thinking about it.
"Neil will chime in that pure OMF is a nefarious plot by bankers to rule the poor by elites"
Which is of course a straw man that you have invented.
Do you want the level of government spending to be decided by elected representatives in a parliament - who you can then fire if they get it wrong via the ballot box. Or do you want it deciding by unelected technocrat Lords, like Baron Turner of Ecchinswell, who you can't.
The question is simple. Why is the normal process of parliamentary or congressional scrutiny insufficient to deal with financial issues, but perfectly ok when it comes to the death penalty, public health or education?
The amount of public spending and the resources commanded by the state is a completely separate issue from 'full reserve' banking. You can easily limit the banks by simply proscribing what they can and can't lend for (with any other type of loan 'unenforceable'). That disciplines the asset side and makes loads of space for public spending/reduction in taxation. Very easy, very direct and it works.
Putting the price up of banking simply doesn't work - the same as all other liability side ideas like capital values and liquidity ratios. And that's because they are indirect *market-based* solutions that rely upon free-market principles to work. And those principles don't work like the models say they should.
So not only is the centralised money idea the wrong answer, it's ultimately the wrong answer to the wrong question.
"Do you want the level of government spending to be decided by elected representatives in a parliament - who you can then fire if they get it wrong via the ballot box. Or do you want it deciding by unelected technocrat Lords, like Baron Turner of Ecchinswell, who you can't."
Neil - PM explains exactly how the level would be chosen - as that closest to creating full employment without causing inflation. The AMOUNT following this formula, with the way it is spent entirely by congress/parliament.
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