Sunday, September 9, 2018

Deficit balloons to $980 bln. Where are all the MMT gods cheering this??

A giant end-of-month spending spree in August has ballooned the Federal defiicit to $980 bln and 4.8% of GDP.

This is the largest nominal deficit since 2009 and the largest as a percentage of GDP since 2012.

The MMT gods should be cheering this. They're not. Weird.

deficit, Federal deficit, money printing, economic boom

deficit, US deficit, money printing, economy, economic boom






11 comments:

myxzptlk said...

If my understanding is correct, MMT doesn't argue that every deficit is good. It argues that deficits that promote growth and don't undermine economic confidence are good. So I would expect Stephanie Kelton et al to cheer current deficit spending only to the extent that it bolsters economic confidence. Clearly, market reactions to Trump's tariffs (even if their impacts are small) are undermining economic confidence. It's the psychological impact, not the economic impact, that matters.

Detroit Dan said...

Right. Plus MMTers are clear that deficits which increase income inequality (as from the recent tax cuts) may not provide much of a boost to the economy as most additional income is simple reinvested in existing financial assets, driving their prices up but not increasing consumption or real investment.Eventually asset prices realign with underlying consumption and that will be negative. So not a good deficit on balance.

Ralph Musgrave said...

Can we have a link to where that came from - so I can give someone a kick in the whatisits....:-)

Ralph Musgrave said...

MMTers aren’t celebrating the current large deficit because large deficits are not needed when the economy is at or near capacity, which is where it is now. In fact when THERE ARE large deficits in that scenario, the Fed has to counteract the resultant excess demand with interest rate rises, which all told is a fatuous exercise. I.e. what’s the point in creating and spending so much new base money into the economy that the state (i.e. government and central bank) then has to borrow some of it back to curb demand? The only net effect is an entirely artificial rise in interest rates.

That all supports the point made by Warren Mosler, Bill Mitchell and others that enough base money should be created to keep the economy at capacity, but not so much that government then has to borrow some of it back. I.e. the state should pay no interest to anyone (unless there are particularly good reasons for government borrowing, and I don’t know what they are). I.e. Mosler’s “permanent zero interest rate” policy looks to me like being correct.

Michael Norman said...

Ralph,

I compile this from data from the Daily Treasury Statement, which I analyze DAILY. The Treasury will post these figures later this month. My work is ahead of theirs.

You can use my charts. They are correct.

Chewitup said...

I don’t think we’re near capacity at all. Labor participation and job security are too low. We are still in supply side mode. Trickle down takes a long time to create warmth. Especially when so much of the deficit is spent on defense.
As to why the mainstream MMTers are not citing the deficit- they are all Democrats. (Mike and Matt do not count). The best you can get is Stephanie Kelton admonishing Nancy Pelosi for her paygo policy.

Tom Hickey said...

The chatter is now mostly on Twitter and a bit on FB. The major contributor is Stephanie Kelton and she is assuming an increasingly political stance in keeping with her role as an economic advisor to progressive Democratic candidates.

Scott Fullwiler recently tweeted to the effect that they have matured politically and are not going to more active in engaging on economic policy this cycle.

Obviously, Twitter and FB don't provide the kind of space for detail that even blogging does. But the only MMT economist that blogs regularly is Bill Mitchell, and I am not posting things that occur on social media. If you are interested, follow the relevant parties.

Mike Norman is the only economist that is talking about the details of MMT wrt the economy and finance in a practical way. To follow him, follow his YouTube channel and subscribe to his news service, which includes a weekly newsletter and copious email updates. For anyone seriously interested in MMT and active in markets, this is a must from the MMT POV. I wish I had had this when I was trading years ago and spending a lot of $ on services that turned out to be worthless or worse.

And you will learn a lot about what Mike calls "the mental game." Mastering the mental game is a requisite for success in life. There are many ways to do this — marital arts, sports, competition chess, etc. With trading, your money is on the line and short of your life being on the line, as in the military on the front, it's the best way to learn the mental game — but, like the special forces or even infantry, it is not for everyone.

Disclosure: I receive a complimentary copy of Mike's advisory service. I have no financial interest in this in any way.

Tom Hickey said...

I don’t think we’re near capacity at all. Labor participation and job security are too low. We are still in supply side mode. Trickle down takes a long time to create warmth. Especially when so much of the deficit is spent on defense

It's all in the flows. This why the numbers have to be deconstructed to determine consumption-saving patterns and multipliers. The raw deficit is not indicative of everything, and the MMT economists would not claim it is. They distinguish good deficits leading to economic optimization from bad deficit that grow themselves without affecting public purpose positively, resulting in drag rather than real improvement.

Tom Hickey said...

BTW, I should add to the above that Mike has a video course, Understanding the Daily Treasury Statement, which shows one how to derive the numbers from the statement as he did above in the post. More at Pit Bull Economics/.

John said...

Tom,

I've always wanted to ask the following about Mike's course. MIKE, FEEL FREE TO DELETE THIS IF I'M TALKING OUT OF MY ARSE/ASS.

The major issue for me is that Mike's course is on the Oanda a platform. Like all the very many similar forex platforms, these aren't exchanges. Anything that isn't an exchange is little more than a bucket shop, and susceptible to any number of shenanigans, as a friend of mine explained.

The only thing that makes sense is to trade on a proper exchange, again according to my friend. As far as I am aware, exchanges require a bit more money (not necessarily a lot more or even a bad thing), but more than anything else they don't do the kind of trading Mike does. It's all futures trading, and that's something Mike doesn't teach, as far as I am aware. A friend of mine, and my so-called "landlord" who has "rented" me one of his many homes for literally nothing (well, £1 a year because of the principle, mine not his, since he wasn't prepared to take anything more) because he's so damn rich, who bought the course said it's not particularly useful, unless you're willing to throw your money into a bucket shop, essentially down the toilet. Perhaps he's wrong. I'd like to surprise him with some good news: he can become even richer than filthy rich!

Plus my uncle left me a surprisingly large amount of money in his will recently. Should I pay off my student loans or dabble in the markets! So I may take up Mike's course, although my newfound inheritance will also mean leaving this lovely house for something more fitting my financial status.

Tom Hickey said...

John,

This is beyond my ability to comment on. You should contact Mike directly and he will explain it to you based on decades of being involved in markets at all levels from trading in the pit to chief economist of a major Wall Street firm. His contact into is on the left of the main page.

I took Mike's futures course live and I thought it was great. I joined Oanda since one needs the info there to follow the course. The exchanges don't provide that, and it's free. I didn't see any issues with Oanda.

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Footnotes
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https://www.quora.com/Is-OANDA-a-reliable-Forex-broker-for-an-American-resident