Tuesday, August 6, 2019

Peter Tasker - Modern Monetary Theory threatens revolution in economic thinking

Proponents advise printing money until inflation hits and approve of Abenomics


Could a revolution be coming in economic thinking? MMT...

Does the Japanese experience validate MMT, as Professor Kelton implied? Perhaps. It certainly raises serious doubts about the "fiscal discipline" strongly advocated by Kenneth Rogoff, Christine Lagarde and many other experts and policymakers since the global financial crisis of 2008.

For Japan has been running large fiscal deficits for more than 20 years and has consequently amassed a Mount Fuji-sized pile of outstanding government debt, equivalent to 250% of Japanese GDP, according to Japan's Ministry of Finance.
Far from triggering a bond market rebellion and soaring interest rates, as doomsters consistently predicted, Japanese interest rates have fallen to vanishing point.

Since the start of Abenomics in 2013, the story gets even more interesting. Thanks to the quantitative easing program of bond purchases introduced by Kuroda, 40% of all outstanding Japanese government bonds now sit on the BOJ balance sheet.

In other words, one arm of government owes a vast sum of money to another arm of government -- which means that no debtor-creditor relationship exists. Despite the strident disclaimers of the Japanese authorities, this is not far removed from the world of MMT.

Asain Review 

4 comments:

Calgacus said...

Kelton should mention Takahashi Korekiyo - maybe she has? (Checked, billyblog has a blog on him, but aside from a few tweets to, not from Kelton, doesn't seem like she has mentioned him.)

From wikipedia:

Ben Bernanke, chairman of the United States Federal Reserve, characterized Takahashi as a man who "brilliantly rescued Japan from the Great Depression", and Japanese prime minister Shinzō Abe cited Takahashi as an inspiration for his Abenomics policies.
They're right, though Abe should have drawn a lot more inspiration.

On the other hand, Bank of Japan president Masaaki Shirakawa characterized Takahashi's policies of central bank support for the government as a "bitter experience", and in 1982 the Bank of Japan itself characterized Takahashi's Depression-era policies as "the bank's biggest mistake in its 100-year history"

In other words, "We have no idea what we are doing or anything else, but listen to us, since we have fancy titles and nice clothes."

Matt Franko said...

"thanks to the quantitative easing program of bond purchases introduced by Kuroda, 40% of all outstanding Japanese government bonds now sit on the BOJ balance sheet.

In other words, one arm of government owes a vast sum of money to another arm of government -- which means that no debtor-creditor relationship exists. "

Wrong.... journo...

The CB still has a liability to the non-govt depositories... the depositories then have these CB liabilities as a LHS entry of Reserve Assets which are regulated like any other asset of the depositories... which is where the problems then start...

Calgacus said...

The CB still has a liability to the non-govt depositories
He's not talking about that. His statement is correct.

Matt Franko said...

Error of omission...