Pairagraph
How Many More Trillions Before the Debt Triggers a Crisis?
John B. Taylor versus Stephanie Kelton
https://www.pairagraph.com/dialogue/b9a947704c0a4ae19dd8af3056808432/2
Wednesday, June 8, 2022
How Many More Trillions Before the Debt Triggers a Crisis? — John B. Taylor versus Stephanie Kelton
Newly launched Pairagraph pairs John B. Taylor and Stephanie Kelton in a "debate" in a very limited scope. It's an interesting format but it doesn't provide too much more space than a Twitter extended thread.
Pairagraph
How Many More Trillions Before the Debt Triggers a Crisis?
John B. Taylor versus Stephanie Kelton
Pairagraph
How Many More Trillions Before the Debt Triggers a Crisis?
John B. Taylor versus Stephanie Kelton
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23 comments:
If Stephanie Kelton manages to teach John B. Taylor how to tie his shoes (i.e. what is MMT), the debate can begin.
“ Further, with the abandonment of the gold standard and the shift to paying interest on reserves, I see no compelling reason for the continued matching of government deficits with new bond sales.”
Where does she think the Fed is going to get the USD balances to be able to pay the IOR if the Treasury doesn’t issue positive yield bonds for the Fed to purchase?
“If Stephanie Kelton manages to teach John B. Taylor how to tie his shoes (i.e. what is MMT), the debate can begin.”
You have no clue how the dialogic method works…. Back to Plato for you….
Here this is what the website says it is:
“ What Is Pairagraph?
Pairagraph is a platform for written dialogue between pairs of individuals.”
Nobody is trying to teach (didacticism) anybody anything…. They are creating a dialogue for others to observe…!
"Where does she think the Fed is going to get the USD balances to be able to pay the IOR if the Treasury doesn’t issue positive yield bonds for the Fed to purchase?"
The Fed can run negative equity, sell equity to Treasury, drop rates to zero, or charge a fee to the banks it regulates.
It's not hard. It's just journal entries that have no control function - because the Fed is a agency of the state that is mandated to exist by law.
They can’t run negative equity that is technical insolvency… Treasury has no balances to use to buy any equity other than what is in TGA which is already a Fed liability… and why pay banks IOR if they would just debit it back with some sort of fee?
Current system works just fine why not just leave it alone but not have stupid people operate it?
Wouldn’t that be easier?
Neil why doesn’t the BOE just run negative equity?
Negative equity is technically insolvency and it is generally taught (didactically) to be avoided…
https://thehill.com/opinion/finance/382629-slick-accounting-at-the-federal-reserve-could-prove-disastrous/
“ So the Fed would send the debit to an accounting “deferred asset” instead, which hides the loss and overstates capital. Harshly described, for ordinary banks, this would be called accounting fraud.”
Might be illegal under GAAP….
In any case would cause a political shit storm…. no bueno…
"Neil why doesn’t the BOE just run negative equity?"
It does, but has a mechanism to hide it via a recapitalisation process with HM Treasury. That shifts the negative equity to the Consolidated Fund where it is hidden because the CF only issues a cashflow statement not a balance sheet.
No it doesn’t they get a recapitalization… you say so right here..
"They can’t run negative equity that is technical insolvency"
Fed can't be insolvent. There's no mechanism in law for it to be so. As I said it is mandated to exist as a creature of Congress. So it will - regardless of whether 'equity' is on the left or right hand side of the balance sheet.
"Treasury has no balances to use to buy any equity other than what is in TGA which is already a Fed liability"
Yet it can issue bonds - which are those balances. Because bonds are just money in a different form. So it just pays the Fed, from the additional taxes induces by the Fed's interest payments - or it cuts spending accordingly.
It's no different from Treasury paying interest directly to the banks, which is all bonds do.
There's no magic here. It's just a change of fixed term fixed rate debt into at call floating rate debt.
"No it doesn’t they get a recapitalization… you say so right here."
HM Treasury owns the Bank of England outright. It's a subsidiary. The 'recapitalisation' disappears under the rules of IFRS 10.
Rather than splitting hairs, it's time to think in system terms. Who gets to say 'no' and make it stick?
There's no law, and no enforcement mechanism that will prevent it happening. Therefore it can happen.
Don't turn into a JB Hearn - getting hung up over semantics that are meaningless in the real world.
eg right now Fed has TGA liability of $750B so if they were to do an entry where they would credit TGA for -750B and then credit Fed equity account for +750B then Fed would have +750B equity and Treasury would have 0 USD balance available…
Fed would be fine for a long time…
BUT, we have A LAW that says Fed equity cannot exceed 8B at any time,,, if over 8B then the excess equity has to be timely transferred to TGA,,,
So we have to work within the law.,, we have to operate LEGALLY….
The rule in kindergarten is you have to tie your shoes. Else, no dialog, no debate, and no fun.
Stephanie Kelton may have more productive things to do, than lead a LOLbertarian toddler by the hand...
"We have A LAW that says Fed equity cannot exceed 8B at any time,,, if over 8B then the excess equity has to be timely transferred to TGA"
The IF part doesn't make it sound much of a LAW and the IF sounds as though the CANNOT part is redundant ?
And TIMELY ?
Sounds like international law to me and useless without enforcement and who has the most tanks and missiles make it stick.
Why most laws are written in 12th century archaic, triangulation language. So that when you read the actual law 8 different judges can make 8 different cases out of the same 10 paragraphs of language.
Fed equity cannot exceed 8B at any time.
Now that's what I would call a clear and simple law everyone knows where they stand.
Not
FED equity has exceeded $600 trillion and as it has went over 8 billion it needs to be returned in a timely manner.
Is that a law it is not trying to prevent anything and open to interpretation. Probably designed specifically for that purpose.
Get 100 lawyers in a room and it will cost you a fortune to find out and still won't get an answer.
How the law works most of the time unless a precedent has been set. Even those are subject to exceptions.
¯\_(ツ)_/¯
If you don't want something to go over a limit then you do the down before the up.
Pay the banks, then backfill from the TGA. Then the paying the banks generates additional tax that clears the TGA - because interest is government spending.
Breathe in before you breathe out.
It'll all be about comparing end of day balances anyway.
TGA won’t have a positive balance unless Tsy issues bonds…,
TGA won’t have a positive balance unless Tsy issues bonds…,
Mosler's proposal is no interest rate setting, provision of unlimited liquidity as zero interest, and issuance of very short term tsys that pay little interest and are essentially cash equivalents, ideally also folding the CB into the Treasury since it is redundant.
That is to say, jettison monetarism for the boondoggle it is.
Current system works just fine only problem it is operated and administered by fellow Art Degree morons who in reification fallacy think Accounting abstractions are real and ex post Accounting identities are functional equations…
Just get rid of these people…
“Personnel is policy”…, “garbage in garbage out”….. “you are who your record says you are”… etc…
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