An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
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Friday, March 9, 2012
Ron Paul's does crazy on CNBC
Ron Paul was interviewed on CNBC this morning by Melissa Lee and Brian Sullivan. They gave him a total pass on his horribly flawed economic "logic."
Here are his main points and in italics I write what I would have said in response.
On the payroll gains Paul says, "I see these as blips,"
So, the jobs and income are not real to the people who have them?
"what about the person who wants to save and take care of their future? There’s no incentive there,"
For every saver there is a borrower. It's helping them.
"Why make the elderly suffer? They say that’s the price they have to pay.
Yet he is for eliminating Social Security and other social programs along with government spending almost completely. How does that help the elderly?
He would also let the market set interest rates instead of the Fed,
If the Fed/Treasury stepped out of the rate setting business, then US dollar interest rates would quickly go to zero (something he hates). The very fact that the US issues its own money necessitates reserve drains to keep rates above zero.
"When you keep interest rates at zero percent, isn't that a bit of quantitative easing?
QE is expansion of the Fed's balance sheet. Asset purchases. It's different than ZIRP.
The whole concept is wrong. There’s a lot of credit out there, but it’s being allocated by Congress. It completely distorts the market when you should be getting capital from savings and allocation of credit from the private sector.
The private sector would have no net dollar savings to lend unless the gov't runs a deficit. It therefore cannot lend, even if it wanted to. And who says it's better for it to be dictated solely by the private sector? That's his belief. It's not a fact.
"You have to get rid of the debt if you want economic growth again," he said.
They're getting rid of debt in Europe and growth is collapsing.
100% moron. He shouldn't be allowed anywhere near the authorities of civil government...
ReplyDeleteResp,
@Matt F,
ReplyDeleteI agree!
After attempting to read Ron Paul's book 'End the Fed', I could not bring myself to complete that confused scribble.
if he would become President then thousands of people would be killed in riots and caos caused by economic collapse
ReplyDeleteHe remembers the Coinage Act of of 1792, as our Forefathers, unlike yourselves, actually understood what causes countries and Empires to fail. You have to go back longer than a decade Matt, so this is over your head. By the way, Have you found the answer to how many times France has gone tits up financially over the last several hundred years? I rest my case, as you have no sense of history as linear thinking doesn't allow otherwise.
ReplyDeleteAll the while as Melissa Lee gushed, "Oh, Representative Paul, that's why we love having you on so much. You give such a fresh perspective."
ReplyDeleteFresh perspective, indeed!
Anon,
ReplyDeleteRest what case?
You never proved anything. We TOLD you that in the French instances you mentioned, the money had convertibility. That's what doomed it.
If you insist on repeating uninformed nonsense then we will stop trying to educate you.
> If the Fed/Treasury stepped out of the rate setting business, then US dollar interest rates would quickly go to zero (something he hates). The very fact that the US issues its own money necessitates reserve drains to keep rates above zero.
ReplyDeleteWhy do you think this is true? Basically, you're saying that if the Fed went away, government bond interest rates will fall to zero? (bond prices will rise?)
I also assume that in your "no Fed" thought experiment, Congress (or the Treasury, or the Easter bunny) is still doing net money drops into bank accounts. That is, taxes are not offsetting government drops. Is this true?
Are the net money drops *required* to make interest rates drop to zero? Would a scenario with offsetting taxes have high interest rates on government bonds?
Marris,
ReplyDeletePls see here:
http://moslereconomics.com/wp-content/graphs/2009/07/natural-rate-is-zero.PDF
Resp,
Based on the fact that over the past 224 years the U.S. has pretty much always run a deficit (creating net NFA), taxes notwithstanding, then rates would trend to zero.
ReplyDelete> Based on the fact that over the past 224 years the U.S...
ReplyDeleteI don't get it. The rates have not trended toward any asymptotic value. They have been quite volatile.
@Matt
Thanks, I'd forgotten about that paper. I remember reading it once and being very confused by the leaps between "what is" and "what ought to be." That's actually one of the reasons I prefer the MMR guys... they tend to be much more careful.
is it possible to idolise melissa lee without considering her to be a source of worthwhile analysis? My p says yes.
ReplyDeletemarris,
ReplyDeleteMMR is based on that paper.
I thougt interest rates would only fall to zero if the govt deficit spent without issuing bonds. If the govt carried on issuing bonds as it does now and the fed didn't intervene at all then I would have thought that the interest rate would keep going up, because the quantity of reserves would never increase. Is this incorrect?
ReplyDeleteAnonymous, the central bank always as the option to set the overnight interest rate and it has options for doing this, namely paying interest on reserves (IOR) equal to the target rate or else draining excess reserves and adjusting the quantity of reserves through OMO so that it can hit its target rate. That is to say, if the cb does not pay IOR and doesn't drain enough reserves, then the rate for reserves in the overnight market would tend to drop below the target rate.
ReplyDeleteAnother option the cb has is to set the target to zero, which is the "natural rate" (Mosler) in that government generally run deficits so that there are always excess reserves, which drives the overnight rate to zero.
If the cb chooses not to set the target to zero or to pay reserves then it needs to drain reserves and tsy issuance is a chief tool in doing that. If the cb chooses to pay IOR or set the rate to zero, then tsy issuance is not needed to drain excess reserves to hit the target.
In a convertible fixed rate system the cb has to manage the interest rate to ensure that tsy issuance is attractive enough to attract borrowers that would otherwise convert the currency to the numeraire, formerly gold but often also silver historically.
A non-convertible floating rate system opens policy space to conduct monetary policy independently in that reserve issuance is at the discretion of the cb without concern from maintaining a fixed rate beyond its control, e.g., the amount of gold holdings backing convertibility.
Anonymous March 9, 2012 1:16 PM: By the way, Have you found the answer to how many times France has gone tits up financially over the last several hundred years?
ReplyDeleteHow many times has the human race run out of numbers in the last several millennia? That's when it's really time to worry. :-)
Tom, here's my simple understanding:
ReplyDeleteAs banks create more credit, in order for the CB to keep the interest rate at its set target, it has to introduce additional reserves by buying bonds from banks. If it didn't do this, and did nothing else to control the rate, the interest rate would go up over time, as the same quantity of reserves would be 'backing' ever increasing quantities of credit. Eventually banks would have to stop issuing credit or the system would probably eventually collapse. Is this completely wrong?
Under the former system, before the Fed introduced IOR, it uses open marktet operations (OMO) to adjust the amount of excess reserves available in the interbank system by buying tsys to increase bank reserves and selling tsys to decrease them, depending on the need at the time to adjust reserve quantity to hit the target rate (price). This is exercising control as the currency monopolist, since the cb is the sole provider of reserves.
ReplyDeleteI really wonder how Paul has managed to build a little cult based solely on how he supposedly speaks the truth. Because everything he says about the economy is wrong! Either he's just as mendacious as any other career pol or he's the longest serving moron in Congress.
ReplyDelete