There is a lot I agree with written here by Farrell as far as the conclusions that Graeber reaches and evidence of causation. But both of these authors would perhaps gain significant insight via a thorough reading into MMT. Here is an excerpt from Farrell's review that brings in the current situation of Greece within the Eurozone:
It doesn’t explain the relevant relationships – seignorage, contra Graeber is not really a form of tribute, and thinking of it as same doesn’t really get us very far. Finally, and most crucially, it doesn’t explain the kinds of coercion that both the US and market actors can exert. Greece is not suffering today because the US will invade it if it defaults, or even because Panzers are going to start rolling towards the Aegean. It’s suffering because of a combination of more subtle forms of coercion, including the usual anodyne formulation of ‘market forces’ (which are not, contra Graeber, conditioned on the military might of powerful states such as the US, but exercise an influence all of their own).Both Graeber and Farrell recognize that there is something very wrong with the current arrangements that Greece is operating under, but both miss the more accurate MMT explanation of what is really the problem with the current arrangements in Greece which are leading to the turmoil and chaos.
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ReplyDeleteThe current problems are caused by fraud and conspiracy to commit fraud on the American Taxpayer. The RICO Statutes could and should be used in America, and we need a Pecora Commission to do a forensic analysis of the various crimes so that people go to jail and the authorities do clawbacks on all the loot that was thieved away by the bankers.
ReplyDeleteThe number of explanation of what is going on in Greece are many. The latest focuses at lack of competitiveness. But lack of competitiveness can't explain why Greece's government is effectively insolvent.
ReplyDeleteGreece's total desired amount of government spending is not out of line with its national output. The main problem is just that Greece doesn't collect enough taxes.
As a currency user rather than a sovereign currency issuer, Greece needs to finance its government spending from taxes or borrowing. Greece's tax revenues are only 33.5% of GDP. Everyone else in the Eurozone seems to be somewhere between 40% and 50% of GDP. But Greek government spending as a percentage of GDP seems to be in line with other Eurozone countries, and actually lower than many. The size of its government sector is entirely appropriate and proportionate given the size of its economy.
So even if Greece is not very competitive in the Eurozone, it is competitive and productive enough to support the size of the government it has chosen. But it needs to tax some of its people more to pay for that government.
The structural readjustments it needs will never come from an austerity program which, while it is shrinking government spending is also pounding away at government revenues at the same time. The ECB should be replacing private bank financing of the Greek government with ECB financing so that the country can maintain spending and expand its tax collections in the context of a growing economy, and grow itself into a sustainable position with respect to its tax/spending ratio.
MMT sometimes always doesn't talk as much about this as it should. But that's because the MMT discussion tends to be dominated by folks in the US, Australia, Canada and UK, which are sovereign currency issuers. So our challenges are different than the Greek challenge.
Let me mention that this ties in with Greece because Goldman Sucks colluded with the Govt. of Greece to hide Greece's real fiscal and monetary madness until after Greece was allowed into the EMU.
ReplyDeleteI hope Graeber rethinks his critique of seignorage. Seinorage power is possessed by any currency issuer and consists in the fact that the cost of issuing a new unit of the currency is always lower than the the value that that new unit of currency will purchase in the market.
ReplyDeleteIn modern fiat monetary systems, the rate of seignorage on currency issue is almost the entire purchasing power of the currency, since issuing new units of currency costs no more than it costs to mark up accounts electronically.
This is a great thing for a democratic public that maintains a currency monopoly. While we do have to attend to monetary phenomena and make sure that our net creation of financial assets is not inflationary too inflationary, we can usually use our seignorage power to make purchases for the public sector and stimulate added consumption and production in a way that creates much more real value than is drained by inflation.
Dan great insights as usual.
ReplyDeleteAnon, see what you're saying wrt fraud and jail for the fraudsters. But no crime can be big enough so that here in the US 20M people can get thrown out of their jobs. This level of unemployment can only result from a level of overall incompetence of govt authority that is much greater than just the area of law enforcement... our morons in authority do not know what they are doing at all levels and areas of economic policy.
Resp,
UMKC profs Bill Black has been pounding on this for some time, and Randy has picked up on too. Again, MMT is on the case, and in this case, it is one of the most vocal.
ReplyDeleteThanks Matt.
ReplyDeleteInteresting piece by Gavyn Davis today in the Financial Times. Further evidence that core insights of MMT are penetrating the mainstream:
It is now widely recognised that a central bank cannot become insolvent in the same way that a private company can. Even if it incurs losses on its assets which more than completely eliminate its equity, it can never find itself in a position where it is unable to settle its debts, at least in its own domestic currency. Most of the liabilities of a central bank come in one of two forms: banknotes, and commercial banks’ deposits at the central bank. It is impossible for the private sector to force the central bank to exchange these assets for any other asset (like gold, for instance), and in any event the central bank can create more of each of them at will. Hence it can never become illiquid.
http://blogs.ft.com/gavyndavies/2012/03/04/ecb-liquidity-is-not-a-free-lunch/#ixzz1oAdwusTZ
I tweeted the link at both Davies and Warren Mosler in hopes of prompting some debate and engagement on the topic.
Warren - and Mike Norman our host - have argued persuasively that there is little empirical evidence that QE/LTRO style liquidity injections are inflationary since are swaps of one financial asset for another, that remove future interest income at the same time that they inject liquidity. And since they occur at market prices they are basically even exchanges.
But there are a few issues worth more discussion: Timing and the impact on the treasury.
"This is a great thing for a democratic public that maintains a currency monopoly. While we do have to attend to monetary phenomena and make sure that our net creation of financial assets is not inflationary too inflationary, we can usually use our seignorage power to make purchases for the public sector and stimulate added consumption and production in a way that creates much more real value than is drained by inflation."
ReplyDeleteWe had our inflation already,and you missed it. We had asset inflation without corresponding wage inflation for 30 years. For thirty years we have borrowed more than we have produced as a nation. What's left now is the debt that must be paid or defaulted on. We are fighting about who must take the loss that occurred when the loans were made. No more and no less.
As far as issuing our own currency and reserve status, things change. We don't live in a linear world where everything remains the same forever. Empires come and go with currency debasement and finally destruction as a large contributing factor. History says this, and not me. We, Taxpayers by way of the FED, are currently purchasing 90% of all long term paper because there is no demand for our paper at current rates. I guess this is also a healthy sign? One chart says it all. Argue with it and exponential math.
http://market-ticker.denninger.net/akcs-www?get_gallerynr=2772
Anon,
ReplyDeleteYour words here: " For thirty years we have borrowed more than we have produced as a nation."
C'mon think about this... THIS IS IMPOSSIBLE.
How can a nation borrow more than it produces?????
Dan, I promoted your comment to a post.
ReplyDelete" For thirty years we have borrowed more than we have produced as a nation."
ReplyDeleteLet's see now, add up GDP for 30 years and also accumulated tsys issuance held by non-government now, which is the "debt" remaining. Of course, this is not actually debt in the sense of obligated revenue, since all that is obligated is a switch of the non-government held tsys to reserves, of which the Fed has an infinite supply hidden in its keyboard.
Someone tell Karl we aren't are the gold standard anymore and haven't been for decades. He is way behind the times. BTW, I tried that some time ago with Karl, Mish, etc., and they are not interested in hearing about it.
Matt, ya it's called trade imbalance or trade deficit. We must borrow that which cannot come from savings through the normal method of production. Consumers with 135% Debt to DPI, and all debt in the US at 370% of GDP says we borrowed more than we produced.
ReplyDeleteTom, you are arguing with history, and not me. Each Empire has it completely figured out right up until it doesn't. I'm sure in each case, there were folks just like you with the perfect solution. If you don't mind, I'm betting with the house.
ReplyDeleteThe house would be hard assets which prove their worth with every collapse. How's Berkshire Hathaway looking against Gold for the last 10 years by the way? LOL!
Anonymous, if I were betting on the American Empire failing soon, I would be doing my betting from a well-stocked and defended remote, undisclosed bunker in the Southern Hemisphere to avoid the fallout, not holding gold and expecting all other things to be equal.
ReplyDeleteAnon,
ReplyDeleteThe foreign sector has been paid in full for their products that they have exported to us, just as domestic non-govt sector provisioners of the govt sector have been paid in full for their provisions.
See this spreadsheet for a breakdown of how much each of these nations whose leaders are brain dead, zombie, "western wannabe", and droid-like have been paid over the years:
http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt
They are "Paid in Full" Anon, these are their USD balances that they have received, sitting in securities accounts for them at the Fed.
This is to the detriment of our working class but our morons in authority keep accommodating these foreigners without some sort of offsetting fiscal adjustment (like a JG/BIG and tax cuts) for our own people. They should not be anywhere near or in government policy setting.
Resp,
Tom, these things take time, as we can see with our current debacle. This is my country, and damned if I'm leaving for parts unknown like a chickenshit little while we have a Constitution and Bill of Rights to protect for our children and grandchildren. Just my two cents on your idea. Maybe you like to travel.
ReplyDeleteI never said our trading partners weren't paid. I said they were paid with borrowed funds.
ReplyDeleteAnon,
ReplyDeleteWho did the govt borrow the USD balances from? Who else on the planet issues USD balances other than the US government?
Are you saying that if I buy something off of a Chinese Company, pay them with a US check, they then take those USD balances from my check and buy a UST, that I still "owe them the money"? Whaaaaaaaat??????
follow it thru Anon....
Resp,
Anon, as Matt points out the foreign "borrowers" hold dollars for whatever reason, usually as a trade credit, and what they are "owed" financially is only an switch of asset form from non-zero maturity in their cb saving account to zero maturity in their cb deposit account.
ReplyDeleteHowever, those financial assets are claims on real goods and assets, and the "debtor" country does "owe" those assets in exchange for its currency. In other words, in buying Chinese stuff and giving China dollars in USD stored in Fed accounts, these accounts are like promises to deliver goods later, or else real investment in the countries non-financial assets.
The point is that the "debtor" does not obligate revenue if it is sovereign in its own currency. This makes a huge difference and is is why the US in not at all like Greece. The US has plenty of real assets available for FDI in the US, and the US also has the capacity to produce plenty of goods to satisfy external demand, which is now relatively weak in comparison with US demand for foreign goods and foreign FDI.
If this ability to deliver goods for export and real assets for FDI to meet foreign demand were actually perceived as a growing problem the USD would be losing value relatively in the fx market, which it is not, and I would not be shorting the USD in expectation of this based on this understanding.
What you are perceiving reflected in the gold market is not reflected in other major markets, like tsys and fx. Govt securities and fx is where the pros play, not gold, and so they are much more significant indicators.
Ya'll have the fanciest answers on the Internet, yet the economy with all the new debt issued continues to tank. I guess you figure even a broken clock is right twice a day.
ReplyDeleteThe answer is simple, Anonymous. Policy makers have ignored sectoral balances and have therefore not addressed the problem correctly. Christina Romer's figure or 1.8T was probably close and with an MMT JG would have turned things quickly. That proposal was tabled by Summers and never even discussed. Summers through that the figure was politically impossible, and also that the amount to be devoted to infrastructure was impractical. However, if Warren's proposal of a tax cut through a payroll tax holiday, per capita block grants to states, and an MMT JG had been put forward at a figure consistent with what was indicated by the sectoral balance approach, things would have gone differently.
ReplyDelete