You'll probably STILL hear the following myth, from ~139 million of our ~140 million eligible voters
"... tax the Rich ... Because that's where the money is?"Uh ... that was true on a gold std.
However, since 1933 that is NOT where the fiat is!
Please read Marriner Eccles first address to the Senate, in 1932.
http://fraser.stlouisfed.org/docs/meltzer/ecctes33.pdf
Then read Beardsley Ruml's revelation, 1946
http://www.constitution.org/tax/us-ic/cmt/ruml_obsolete.pdf
(Yes, it took BR 13 years to realize what Ben Franklin noted in 1727! Let's discuss that delay for another time. BR probably suffered from a degree in economics.)
Per definition, "fiat" = public initiative.
No, we can NOT let gold-hoarding plutocrats manage our currency supply "for" us, ever again. They screwed that up so badly, so many times, that we can NEVER fall for that BS again. We couldn't have ended the Depression, or mobilized to win WWII on a gold std. If we were on a gold std, our rate of mobilizing for a WWII initiative would still be picking up steam at the station!
So, since 1933, we accelerate agile management of our own, distributed, Public Initiative, using FIAT currency - where every transaction allowed by our culture is - in theory - instantly denominated as a matching debit/credit to buyers/sellers. That still means public responsibility, of course, but the metrics we must co-manage AS OUR NATION GROWS, are increasing national output AND controlled inflation. It is completely irrelevant to "balance" the yearly supply of a floating denomination metric (fiat currency). For those struggling with this as a novel context to picture, managing a fiat currency supply is analogous to managing the amount of oxygen/CO2 which an individual breathes in and out. How much fiat currency do we need? Answer: as much as our activities dictate. No more and no less. Same as during WWII. Breathing, initiative or fiat currency is not something we need to regulate in any way EXCEPT to avoid the extremes of hyperventilating for no reason, or holding our public initiative until the MiddleClass turns blue.
Per definition, "fiat" = public initiative.
No, we can NOT let gold-hoarding plutocrats manage our currency supply "for" us, ever again. They screwed that up so badly, so many times, that we can NEVER fall for that BS again. We couldn't have ended the Depression, or mobilized to win WWII on a gold std. If we were on a gold std, our rate of mobilizing for a WWII initiative would still be picking up steam at the station!
So, since 1933, we accelerate agile management of our own, distributed, Public Initiative, using FIAT currency - where every transaction allowed by our culture is - in theory - instantly denominated as a matching debit/credit to buyers/sellers. That still means public responsibility, of course, but the metrics we must co-manage AS OUR NATION GROWS, are increasing national output AND controlled inflation. It is completely irrelevant to "balance" the yearly supply of a floating denomination metric (fiat currency). For those struggling with this as a novel context to picture, managing a fiat currency supply is analogous to managing the amount of oxygen/CO2 which an individual breathes in and out. How much fiat currency do we need? Answer: as much as our activities dictate. No more and no less. Same as during WWII. Breathing, initiative or fiat currency is not something we need to regulate in any way EXCEPT to avoid the extremes of hyperventilating for no reason, or holding our public initiative until the MiddleClass turns blue.
How the heck does one "balance fiat?" What does that even mean?
Today? We're voluntarily letting fiat-hoarding plutocrats manage OUR fiat for us? Today that's called "fiat austerity" and class disparity. Whatever the semantics, do you think that will turn out any better than letting the same charlatans manage our gold-std currency supply did in 1929? Dream on! I've go a derivative on Wall St. to sell to you, along with that virtual bridge in Arizona.
Next, read:
Are you thoroughly FURIOUS yet?
If you're now mad as hell, and refuse to take the class warfare anymore ... then CONGRATULATIONS! You pass the sane human test!!!
It's the 1% idiot savant sociopaths who are insane, NOT you.
Now please leverage YOUR sanity for the net benefit of your culture and nation.
Next, read:
15 Fallacies of Financial Fundamentalism
http://www.columbia.edu/dlc/wp/econ/vickrey.html
7Difs
http://moslereconomics.com/2009/12/10/7-deadly-innocent-frauds/
& Luther Gulick's original SocSec memo
http://www.ssa.gov/history/Gulick.html
If you're now mad as hell, and refuse to take the class warfare anymore ... then CONGRATULATIONS! You pass the sane human test!!!
It's the 1% idiot savant sociopaths who are insane, NOT you.
Now please leverage YOUR sanity for the net benefit of your culture and nation.
Paraphrasing Gen. Patton: "Never let some faux 'leader' in a slick suit tell you HOW to run YOUR Democracy. Let all citizens suggest Desired Outcomes, then participate in impressing all of us with EVERYONE'S ingenuity."
I say we should tax the rich anyway ... just because they are too rich.
ReplyDeleteFine as a policy, Dan.
ReplyDeleteJust NEVER forget to avoid over-taxing & underfunding the MiddleClass as the prior priority.
Agreed?
Concentration of wealth and concentration of power undermine liberal democracy. Wealth and power are the right and left hand of privilege, undermining liberty, egality and community.
ReplyDeleteIn evolutionary terms, Tom, your words translater, quite literally, to "concentration of wealth/power define over-adaptation to transient context ... and certain extinction."
ReplyDeleteThe question is how we remind the meek to wise up, and get over all this faux "power & influence," faster.
Historically, nature has tended to disperse such concentration, but it's usually messy.
ReplyDeleteExactly. How messy the adjustments are is entirely up to us.
ReplyDeleteCan we recruit enough citizens to GRACEFULLY explore options?
Or will the survivors have to pick up the pieces as best possible?
Lotta variations between those 2 extremes.
Right. What's concerning is that the crazy seems to be increasing. It's a wild card in the deck, or a bunch of them. And not just in the US. Rightist nationalism is growing in Europe. China and Japan are at each other's throats. Not to mention the spreading of terrorism is a tactic, and the proliferation of WMD to unstable actors like NK.
ReplyDeleteAdd to the the rising threat of deflation owing to excessive private debt and adoption of fiscal austerity in the developed world, and the potential of a global depression is rising.
Déjà vu.
Is this interpretation of Quantitative Easing out of paradigm?
ReplyDelete"How Economists and Policymakers Murdered Our Economy
Paul Craig Roberts
The economy has been debilitated by the offshoring of middle class jobs for the benefit of corporate profits and by the Federal Reserve’s policy of Quantitative Easing in order to support a few oversized banks that the government protects from market discipline. Not only does QE distort bond and stock markets, it threatens the value of the dollar and has resulted in manipulation of the gold price."
Paul Craig Roberts is out of paradigm with MMT. He pretty much reiterates view put out by Zero Hedge.
ReplyDelete99% of the people, academics included, are out of paradigm regarding MMT. That means a lot of really decent, humane people don't get it.
ReplyDeleteRight, and a lot of those people are trying to reform a broken system and shooting themselves in the head by being out of paradigm. Not only is their diagnosis and etiology wrong, but also the course of action they propose is either counterproductive, e.g, market fundamentalism and sound finance on the right, or can't be funded in their view without governments taxing or borrowing, e.g., many progressives on the left.
ReplyDeleteThank you, Tom. If not too much trouble, can you specifically say what is wrong with his view of QE and its consequences? Thanks in advance!
ReplyDeleteWould you say Roberts is an "Austrian"?
"Breathing, initiative or fiat currency is not something you need to regulate in anyway EXCEPT avoiding the extremes of hyperventilating for no reason, or holding your public initiative until the MiddleClass turns blue. "
ReplyDeleteHaha love it! This is such a brilliantly simple analogy...even economists *may* be able to get it.
Using QE to blame the recovery gone wrong is analogous to using the CRA and Fed setting the interest rate to low to explain the financial crisis. They are rightists memes to put the blame on government rather than were it belongs, on predatory finance, and the TBTF's in particular.
ReplyDeleteJust as the CRA and low rates were a minor as causal factors, so too QE has had little actual impact on the economy other than to support asset prices. The run up in equities was due largely to increasing corporate profits rather than QE. It is true that setting the interest rate at ZIRP has enabled the well connected to borrow cheaply, perhaps driving asset prices higher than they would be with higher rates. But again, that is not the chief causal factor.
Nor QE did work through "the expectations channel" to drive up LT rates in anticipation of inflation that was sure to come, although it may have driven up gold for a while. Instead, lot of supposedly smart people lost a bundle shorting bonds in expectation of inflation that never materialized.
Basically, QE was an exercise in futility other than as a tactic in the Greenspan-Bernanke put that the markets now demand as their due, even though it is toothless.
Roberts quotes John Williams and Simon Black, who are both cranks.
Here more fantasy:
Last week interest rates on 30-day T-bills turned negative. That means people were paying more for a bond than it would return at maturity. Dave Kranzler sees this as a sign of rising uncertainty about banks. Reminiscent of the Cyprus banks’ limits on withdrawals, last Friday (January 24) the BBC reported that the large UK bank HSBC is preventing customers from withdrawing cash from their accounts in excess of several thousand pounds.
QE is debasing the dollar, but people are running into T-bill for security even as yields go negative? Really?
The icing on the cake:
If and when uncertainty spreads to the dollar, the real crisis will arrive, likely followed by high inflation, exchange controls, pension confiscations, and resurrected illegality of owning gold and silver.
Sounds like it was copied off Zero Hedge.
Henry,
ReplyDeleteif you google "Mosler, QE explained" you'll see a number of posts harping on the fact that QE is only an exercise in shifting the term structure of existing assets (e.g., from 30 yr, to 10 or 20 yr bonds ... then back from 10yr to 20 or 30 yr bonds, depending on whether you're talking QE 1, 2 or 3)
As long as we avoid 666yr Bonds, it'll be safe to continue QE? :)
You know, since it's all in the EXPECTED market impact of what the Fed does, not the operational impact.
ps: same thing if you google Bill Mitchell, or Randy Wray or Pavlina Tcherneva in conjunction with QE
Thank you, Tom and Roger! Very helpful. A great pity economics has to be disentangled from so much ideology--a real Tower of Babel situation.
ReplyDeleteThanks for the answer to Henry, but a few more items continue to puzzle me. I think I get that QE does not accomplish what it is popularly supposed to accomplish, nor is it "printing money." Nevertheless, it does seem to benefit the upper 1%--or else why would they keep adhering to the policy? Michael Hudson takes this point of view (or maybe he is out of paradigm?), and so does this article at Naked Capitalism: http://www.nakedcapitalism.com/2013/09/the-regressive-politics-of-quantitative-easing.html
ReplyDeleteAnyway, does QE effectively serve the interests of wealth concentration?
Also, the Austrians and Libertarians generally are ferociously dedicated to a conspiratorial view of the Fed--and they would seem to be correct when you see how they pumped astronomical amounts of money to the TBTF banks, which disappeared into investments abroad and in offshore tax shelters, and the like. Is the MMT view of the Fed neutral?
What QE does as an extension of monetary policy is to 1) flatten the yield curve to control LT rates as well as ST rate, e.g., to keep the cost of mortgages down to support the housing market, and 2) take safe assets in the form of government securities off the table, thereby driving savers into riskier assets, like corporate bonds and equities.
ReplyDeleteThe increased demand for cooperates keeps LT rates low, supposedly encouraging investment, and the wealth effect of equities being priced higher than they would be otherwise is supposed to increase spending without borrowing. Overall ZIRP is supposed to encourage borrowing to consumer and invest, and QE to act on LT rates through the 10 yr.
The notion that this was designed to "helicopter money to the top of the town" is cynical and wrong. The Fed was wrong about the effect of its strategy, but it did not design the strategy to further enrich the top of the town by dumping "liquidity" (money) into their laps essentially for free, as the charge goes.
What the Fed did is somewhat contradictory in its effect. By buying tsys it reduced the interest payments to the private sector and drove up risk for savers by taking safe assets off the table. That is a negative for those holding wealth. On the positive side for them, it kept interest rates down across the curve, which favors speculation in riskier assets and a carry trade ( which is now unwinding, it seems).
So one can spin this many ways, but any spin that overly discounts key factors has to be discounted itself.
The Fed has played at picking winners and losers through who benefits from its policy, but the major factor is the lax regulation and oversight applied to the TBTF's that has allowed them to skirt the law and also stay alive while insolvent through extraordinary forbearance.
Biggest effect of QE is that it keeps the electorate distracted from actual operations, and keeps economists feeling as though they matter.
ReplyDelete
ReplyDeleteThe New Wave of Financial Instability
By Mike Whitney
http://www.informationclearinghouse.info/article37493.htm
Looks like QE's effects are far from negligible. Comments?
Mike Whitney is now publishing in World Net Daily? It's doesn't get much nuttier than WND.
ReplyDeleteMike's a good guy, but this is attributing superpowers to the Fed, mostly based on expectations as overactive imagination.
Where do you get World Net Daily; the URL plainly reads Information Clearinghouse. It may have been syndicated for all I know, but there is no reference to WND in the article. Typically, Mike writes for Counterpunch. Anyway, I was hoping for a more substantial comment than a hand wave; Mike isn't stupid or nutty, and has great respect for Bill Mitchell, Hudson, and other MMT writers. As for superhuman powers, you could almost expect something of the kind, when you consider the truly astronomical quantities these bastards have handed the TBTF banks, beginning with Paulsen, and when suddenly there is no money for SS, or when there is never any shortage for military invasions abroad and endless high tech development for drones and spying or the militarization of police. I should think you'd be a little more aware of the amazing accumulation of changes here and the often frankly illegal concentrations of wealth and power they entail.
ReplyDeleteGee, I guess we should end the Fed.
ReplyDeleteWhitney did publish this at Counterpunch here . But WND picked it up for good reason; it matches with their world view, which is the opposite of MMT. Whitney is just repeating the conventional wisdom here, which was wrong about QE and will turn out to be wrong about the Fed tightening when it ever gets around to it.
ReplyDeleteIf any of the dire predictions turn out to be true, it won't be because of the Fed either doing QE or ceasing QE. which is just asset swaps. And as for "low rates," Warren Mosler recommends setting the rate to zero permanently.
The idea that the world economy is going to crash because the Fed is cutting back a few billion in asset swaps is daft. The global economy may indeed crash, but that won't be the reason.
MMT has a worldview or Mr. Hickey has a world view? I understood MMT for the most part to be an objective description the economic system. A worldview implies considerably more than what MMT or any economics offers. By the way, I despise patronising sarcasm such as "Gee..." It suggests a blind spot and unintelligent overestimation of self. You didn't receive any sarcasm and had no call to dish it out. Personally, my motive for writing here is that I am trying to learn. If you know more, then noblesse oblige.
ReplyDeleteOK, please accept my apology for being rude.
ReplyDeleteThe problem in this case is not so much monetary police and its reversal as neoliberalism that is based minimizing the role of government and blaming everything bad that happens on government.
As much as I don't like centralization of power in the hands of politically independent central banks, which a tenet of liberalism, central banks do provide the liquidity the system needs, which means influencing not only quantity but price. Although central banks coordinate action and responses to some degree, each central is responsible for and to the nation it serves.
The Fed undertook a monetary policy that it deemed necessary to prevent a depression in the US and also avoid world depression. Part of this involved supporting the US and global financial system. One can argue about the means, but this had to be done.
There are to highly relevant factors here. First, the banks and financial system has a lot of power in the US, UK, and also globally. Rather than get in a big fight over doing what's right, the central banks took the down and dirty way out and left the system that caused the problem in the first place. That may have been unwise and even illegal in hindsight, that was the decision taken at the time to avoid meltdown. I don't think that is an adequate excuse, but I understand the reasoning behind it. I don't think that Bernanke was being nefarious. But adequate reform was never undertaken and it this that will cause the problems down the line.
The other aspect related to neoliberalism is free flow of capital which means no capital controls, which makes space for a big carry trade. See the post I pug up yesterday on this. When a carry trade is run on the basis of money borrowed in the world's reserve currency, this can result on hot money flowing in and out of weaker countries to their monetary, financial and economic disadvantage unless they impose capital controls.
As monetary policy tightens in the US, capital that followed into the EM's will take flight. That's the way the present system is structured and blaming it on the Fed is silly. The Fed was supposed to say that it couldn't undertake the monetary policy it deemed best suited to the emergency, since it might lead to the unwinding of a carry trade years later?
However, a lot of the fears now are unfounded in that they are based on a misunderstanding of the monetary system. Low rates don't result in the problems that are attributed to them. The actual cause is imprudent use of credit. MMT would set the rate permanently at zero and impose legislation and regulation to reduce the potential for the abuse that is the chief causal factor.
Similarly with liquidity. MMT would provide unlimited liquidity to banks directly trough the central bank.
On the other hand, the mainstream and the doom-sayers hold that the problem arises from rates that re "too low, too long," and "too much money sloshing around."