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.
Every time the govt shoves cash assets down the bank's throat then Bank Credit including Loans & Leases always rolls over or flattens out until banks can make the required capital adjustments this is nothing new or anything to panic about:
When humpty-dumpty falls, you can't simply put the money back in the TGA and everything goes back to normal. The economy isn't a shmoo that uprights itself and returns to normal. It's sets off an irreversible cascade where sales and production lost is gone forever and productive capacity is destroyed. This is pretty much case-in-point why congress and the whitehouse need to pay more attention to fiscal policy and less to monetary policy.
Everything is backwards. Central banks should issue treasuries bonds, bills and notes, not The Treasury. Congress should give authority for spending but not exact amounts but rather soft goals for the spending. And treasury should determine the actual amounts needed to reach congressional goals.
This is something that needs to be made clear to all the politicians in DC and fixed in our constitutions in the potential Convention of States this year. Too bad MMT doesn't have a think-tank or policy center that could help draft legislation and create briefs for state lawmakers so they better understand the system in the months ahead before they fiddle with The US Constitution otherwise we might have to wait another generation to get it right.
Unfortunately the goofs like Peterson do have the power and they are hopelessly misguided by orthodox economists that dominate the educational and political system.
I'll bet we could put together some political action people in Washington now that more people follow MMT and actually get enough money from the ruling billionaire classes to do it. Billionaires would benefit as much as anyone from a well run economy.
Not quite sure what you’re saying, but you seem to be working towards a system under which CBs determine the size of the deficit, while politicians (quite rightly) decide what % of GDP goes to public spending, and how that is split between education, health, law and order, and other public spending items. Positive Money has advocated that system for some time.
Bernanke also suggested that wouldn’t be a bad idea recently. See para starting “A possible arrangement..” here:
Ralph I don't think they can do that... I think they only could estimate how much they would spend (much is on automatic appropriation) and non-govt activity determines the complement of govt spending which is measured ex post to get NIA GDP...
Here some history, you can see how at the changes in the reserve policy they caused the GFC in late 2008 and last year's decent performance, and the current reduced YoY rate of growth, etc:
The central bank should be involved in monetary policy and financial regulation and oversight.
Basically, the function of a central bank is to manage financial risk in bank and finance.
One measure of risk in the system is the ration of safe to risky assets, that is, public to private debt. The cb should have the power to issue default-risk-free securities to manage the ratio.
The use of public funds in fiscal policy should be based on public input. "No taxation without representation," was founding principle of the American republic.
Fiscal policy is constitutionally in the hands of the people's representatives in the United States.
It would be a dereliction of duty for the people's representatives to delegate that responsibility to the centra bank, i.e., technocrats that are drawn chiefly from the elite. And it would be folly for the people to allow them to do so.
The change that needs to be made is getting the money out of politics, ending the two party lock on power, ending lobbying, and locking the revolving door. Presently government has been captured by a relatively small coterie of the population and they are running the country for their cohort rather than the people as a whole.
Giving them more power, especially over the purse, would be the end end of the democratic republic, which would continue to exist only as a façade, that is, more of a façade than presently.
People see the world through the lenses of their own spectacle. Those in business, finance and economics see the world through the lens of wealth and its distribution. Politicians view the world in terms of power and its distribution. The lenses themselves (ideological blinders) are distributed through networks involving class structure, fences and gatekeepers. These are very limited lenses that are biased toward an angle of vision that is tilted toward the top and should not be chief basis of decision-making in a democratic republic, let alone the sole one that matters.
Well maybe Congress could just say "were buying 100 F-35s" and leave the munnie out of it... let the purchasing agents negotiate the best price ...
Or Congress could say "ZERO unemployment" and let the JG administrators figure out the munnie issues...
Matt, it's responsibility, oversight, and accountability that is at issue. Then public is concerned not only with outcomes but also corruption, and most people don't trust government procurement and administration. It's not only a belief in greater efficiency and material capability of the private sector but also a strong conviction of government being highly susceptible to corruption. In a democracy, there is the assumption that the people can always through the bums out. This is a big reason behind the demand for limited government (the "$500 toilet seat" being a classical example.) "Waste, fraud and abuse."
$500 toilet seat is just the cost accounting Tom... Go try and get 1 custom thing injection molded its expensive... or 1 custom thing 3D printed .... its expensive...
Defense contractors are also regulated under cost plus contracts they have to document costs ... so under the terms of the contract, if they have to apply minimum overhead costs to all material items, you end up with a "$500 toilet seat" so called by morons like Spinney and crew and all the other "were out of money!" morons who've never taken even Accounting 101 yet they are somehow looked at by the mob as qualified to comment/opine....
Congress appropriates spending in the budget. It's allocated by programs and departments.
The executive branch is a giant bureaucracy that handles the administration, ostensibly professionally in accordance with standards and with oversight.
I don't see issues here that private contractors could necessarily handle the administration better, that is, more efficiently and effectively, producing a superior result less expensively. That seems to be an assumption requiring substantiation other than ideological.
The issue is how spending is allocated. That's half of fiscal policy.
The other half is tax policy. Under current rules — "pay-go" — most programs have to be funded by taxes.
These are political choices. The opposition is between through advocating for a market state and those advocating for a welfare state.
This is where the issues lie.
Government is already run largely by technocrats, that is, the administrative bureaucracy aka the civil service.
The real issue here is who is to make decision that allocate "spending," that is, use of private sector resources, including labor, for public purpose.
One side wants more technocratic control, the other more democratic control.
Giving the cb technocratic control over fiscal policy, either in whole or part, seems to be to base the system more in favor of a market state and capital la than toward a welfare state and distributed prosperity.
The Fed already has a dual mandate but still uses employment as a tool to target price level regardless of the mandate.
Well they are still disregarding that law Tom... cuz "out of money!"...
Tom Congress is not allocating use of private sector resources they are allocating "money" which is a figure of speech and which they think we are out of... they are complete disgraced unqualified under-educated libertarian morons...
Look at the chart Tom in time domain linked to above, these idiots created 100s of $B of reserve assets in a very short time without granting any regulatory ratio waivers and crashed the whole system .... they're idiots...
And PS : Now they are getting ready to reverse the whole thing and perhaps create a big bonanza ... which they will probably then reverse as before and crash the whole thing again...
Congress is not allocating use of private sector resources they are allocating "money"
Congress doesn’t just appropriate funds to the agencies to spend as they wish. They want to know beforehand how the funds will be allocated to projects. These are itemized, e.g., so many F-35s at an estimated cost of so much each, so much for maintenance of F-22s, etc.
Look at the chart Tom in time domain linked to above, these idiots created 100s of $B of reserve assets in a very short time without granting any regulatory ratio waivers and crashed the whole system .... they're idiots...
I am still not clear on the accounting in terms of the Treasury books, the Fed's books, the banks' books, and the non-banks' books.
Another huge issue in granting the cb more power over not only monetary policy but also fiscal is that it treats government as a big firm with the board in charge of making key decisions. Further complicating the matter is that the government is a currency monopolist, so that the cb effectively set prices in setting the interest rate, what it allows as collateral and lending against collateral, and in the case of fiscal, the prices it pays in markets.
This is a command economy that capitalism is supposed to replace. The chair of the cb would have dictatorial powers. Even if it is a board with equal votes, the ruling body is essentially a politburo.
If the central bank is responsible for issuing notes, bills and bonds, they aren't in charge of fiscal.
On the contrary, they are in charge of monetary policy. They can decide on quantity, duration, and price of credit. They could choose not to issue any debt at all or they could issue more than the fiscal deficit. Leave it up to them based on needs of banking system, capital, currency price and external balance...
The only question that really matters is who is in charge — the people (direct democracy) or the people through accountable representatives (democratic republic), or unelected decision-makers with no accountability.
It's really about decision-making and accountability.
Administration can be arranged wrt to effectiveness and efficiency as long as there is accountability all the way through the process, with the people ultimately in charge.
Credit growth is slowing, but nominal levels of credit outstanding are at or near all-time highs.
Moreover, the whole slowdown has been due to extreme volatility of the Treasury's General Account, as Matt alluded to. It is not saying anything, particularly, about credit demand. Mosler was late to seeing the slowdown, and he doesn't see the connection between the TGA and bank credit.
27 comments:
If debt is bad then this should be good.
Every time the govt shoves cash assets down the bank's throat then Bank Credit including Loans & Leases always rolls over or flattens out until banks can make the required capital adjustments this is nothing new or anything to panic about:
https://twitter.com/i_deficit_moron/status/855594066783948800
When humpty-dumpty falls, you can't simply put the money back in the TGA and everything goes back to normal. The economy isn't a shmoo that uprights itself and returns to normal. It's sets off an irreversible cascade where sales and production lost is gone forever and productive capacity is destroyed. This is pretty much case-in-point why congress and the whitehouse need to pay more attention to fiscal policy and less to monetary policy.
Everything is backwards. Central banks should issue treasuries bonds, bills and notes, not The Treasury. Congress should give authority for spending but not exact amounts but rather soft goals for the spending. And treasury should determine the actual amounts needed to reach congressional goals.
This is something that needs to be made clear to all the politicians in DC and fixed in our constitutions in the potential Convention of States this year. Too bad MMT doesn't have a think-tank or policy center that could help draft legislation and create briefs for state lawmakers so they better understand the system in the months ahead before they fiddle with The US Constitution otherwise we might have to wait another generation to get it right.
Unfortunately the goofs like Peterson do have the power and they are hopelessly misguided by orthodox economists that dominate the educational and political system.
I'll bet we could put together some political action people in Washington now that more people follow MMT and actually get enough money from the ruling billionaire classes to do it. Billionaires would benefit as much as anyone from a well run economy.
Need $200M Ryan....
We shouldn't have billionaires, tax policy should preclude it.
Agreed!
;)
Ryan Harris,
Not quite sure what you’re saying, but you seem to be working towards a system under which CBs determine the size of the deficit, while politicians (quite rightly) decide what % of GDP goes to public spending, and how that is split between education, health, law and order, and other public spending items. Positive Money has advocated that system for some time.
Bernanke also suggested that wouldn’t be a bad idea recently. See para starting “A possible arrangement..” here:
http://fortune.com/2016/04/12/bernanke-helicopter-money/
I agree that MMTers have not devoted much thought to the latter point, if that was what you meant to say.
"what % of GDP goes to public spending"
Ralph I don't think they can do that... I think they only could estimate how much they would spend (much is on automatic appropriation) and non-govt activity determines the complement of govt spending which is measured ex post to get NIA GDP...
Here some history, you can see how at the changes in the reserve policy they caused the GFC in late 2008 and last year's decent performance, and the current reduced YoY rate of growth, etc:
https://twitter.com/i_deficit_moron/status/855776819580207104
The central bank should be involved in monetary policy and financial regulation and oversight.
Basically, the function of a central bank is to manage financial risk in bank and finance.
One measure of risk in the system is the ration of safe to risky assets, that is, public to private debt. The cb should have the power to issue default-risk-free securities to manage the ratio.
The use of public funds in fiscal policy should be based on public input. "No taxation without representation," was founding principle of the American republic.
Fiscal policy is constitutionally in the hands of the people's representatives in the United States.
It would be a dereliction of duty for the people's representatives to delegate that responsibility to the centra bank, i.e., technocrats that are drawn chiefly from the elite. And it would be folly for the people to allow them to do so.
The change that needs to be made is getting the money out of politics, ending the two party lock on power, ending lobbying, and locking the revolving door. Presently government has been captured by a relatively small coterie of the population and they are running the country for their cohort rather than the people as a whole.
Giving them more power, especially over the purse, would be the end end of the democratic republic, which would continue to exist only as a façade, that is, more of a façade than presently.
People see the world through the lenses of their own spectacle. Those in business, finance and economics see the world through the lens of wealth and its distribution. Politicians view the world in terms of power and its distribution. The lenses themselves (ideological blinders) are distributed through networks involving class structure, fences and gatekeepers. These are very limited lenses that are biased toward an angle of vision that is tilted toward the top and should not be chief basis of decision-making in a democratic republic, let alone the sole one that matters.
Well maybe Congress could just say "were buying 100 F-35s" and leave the munnie out of it... let the purchasing agents negotiate the best price ...
Or Congress could say "ZERO unemployment" and let the JG administrators figure out the munnie issues...
And while they're at it they could try not to periodically bankrupt their fiscal agents too for a change..
Well maybe Congress could just say "were buying 100 F-35s" and leave the munnie out of it... let the purchasing agents negotiate the best price ...
Or Congress could say "ZERO unemployment" and let the JG administrators figure out the munnie issues...
Matt, it's responsibility, oversight, and accountability that is at issue. Then public is concerned not only with outcomes but also corruption, and most people don't trust government procurement and administration. It's not only a belief in greater efficiency and material capability of the private sector but also a strong conviction of government being highly susceptible to corruption. In a democracy, there is the assumption that the people can always through the bums out. This is a big reason behind the demand for limited government (the "$500 toilet seat" being a classical example.) "Waste, fraud and abuse."
$500 toilet seat is just the cost accounting Tom... Go try and get 1 custom thing injection molded its expensive... or 1 custom thing 3D printed .... its expensive...
Defense contractors are also regulated under cost plus contracts they have to document costs ... so under the terms of the contract, if they have to apply minimum overhead costs to all material items, you end up with a "$500 toilet seat" so called by morons like Spinney and crew and all the other "were out of money!" morons who've never taken even Accounting 101 yet they are somehow looked at by the mob as qualified to comment/opine....
MOAM - Mother of all Accounting Methods
Congress appropriates spending in the budget. It's allocated by programs and departments.
The executive branch is a giant bureaucracy that handles the administration, ostensibly professionally in accordance with standards and with oversight.
I don't see issues here that private contractors could necessarily handle the administration better, that is, more efficiently and effectively, producing a superior result less expensively. That seems to be an assumption requiring substantiation other than ideological.
The issue is how spending is allocated. That's half of fiscal policy.
The other half is tax policy. Under current rules — "pay-go" — most programs have to be funded by taxes.
These are political choices. The opposition is between through advocating for a market state and those advocating for a welfare state.
This is where the issues lie.
Government is already run largely by technocrats, that is, the administrative bureaucracy aka the civil service.
The real issue here is who is to make decision that allocate "spending," that is, use of private sector resources, including labor, for public purpose.
One side wants more technocratic control, the other more democratic control.
Giving the cb technocratic control over fiscal policy, either in whole or part, seems to be to base the system more in favor of a market state and capital la than toward a welfare state and distributed prosperity.
The Fed already has a dual mandate but still uses employment as a tool to target price level regardless of the mandate.
See also Full Employment and Balanced Growth Act of 1978 (Humphrey-Hawkins)
Paul Volcker disregarded the law and pursued his own agenda.
Well they are still disregarding that law Tom... cuz "out of money!"...
Tom Congress is not allocating use of private sector resources they are allocating "money" which is a figure of speech and which they think we are out of... they are complete disgraced unqualified under-educated libertarian morons...
Look at the chart Tom in time domain linked to above, these idiots created 100s of $B of reserve assets in a very short time without granting any regulatory ratio waivers and crashed the whole system .... they're idiots...
And PS : Now they are getting ready to reverse the whole thing and perhaps create a big bonanza ... which they will probably then reverse as before and crash the whole thing again...
Congress is not allocating use of private sector resources they are allocating "money"
Congress doesn’t just appropriate funds to the agencies to spend as they wish. They want to know beforehand how the funds will be allocated to projects. These are itemized, e.g., so many F-35s at an estimated cost of so much each, so much for maintenance of F-22s, etc.
Look at the chart Tom in time domain linked to above, these idiots created 100s of $B of reserve assets in a very short time without granting any regulatory ratio waivers and crashed the whole system .... they're idiots...
I am still not clear on the accounting in terms of the Treasury books, the Fed's books, the banks' books, and the non-banks' books.
Another huge issue in granting the cb more power over not only monetary policy but also fiscal is that it treats government as a big firm with the board in charge of making key decisions. Further complicating the matter is that the government is a currency monopolist, so that the cb effectively set prices in setting the interest rate, what it allows as collateral and lending against collateral, and in the case of fiscal, the prices it pays in markets.
This is a command economy that capitalism is supposed to replace. The chair of the cb would have dictatorial powers. Even if it is a board with equal votes, the ruling body is essentially a politburo.
If the central bank is responsible for issuing notes, bills and bonds, they aren't in charge of fiscal.
On the contrary, they are in charge of monetary policy. They can decide on quantity, duration, and price of credit. They could choose not to issue any debt at all or they could issue more than the fiscal deficit. Leave it up to them based on needs of banking system, capital, currency price and external balance...
Tom the CB would not be establishing public purpose they would just be in effect operating the water supply and sanitary systems...
One you decide to have clean water and a sewage system you need competent people to turn the wrenches.... I don't see any....
The only question that really matters is who is in charge — the people (direct democracy) or the people through accountable representatives (democratic republic), or unelected decision-makers with no accountability.
It's really about decision-making and accountability.
Administration can be arranged wrt to effectiveness and efficiency as long as there is accountability all the way through the process, with the people ultimately in charge.
Otherwise, it is dictatorial to some degree. j
Credit growth is slowing, but nominal levels of credit outstanding are at or near all-time highs.
Moreover, the whole slowdown has been due to extreme volatility of the Treasury's General Account, as Matt alluded to. It is not saying anything, particularly, about credit demand. Mosler was late to seeing the slowdown, and he doesn't see the connection between the TGA and bank credit.
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