People are allowed to change their opinions or assessments in the light of new evidence. Diametric changes of position are fine and one should not be pilloried for making such a shift in outlook. Quite the contrary. But when the passage of time reveals that a person just recites the same litany despite being continually at odds with the evidence, then that person’s view should be disregarded, notwithstanding the old saying that a defunct clock is correct twice in each 24 hours. The US Congressional Budget Office (CBO) released its latest – The Budget and Economic Outlook: 2018 to 2028 (April 9, 2018) – and various commentators and media outlets have gone into conniptions over it. The economists that have responded – and they come with affiliations from both sides of US politics (although it is hard to differentiate separate ‘sides’ in the US anymore such is the demise of the Democrat Party) – have significantly embarrassed themselves. Their hysteria is not matched with the facts and they have been guilty of invoking these hysterical responses year-in, year-out for many years. A crack in a record, goes click, click, click, click and repeats ad infinitum. Sort of like the nonsensical arguments about US fiscal deficits that have appeared in the US press this last week.When this happens, it looks to me like staying on ideological message rather than genuine inquiry and analysis.
Bill Mitchell – billy blog
The distinguished economists just embarrass themselves
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
21 comments:
Ask Bill what basis of Accounting the CBO uses and he won't be able to tell you...
"And if the bid-to-cover ratios fall on public auctions what do you think will happen then, should the government assess that as being a dangerous situation?
Oh that – the central bank just buys up public debt and controls yields and the treasury spends on. Just like has been done many times in the past."
so Bill says CB can buy the Treasury securities which increases reserve assets at the depositories which cause the crash as banks immediately violate the set point regulatory ratio of capital:assets and have to stop establishing other forms of credit in order to accommodate the CB policy...
then he says here:
"First, these economists failed to see what was happening prior to the GFC."
Well neither did he or anybody else ... and they STILL dont....
"Stability creates instability!" is not a predictive/deterministic statement...
Bill is probably biased towards simple Identities from his background in Mathematics ...
Mathematics is largely about Identities...
https://en.wikipedia.org/wiki/Identity_(mathematics)
ANY institution that would use Modified Accrual Accounting (not just CBO) where you have to use Cash Basis on the left and Accrual Basis on the right would show projected (permanent) financial deficiency on the left (asset) side... this is just a typical illustration via Modified Accrual methodology...
so then what happens is leading govt spending increases and the depositories leverage this small increase in the leading flow and tax revenues increase more than leading flow feeding
USDs back into the Treasury accounts and surpluses can result ... unless govt passes a tax cut (see Bush2 tax cuts and now Trump tax cuts..) in the process and if so govt can remain in deficit or near balance...
If they dont pass a tax cut in the process, surpluses result and Treasury has typically ( though interestingly not in the current cycle) kept these surpluses in Depository accounts which increase reserve assets (similar to a QE policy) and banks become capital deficient and have to stop establishing other forms of credit which causes the resultant slowdown we often see following surpluses...
kept these surpluses in Depository accounts which increase reserve assets (similar to a QE policy) and banks become capital deficient Franko
No. Reserve assets are risk-free and should require no capital backing.
Well they do require it the way it currently is set up...
S.2155 might be making that change ....
As for slowdowns, Federal surpluses result in a net decrease in private sector deposits, i.e. the net destruction of private sector purchasing power.
Wrong, the Treasury typically deposits the surplus USD balances...
The US Treasury is not the private sector.
Depositories ARE nongovt ... reserves at the CB are assets of the depositories therefore they require capital and are part of the measurement of any bank Leverage ratio
Maybe stop watching John Hagee for a few months and audit a course in corporate finance...
Make that non-bank private sector then to reduce the probability of confusion.
A good thing about Bill Mitchell - he calls positive yields on the inherently risk-free debt of a monetary sovereign "corporate welfare" - which they are.
Bills oblivious to how much Treasury Securities that the US pension funds have and the financial harm that the near zero US rates are causing to state and local govt expenditures that effect employment...
Welfare, Franko, should be proportional to need or at least distributed in some manner that does not violate equal protection under the law instead of proportional to account balance.
So yes, let's generously fund pensions in the the proper manner and the revenue for that funding can include negative interest/yields on the inherently risk-free debt of the monetary sovereign.
Likewise, the Federal Government can revenue share with the States in a manner that does not violate equal protection under the law.
MMT: So-called progressives as trailblazers for Trumponomics
Comment on Bill Mitchell on ‘The distinguished economists just embarrass themselves’
There is microfounded standard economics, the Keynesian macro opposition, and MMT. Standard economics in its actual incarnation as DSGE is at the lowest possible proto-scientific level. Supply-demand-equilibrium is scientifically not more than a 140+ years old running gag. Keynesianism is methodologically not superior but simply replaces the most glaring idiocies of the neoclassical optimization-and-equilibrium world with plain common sense. Politically, Keynesianism relaxes the maxim of public budget balancing and extends it over the business cycle. MMT carries this one step further to permanent deficit spending, albeit with a progressive agenda. Progressive means that MMTers see themselves as trailblazers for the cause of the ninety-nine-percenters.
Accordingly, Bill Mitchell summarizes the critique of his academic peers as follows: “While I would not support the increased US fiscal deficits under current policy proposals from Donald Trump, I would welcome increased deficits if the policy mix was skewed towards introducing a Job Guarantee, improving public infrastructure, expanding the welfare support and improving schools and hospitals.”
MMTers have lobotomized the public for years with the twin slogans deficits are good for you and debt does not matter but now, as they have got what they argued for, they seem to be not so happy about the distributional consequences of the huge deficit blow-up.
This is a political farce. Macroeconomics, more specifically, the axiomatically correct sectoral balances equation tells everyone that Public Deficit = Private Profit and that it does not matter at all whether the deficit is produced by social or military spending or by tax reductions for the one-percenters. MMT claims that its economic policy agenda benefits the ninety-nine-percenters which is simply not the case.#1, #2
The only question is whether MMTers are so stupid that they do not understand how the monetary economy works or whether they deliberately deceive the public.
In his post, Bill Mitchell reproduces the familiar MMT sectoral balances chart#3, #4 and then goes on to explain: “The following graph shows the annual sectoral balances from 1960 to 2017. I then used the CBO’s projections from 2018 to 2028 to extrapolate the balances out to 2028:
1. Blue line – Government fiscal balance as a percent of GDP.
2. Green line – External balance as a percent of GDP.
3. Grey line – Private domestic balance as a percent of GDP.
The facts are obvious.
1. The US has a persistent and fairly stable current account deficit of around 2.5 to 3 per cent. CBO does not expect that to change very much.
2. The fiscal retreat in the recent years saw the private domestic balance shrink to nearly zero.
3. The projected movement in the fiscal state allows the private domestic sector to save overall and provides the conditions for that sector to start reducing its massive debt exposure, which, after all, was the cause of the GFC.
4. If the fiscal deficit falls below the current account deficit then the private domestic sector starts to dissave overall – spend more than it earns and starts accumulating increased debt.
5. From the graph, there is not much leeway before that private domestic sector overall leveraging starts to occur, given the size of the external balance.
6. The on-going fiscal deficit is thus not only underpinning growth but also allowing the private domestic sector to deleverage its financial position (save overall).”
See part 2
Part 2
Note that the “private domestic sector” is the pivotal MMT construct. Its function/effect is to lump the household and the business sector together which makes profit invisible.#5 The business sector’s profit and the household sector’s saving is lumped together under “overall saving of the private domestic sector”. This methodologically inadmissible operation is called the Humpty Dumpty Fallacy.
Fact is that the Trump budget will explode private profit according to the macroeconomic Profit Law Qm=Yd+(I−Sm)+(G−T)+(X−M). Whether this profit boost for the one-percenters is really in accordance with their progressive agenda is a question for the MMTers to answer.
What Bill Mitchell seems not to know is this: because Public Deficit = Private Profit the one-percenters and their useful academic/ journalistic spokespersons should consistently argue FOR deficit spending and the ninety-nine-percenters and their progressive academic/journalistic spokespersons should consistently argue AGAINST it. Only fake progressives blaze the trail for Trump’s Make The Deficit Great Again.#6
Egmont Kakarot-Handtke
#1 MMT, money printing, stealth taxation, and redistribution
http://axecorg.blogspot.de/2017/11/mmt-money-printing-stealth-taxation-and.html
#2 MMT is ALWAYS a bad deal for the 99-percenters
https://axecorg.blogspot.de/2017/12/mmt-is-always-bad-deal-for-ninety-nine.html
#3 US Sectoral Balances
https://www.dropbox.com/s/lnunhf12oce53c9/Bill%20Mitchell%20US_sectoral_balances_1960_2028.jpg?dl=0
#4 Down with idiocy!
https://axecorg.blogspot.de/2017/12/down-with-idiocy.html
#5 MMT and the magical profit disappearance
http://axecorg.blogspot.de/2017/08/mmt-and-magical-profit-disappearance.html
#6 Keynes, Lerner, MMT, Trump and exploding profit
http://axecorg.blogspot.de/2017/12/keynes-lerner-mmt-trump-and-exploding.html
" reducing its massive debt exposure, which, after all, was the cause of the GFC."
If the borrowers could not evidence income to get the loans then the loans would not have been awarded in the first place...
so your statement here makes no sense...
You've heard of NINJA loans, right?
If the borrowers could not evidence income to get the loans then the loans would not have been awarded in the first place...
Franko
Yes NINJA loans (thank you Tom) but also the boom-bust cycle inherent in the massive* lending of purchasing power into existence can easily turn performing loans during the boom into non-performing loans during the bust.
*Massive because private credit creation is privileged by government. OTOH, 100% private banks with 100% voluntary depositors could not create such massive loan deposits because the corresponding liabilities would be GENUINE liabilities wrt the non-bank private sector and not largely the sham they are today due to government privilege for depository institutions.
Matt Franko, Tom Hickey, Andrew Anderson
Your small-talk about non-performing loans cannot distract from the great MMT-embarrassment.
• Bill Mitchell deceives the public about the negative distributional effects of MMT policy for the ninety-nine-percenters.
• MMT is scientifically worthless because it is based on the Humpty Dumpty Fallacy which is a disqualifying methodological blunder.
• The self-stylisation of MMT academics, Wall Street sponsors, and blogosphere sales-trolls as progressives is a plain political fraud.
Egmont Kakarot-Handtke
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