While MMT holds that governments do not need to issue bonds, MMT does not hold that government's should not issue bonds. MMT only holds that bond issue is not necessary operationally for funding deficit spending. Therefore, bond issuance may constitute a subsidy for savers unless issuance can be justified on grounds other than funding.
Some MMT economists recommend retaining bond issuance for reasons other than funding. For example, the issuance of safe assets contributes to the stability and operation of the financial system, and it protects ordinary savers, e.g., through pension systems. In the US, individuals can purchase Treasury securities through Treasury Direct.
In addition, like the policy rate, the rates along the yield curve serve as benchmarks.
So, issuance of government securities plays other roles than funding.
In short, safe assets bearing some interest reduce risk in the system to some degree. For example when the ratio of public debt to private debt is higher, systemic risk is lower. And owing to the safety factor, savers are willing to accept lower rates on public debt than private debt. This serves as a check on accumulation of private debt. This is significant in the financial cycle based on Minsky's financial instability hypothesis, for instance.
From the operational standpoint, a government could choose to issue only settlement balances in the payments system and set the policy rate to zero. But this may not be the only factor or even the chief factor. It is a matter for debate whether a government is best advised to do this.
If iit is decided to issue bonds, then a governments should tie securities issuance to the deficit but rather issue securities to meet demand for safe assets. There is no operational need to limit securities issuance, and in spite of conventional views, bond issuance doesn't reduce the putative inflationary effects of government currency issuance through spending appropriations.
In the case of continued bond issuance, interest rates along the yield curve would have to be kept low enough not to compete with investment funding by encouraging saving over investment. That is, interests rates on longer term securities would have to be lower on average than the profit rate.
MMT economists recommend that the current monetary policy of raising the policy rate to "control inflation" by increasing yields toward the profit rate should be abandoned in favor of functional finance, pointing out that monetary policy is a shotgun approach while functional finance is a targeted one. In addition, monetary policy favors savers over borrowers and the current approach to monetary policy based on NAIRU uses the inflation rate as a target and the unemployment rate as a tool, disadvantaging workers.
Functional finance aims at achieving optimal growth, actual full employment and price stability using fiscal policy based on automatic stabilization and a job guarantee that also works as a price anchor. MMT economists have developed a considerable literature articulating this approach, which they admit is not original with them. Rather, it has been dismissed by conventional theory with conventional economists asserting that the methodological debate is over as justification for ignoring heterodox theories and policy proposals based on them.
MMT economists recommend that the current monetary policy of raising the policy rate to "control inflation" by increasing yields toward the profit rate should be abandoned in favor of functional finance, pointing out that monetary policy is a shotgun approach while functional finance is a targeted one. In addition, monetary policy favors savers over borrowers and the current approach to monetary policy based on NAIRU uses the inflation rate as a target and the unemployment rate as a tool, disadvantaging workers.
Functional finance aims at achieving optimal growth, actual full employment and price stability using fiscal policy based on automatic stabilization and a job guarantee that also works as a price anchor. MMT economists have developed a considerable literature articulating this approach, which they admit is not original with them. Rather, it has been dismissed by conventional theory with conventional economists asserting that the methodological debate is over as justification for ignoring heterodox theories and policy proposals based on them.
Choices involve tradeoffs. In policy formulation, if options are divergent, it becomes a political question. Regarding bond issuance, there are arguments on both sides of whether to issue bonds. There is not unanimity among MMT economists on this issue.
My view is that if there would be a political decision to go to a no-bonds policy, then the policy should be implemented gradually to allow the system to adjust to the new rule.
Tax Research UK
Why governments need to issue bonds despite modern monetary theory
Tax Research UK
Why governments need to issue bonds despite modern monetary theory
Richard Murphy
39 comments:
It they don’t issue bonds then non risk reserves will accrue to the depositories to the point that the depositories violate the SLR and banks will at that point have to start to liquidate risk assets to maintain regulatory compliance just like in 2008 in the US .... ie they would be viewed as insolvent unless they would liquidate risk assets in response....
To my knowledge no MMT literature contains the letters S, L and R in a row....
“MMT only holds that bond issue is not necessary operationally for funding deficit spending.”
That’s false unless you make a simultaneous recommendation to have govt adjust (down) the requirement to maintain a minimum total leverage regulatory ratio at the depositories which they don’t... eventually the depositories would have to shut down if reserves are not reduced via securities issuance and with the shutdown of the depositories the whole payment system would shut down... (eg see China this week making payments in livestocks....)
So it is “operationally necessary” because without it, the payment system would eventually cease to “operate”...
Matt:
Why on Earth would the "depositories" (by which I assume you mean commercial banks) have to "shut down" just because they find themselves in posession of more reserves than previously? As a result of QE, they're awash with reserves RIGHT NOW. It's news to me that that's a big problem for them.
Tom, the "functional finance" link seems to be broken. And could you expand on "MMT economists recommend that the current monetary policy of raising the policy rate to "control inflation" by increasing yields toward the profit rate should be abandoned in favor of functional finance" anyway? How FF would change the use of interest rate policy?
Ralph with no bonds it would be QE on steroids...
US has like 20T of bonds issued ... this would require over 1T of capital to leverage... that is about all banks already maintain...
They would have to liquidate all other assets which they couldn’t/wouldn’t do...
Just the initial reserve increase of a couple 100b in September 2008 was enough to shut the us credit market down... look at China they added only 750b CNY (110b USD) last month and people are having to settle in livestock now...
They add 10s of $T the whole payments system would shut down... they don’t have the capital...
Thanks for the heads up, Clint. The link is fixed and I added a couple of paragraphs in explanation. The link is a a paper by Stephanie Kelton explaining FF and the use of it in fiscal policy.
Banking system operation is a non-issue. Banks will always have government liabilities of some sort for liquidity management.
The issue is for non-bank finance. Many entities (trusts) need risk-free liquid assets, and they will be beyond deposit guarantee limits. They need something like T-Bills, which the “Mosler plan” provides for (at least the text that I read).
The next line of objection is pension policy. We have forced people to provide for their own pensions; providing them a safe asset is pretty much hecessary. The private sector cannot create safe assets efficiently (al they can do is provide a wrapper for government liabilities).
Financial stability is the next line. As Minsky emphasised, government bonds provide a stabiliser for private sector portfolios. If they are long duration, their price goes up, that creates buying power to stabilise financial markets.
The last leg is the use of interest rate policy to stabilise the economy. Although there is skepticism about this in the MMT community, it is not the “party line” that interest rate policy absolutely has noeffect on the economy. Realistically, at least 90% of economists believe that interest rate policy is effective, and so it would be a huge use of political capital to fight for permanent 0% rates.
Clint,
You ask “How would functional finance change the use of interest rate policy?”
Well the answer depends on whose version of FF you favour. Lerner claimed interest rates should be adjusted if some group of economists / bureaucrats thought they were too high or too low. Personally I think the idea that the latter two groups of fallible individuals might know better than market forces is nonsense.
An alternative version is the Warren Mosler version where government borrows NOTHING: i.e. issues no bonds. In that case it’s a bit difficult to adjust interest rates because interest rates are adjusted by having the central bank buy or sell those bonds.
Milton Friedman advocated much the same here:
https://miltonfriedman.hoover.org/friedman_images/Collections/2016c21/AEA-AER_06_01_1948.pdf
At least he certainly advocates no government debt, and advocates an end to Fed “open market” operations, so that means an end to interest rate adjustments I assume.
Matt,
"To my knowledge no MMT literature contains the letters S, L and R in a row..."
No, the MMT literature tell us about the profitability. Banks make their decisions considering profitability. And the equity requirements (including the Leverage Ratio) are one of many kinds of components of the profitability.
The Leverage Ratio is a new legal requirement that obliges banks to hold in equity an amount of at least 2 to 6% of the total assets, depending on the country and size of the bank. This kind of rule doesn't exist in some countries, and I do not know the rules of every single country in this world, some exceptions may exist.
The Leverage Ratio doesn't differentiate between assets. If a bank has $ 100 in bank reserves, bonds, credit portfolios or anything else it will need to hold $ 2 to $ 6 in equity. It doesn't sound the end of the world, does it?
When a government spends, giving money to the private sector (in exchange for labour, goods and services) chances are that the private sector will want to deposit most of it in banks, in many forms, including current accounts, savings accounts and term deposits.
If banks find it profitabile, they will seek customers/investors to get the money and invest it into remunerated bank reserves, bonds, credit portfolios and many other endeavours. If the banks don't find it profitabile, they will not seek the funds. They will reduce their investment in marketing, will charge more to customers, they will reduce the remuneration, and so on.
Rising the Leverage Ratio or any other binding equity requirement will somehow impact banks' profitability and so their decisions.
However, I cannot see how the exchange of bonds to reserves or vice-versa changes the Leverage Ratio.
And I'm pretty sure that you don't understand much about the SLR... or you wouldn't be discussion it so much and putting so much importance to something that isn't important...
Tom, thanks for expanding on that. Useful post.
The link is still not opening for me...maybe problem is on my end
Matt,
I agree that disposing of government bonds is QE on steroids. But remember that the people who impose capital requirements on banks pitch capital requirements at a level that reflects risk. If billions of dollars worth of Treasuries are bought back by the Fed, or Treasuries are not rolled over as they mature, then that money will, at least initially be deposited at commercial banks, which in turn will deposit it at the Fed. Thus commercial bank’s assets rise by the same amount as their liabilities, plus the NATURE of those assets and liabilities is the same. Thus there’s little increased risk.
Also remember that full reserve banking has been viewed by several Nobel laureate economists as perfectly feasible and that involves banks having 100% capital ratios, never mind the 5% or so they currently have. You may not agree with full reserve (I do), but certainly it would be feasible.
It would involve a rise in interest rates, but what of it? The existing record low rates are not an unmixed blessing: they’ve promoted house price bubbles etc.
Brian,
Re your claim that Mosler favors T-bills, he says quite clearly in a Huffington article (2nd last para) that “I would cease all issuance of Treasury securities.” See:
http://www.huffingtonpost.com/warren-mosler/proposals-for-the-banking_b_432105.html
Re your claim that “safe assets” are needed for pension schemes, there are trillions of dollars worth of non-government provided assets available for that purpose: the stock exchange, land, houses, etc. Also, a pension scheme does not necessarily need any assets at all: there are “pay as you go” pension schemes where today’s pensioners are funded by those of working age who contribute to the scheme.
Also if base money replaces T-Bills, the total stock of government provided assets will not necessarily decline all that much: it’s just that the assets no longer yield interest.
As to whether government OUGHT to borrow and pay interest on such borrowing, I’m all for that if someone comes up with a good REASON for doing that. Milton Friedman and Warren Mosler couldn’t see any good reasons and nor can I.
We have forced people to provide for their own pensions; providing them a safe asset is pretty much hecessary. Brian Romanchuk
Thereby providing welfare proportional to account balance rather than equally to all citizens (i.e. a Citizen's Dividend) and/or proportional to need.
"Also remember that full reserve banking has been viewed by several Nobel laureate economists as perfectly feasible and that involves banks having 100% capital ratios, never mind the 5% or so they currently have"
Full reserve banking is about having a 100% liquid assets to deposit ratio, and not a 100% equity to assets ratio.
People are confusing the asset side with the liability side a lot in many recent posts...
Ralph Musgrave: Lerner claimed interest rates should be adjusted if some group of economists / bureaucrats thought they were too high or too low. Personally I think the idea that the latter two groups of fallible individuals might know better than market forces is nonsense.
Ralph, there are and can be no market forces magically, independently setting interest rates etc on government bonds. It is like saying the value of a Lincoln vs a Washington is set by market forces. If you're talking coins it is 25 to 1, if bills it is 1 to 5. Does anybody really think these are set by market forces?!
If the government decides on an interest rate = price on a bond = deferred tax credit it issues in terms of the cash/reserves = tax credits it issues, that is what the price / interest rate will be. The private sector can decide on what total and mix of bonds and cash it wants to hold. That is the only "market force" in operation here. It is not different from a retailer deciding what number and proportion of pennies and quarters to keep in its cash registers and what to deposit in the bank.
If the government decides to auction a set quantity of bonds in trade for its reserves, the "market forces" will decide on some price / interest rate.
But notice the "If the government decides" in either case. Eveything is predicated on this decision by "fallible individuals", "economists / bureaucrats". These major decisions have to happen before any "market forces" can exist to make minor, subsidiary decisions. What is described as Lerner's proposal is really a logical necessity. The alternative of leaving it all to market forces is entirely imaginary because it is logically impossible. God could not do it.
From the operational standpoint, a government could choose to issue only settlement balances in the payments system and set the policy rate to zero. Richard Murphy
Who says there should only be one payments system - the one that must work through banks? Hence justifying all sorts of privileges for the banks lest the one and only payment system (except for mere physical fiat, coins and bills) fail and wreck the economy?
Why shouldn't we also have an additional, risk-free, always liquid payment system consisting of debit/checking accounts at the Central Bank itself for all citizens, their businesses, State and local governments, etc. alongside those of the banks and other depository institutions? And all other privileges for the banks be abolished too?
Why does our system cater to banks and the rich rather than serve the citizens as it should?
My bad, Clint. Fixed now
here is the link for convenience.
http://www.levyinstitute.org/publications/functional-finance
Neil thought about this a lot.
"Note therefore that Lerner takes for granted that excess private sector, outside-money holdings place downward pressure on interest rates, which can be alleviated by issuing additional public debt to drain this excess liquidity from the private sector"
Money is a zero-interest perpetual bearer bond. It drives the interest rate at the bank level to zero - hence Warren's "The natural rate of interest is zero" model.
Similarly issuing bonds drives up the interest rate. That's how 'open market operations' hits the target interest rate.
The rest of the yield curve follows from the base rate via market forces - unless the central bank intervenes to map yields at higher maturities.
There is no magic in bonds as far as I can see. They are just a different sort of money that floats against the base money the same as a foreign currency.
If people don't want zero interest perpetual bearer bonds, then their only option in aggregate is to spend them on real things, which generally causes taxation to happen and some of them disappear. That process keeps going until the excess vanishes.
"To me it looks like bonds are desired because they are risk-free assets, not necessarily because they provide a return, though that is a factor in their desirability."
If the private sector doesn't want the bonds, then the central bank will buy them. Or alternatively you just leave people with zero-interest bearer bonds.
If there is too much investment the alternative to trying to do things indirectly with interest rates is to stop the banks lending with asset side regulation.
Far too much of this extreme Keynesianism is still trying to drive things with interest rates.
In a response to the 1945 National debt enquiry apparently.
Memorandum by Keynes for the National Debt Enquiry – 21 June 1945 in The Collected Writings of JM Keynes, Volume XXVII (27), pp 406-407.
The quote is “It is important to emphasise that it is no part of the purpose of the Exchequer or the Public Capital Budget to facilitate deficit financing, as I understand the term. On the contrary, the purpose is to present a sharp distinction between the policy of collecting in taxes less that the current non-capital expenditure of the State as a means of stimulating consumption and the policy of the Treasury’s influencing public capital expenditure as a means of stimulating investment. There are times and occasions for each of these policies: but they are essentially different and each, to the extent that it it is applied, operates as an alternative to the other”
But perhaps the quote from pp 323 is more useful to our cause:
‘Emphasis should be placed primarily on measures to maintain a steady level of employment and thus to prevent fluctuations. If a large fluctuation is allowed to occur, it will be difficult to find adequate offsetting measures of sufficiently quick action’.
The problem you have, of course, is that Keynes was writing in the Smokestack era, after the destruction of the Second World War – when capital structures were in ruins – not the information era of the 21st century where finding something worth investing in is like looking for a needle in a haystack. I can’t imagine an 80% service economy was in his mind at the time.
There are loads of references to this quote in books that then say things like “It must be concluded that there is no foundation for considering budget deficits as a positive part of employment policy” (Kregel, J.A. (1985) ‘Budget Deficits, Stabilisation Policy and Liquidity Preference: Keynes’s Post-War Policy Proposals’, in F. Vicarelli (ed.) Keynes’s Relevance Today. London: Macmillan.)
What’s really interesting is the discussion about the positioning of expenditure above and below “the line” in the Exchequer accounts.
Another writer notes that at the time: “in the best Gladstonian tradition … On the expenditure side, what matter was expenditure above the famous “line in the Exchequer accounts, dating from the Sinking Fund Act of 1875, broadly … distinguishing a revenue account from a capital account – but by no means unambiguously … Only an old Treasury hand could be expected to know the difference between this hybrid accounting framework .. therefore, the simple moral imperative of balancing the budget was in practice wrapped in the esoteric conventions of the public accounts’.
Fiscal Policy in Economic and Monetary Union: Theory, Evidence and Institutions
There is also an interesting document referenced by Yanis Varoufakis written by Tony Aspromourgos on Keynes, Lerner and the Question of Public Debt.
The key reference seems to be that 1985 article by Kregel which seems to have been very influential.
Neil's solution was,
Use the Ways and means account instead
The Ways and Means Account is just an infinite overdraft with the Central Bank, and it grows over time to balance the net-savings of the non-government sector just as the Gilt stock does now.
HM Treasury simply doesn't issue any Gilts any more. Any funding of private pensions in payment should be done by offering annuities at National Savings, which would also have the neat side effect of 'confiscating' net savings and making the deficit go down.
It's irrelevant what interest BoE charges on the 'Ways and Means' account since any profit the BoE makes from it goes back to HM treasury anyway. So it can 50% if that gives the necessary level of satisfaction to mainstream economists.
What you have is a standard intra-group loan account between a principal entity (HM Treasury) and its wholly-owned subsidiary. Normally those sort of loans are interest free for the fairly obvious reason that interest charging is utterly pointless, and they are perpetual for the same reason. Rolling over is totally pointless.
Any term money can then be issued to the commercial banks directly by the Bank of England - up to three month Sterling bills.
Those going to see Warren in MK can ask him why commercial banks need three month money, rather than just a permanent interest free overdraft at the central bank.
"So no bonds would be issued at all, interest rate would be set at zero and the ways and means accounts holds the deficit ?"
To the Treasury yes.
The interest rate to the banks from the Bank of England is a matter of the 'capital development of the economy'. Almost certainly it would be ZIRP.
"What's the nuts and bolts of this and how would it work ?"
If you are a member of a pension scheme then the savings of the current generation, plus the interest on Gilts and any income from the other assets owed pay the pensions of the current generation of pensioners. They are all, in effect, private taxation schemes that circulate money around the system.
You'll note that when there was a threat of people failing to save in pensions, the government introduced compulsory retirement saving - which is of course a privatised hypothecated tax.
So in essence rather than the assets of a pension scheme being used to purchase Gilts, the assets would be used to purchase an annuity from the government dedicated to an individual. The result is that rather than the private pension receiving Gilt income from the state, to then pass onto the pensioner, the state would cut out the middleman (and their cut) and pay the pensioner directly as an addition to the state pension.
So it's all roughly the same thing, but it makes the accounting look better to those bears of very little brain.
There's a whole private pension industry out there literally doing absolutely nothing of any real value. They can't provide a guaranteed income in retirement without state backing in the form of Gilts. So what is exactly the point of having them?
And also put this on 3 spoken
https://web.archive.org/web/20171025153424/http://www.3spoken.co.uk/2015/09/gilt-issues-considered-harmful.html
“However, I cannot see how the exchange of bonds to reserves or vice-versa changes the Leverage Ratio.“
If there are no bonds issued then savers will have to use depository accounts and this will effect (increase) depository’s reserve asset levels causing a violation of the regulatory ratio... depositories will then have to cease operations...
Ralph:
" But remember that the people who impose capital requirements on banks pitch capital requirements at a level that reflects risk. "
Leverage Ratio requirement does not reflect risk... it uses total assets including reserve assets...
This is why in China we see them having to use real livestock as settlement right now...
iow a routine short term agriculture loan for the pork producers against the pork products as collateral cant be granted at this time by the system due to the CB adding 750B CNY of reserves (non-risk) a few weeks ago which displaces the authority for the system to establish any additional ag loans (risk assets) until the depositories can flow some income to retained earnings and thus increase regulatory capital to enable them to increase assets again...
LR = Capital / (Risk Assets + non Risk Assets)
So govt authority adding non Risk Assets displaces Risk Assets for constant Capital and LR...
Andre,
What is your explanation then?
You arent explaining anything...
Situation has evolved from the apes by random chance mutation?
Calagus,
I didn’t say market forces SHOULD set the rate on government bonds: I said market forces should set the rate on all other loans / bonds.
Matt,
According to this Wiki article (opening sentence), the capital ratio banks are supposed to have depends on risk. Google something like bank / capital / “risk rating” / Basel and you’ll find other articles confirming that.
https://bankingjournal.aba.com/2017/08/abas-carney-its-time-to-revisit-leverage-ratio/
"Set at twice the international standard, the SLR “affects U.S. competitiveness and the ability of U.S. banks to provide financial services to their clients,” Carney said. “More troubling is the fact that excessive amounts of capital needed to maintain the leverage ratio can actually increase — rather than reduce — risks to the financial system, impeding banks’ flexibility when responding to changes in economic conditions and assisting their customers in adjusting to changing economic winds.”
You guys dont know what you are talking about...
Here: "impeding banks’ flexibility when responding to changes in economic conditions"... they cant make routine ag loans in China and pork producers are having to settle in livestock like we are back in the f-ing stone ages... HEEELLLLLLLOOOOOO!!!!!
More there:
"he clearest solution, Carney noted, would be to exempt essentially risk-free assets such as Treasury securities and banks’ deposits held at the Federal Reserve. “This change would create a more rational and effective leverage ratio that is concerned with a bank’s genuine balance sheet risk and is more focused on protecting the financial system as a whole,” he said."
Are you morons even able to just read?
They literally TELL YOU what they are doing...
How THICK are you guys????
CBs add 100s of billions of reserve assets as policy and shut down the credit window ALL THE TIME....
We stop issuing bonds which currently acts to reduce reserves and the whole payment system will shut down as banks will not be able to accept deposits anymore...
Here dumb-shits:
https://www.americanbanker.com/opinion/raising-leverage-ratio-weakens-bank-liquidity
"Since 2008, while the U.S. economy has struggled, deposits have risen by $2.6 trillion, often with pronounced temporary spikes that remain on a bank's balance sheet for just a few weeks. A recent example of this occurred during the politically charged debt-ceiling crisis. At that time, deposits jumped by $73 billion, according to Federal Deposit Insurance Corp. data."
"Without a way of managing deposit surges, banks may find themselves suddenly undercapitalized and in violation of regulation. Under these circumstances, a higher leverage ratio could turn a political crisis, such as the debt-ceiling brinkmanship, into a banking crisis, as banks are forced to shed assets"
At debt ceiling, Treasury cant issue additional securities so savings have to go into depository accounts which increases non-risk assets and reduce the regulatory ratio towards violation of the threshold value....
"no bonds" would crash the whole system...
If you look at it, you guys may actually be dumber than the bankers...
"This is why in China we see them having to use real livestock as settlement right now..."
Are you claiming that the Leverage Ratio has anything to do with that China thing? You are nuts. I was going to explain why, although it is obvious. But now I think I would be just wasting my time.
"We stop issuing bonds which currently acts to reduce reserves and the whole payment system will shut down as banks will not be able to accept deposits anymore..."
That is not how things work. That is how it works: the government spends, the private sector gets the currency and decides what to do with that. They may let it in bank reserves or in gov bonds or in many other asset classes. There isn't much difference between bonds and reserves for Leverage Ratio or the Basel Ratio. If a government stop issuing bonds, then the private sector will put their money in bank reserves (more so if they are remunerated) or invest in any other thing, probably riskier.
The big issue is how much the government spends, and not whether it will issue bonds or not.
If the government decides to spend a lot, and the private sector recipient decide to put their currency in a bank (instead of directly buying bonds or doing anything else with the currency), more than the bank can absorb (because of LR), then the will charge fees or do a lot of things to stop the deposits and/or earn more profit.
"Here dumb-shits:
https://www.americanbanker.com/opinion/raising-leverage-ratio-weakens-bank-liquidity"
That is the usual lobbying when the Basel Committee or anyone tries to rise equity requirements. The bankers say that the world will implode and everything will go to chaos. I didn't now you give attention to what bankers say...
"At debt ceiling, Treasury cant issue additional securities so savings have to go into depository accounts"
Why?
"Andre, What is your explanation then?
You arent explaining anything..."
Well, I think I am. I think that now is the first time I didn't, because I'm tired of repeating myself and I have more interesting things to do instead of just repeating that the LR is not what you think it is, and that it is not as important as you think it is
#PublicDeficitIsPrivateProfit
#MMT
#JustAnotherFraud
As always, much operational blah blah and the complete loss of the big picture. Not one word about distributional effects.
Because PublicDeficitIsPrivateProfit if deficit up ⇒ profit up ⇒ cash up ⇒ business sector’s need for riskless assets up. Solution Gov-Bonds. Extra benefit: interest on Gov-Bonds redistributes income from WeThePeople via taxes to the Oligarchy. Thank you very much.
MMT deficit-spending/money-creation is the double-whammy for WeThePeople and the double-whopper, i.e. profit+interest, for WeTheOligarchy.
Bravo, Stephanie Kelton, Warren Mosler, Richard Murphy, and the other Wall Street agenda pushers for caring so heartfelt for the needy people when the TV cameras are on.
Bravo, MMT trolls for making the swindle disappear in the econoblogosphere behind a smokescreen of senseless blather.
MMT: The one deadly error/fraud of Warren Mosler
https://axecorg.blogspot.com/2017/11/mmt-one-deadly-errorfraud-of-warren.html
Richard Murphy: the MMT fraudster dressed up as realist
https://axecorg.blogspot.com/2018/06/richard-murphy-mmt-fraudster-dressed-up.html
Egmont Kakarot-Handtke
"That is the usual lobbying when the Basel Committee or anyone tries to rise equity requirements. The bankers say that the world will implode and everything will go to chaos. I didn't now you give attention to what bankers say..."
Uh... yeah... they are the ones actually running the system hello.... not your fairy fantasy land beliefs that dont exist...
"If the government decides to spend a lot, and the private sector recipient decide to put their currency in a bank (instead of directly buying bonds"
What matters is whether the non govt decides to SAVE... not where they put it...
The whole thing here is a hypo on what would happen if govt stopped issuing bonds...
In that event any saving would have to be in deposit accounts and reserve assets would soar to levels that depositories would not be able to support...
Then you say: " then they will charge fees or do a lot of things to stop the deposits and/or earn more profit."
Your words here: "stop the deposits" LOL! how does a payment system operate when depositories dont accept deposits?????
And then why doesnt Deutsche Bank do that RIGHT NOW instead of losing munnie all the time and cant get out of the regulatory doghouse? You should give them a call with some advice.... try to tell them to stop accepting deposits see how it goes over with them....
OMG...
Matt,
With profits of 400 millions euros a quarter I don't think that Deutsche Bank is passing through a difficult moment... But bankers may claim that this is a kind of apocalyptic world end scenario, as usual
Matt Franko, André
Get out of the Deutsche Bank woods.
Who buys and holds Gov-Bonds? NOT the little man. It is, in a rather broad term, the Oligarchy who seeks for their idle cash some interest-bearing riskless liquid asset.
Why are Gov-Bonds deemed riskless? Because the Gov can exercise its power of taxation to get the interest from WeThePeople and transfer it to the bondholders. This government service saves the Oligarchy a lot of trouble.
The argument that the little man needs Gov-Bonds to beef up his small pension is the usual MMT social policy fake in the interest of Wall Street.
By the way, the little man is usually in debt himself. His credit card debt is securitized and also sold as an asset to people/institutions with surplus cash. These assets bear a risk premium because there is no government who guarantees timely interest and amortization payment through the power of taxation.
In the case of private asset-backed securities, the issuer is sometimes forced to engage the service of private bone breakers to secure timely payment of interest and amortization.
By the way, virtually riskless private bonds have been invented long ago in Italy and have been available, for example, in Germany since 100+ years in the form of Pfandbriefe (mortgage bonds). This construct needs a reliable legal framework. This framework is not in place in the US where Wall Street makes the laws.
Egmont Kakarot-Handtke
EKH:Because the Gov can exercise its power of taxation to get the interest from WeThePeople and transfer it to the bondholders.
Trapped in the (neo)classical reverse causation mode.
This is logically impossible; it entails time travel. Spending, including on interest comes first. Then taxation.
Again, the idea that deficit spending is necessarily welfare for the rich is a well-known non-sequitur. Universal experience is that MMT-recommended spending flattens income and wealth distribution - which should suggest that reasoning that holds the opposite needs to find the flaws in its logic.
The argument that the little man needs Gov-Bonds to beef up his small pension is the usual MMT social policy fake in the interest of Wall Street.
Generally reverses the sides of the argument. No bonds, ZIRP is basically the MMT position. You seem to agree.
This framework is not in place in the US where Wall Street makes the laws.
True, but finance is still less in control of the USA than the Eurozone.
ZIRP is basically the MMT position. Calgacus
ZIRP is just another privilege for the banks that is excused because our one and only payment system, besides mere physical fiat (coins and bills), must work through the banks or not at all.
With inexpensive (as it should be) fiat, the entire economy could use fiat via accounts of their own at the CB itself and thus we would have an ADDITIONAL but risk-free, always-liquid payment system that bypasses the banks.
So when are you MMT folks going to get serious about freeing the population from the necessary use of bank deposits rather than the free use of their own Nation's fiat? Or are you yourselves suffering from Gold Standard thinking? Or Stockholm Syndrome to the banks?
Calgacus
You say: “Trapped in the (neo)classical reverse causation mode. This is logically impossible; it entails time travel. Spending, including on interest comes first. Then taxation.”
This time travel nonsense is just silly MMT sloganizing. It originates from the false premise that money comes only in the economy by government deficit spending. This is plain wrong.
There are TWO ways to bring money into the economy. The correct way for the central bank to inject fiat money into the economy is by financing a growing wage bill. The incorrect way is the counterfeit-money-printer’s way that is by deficit-spending/money-creation.#1, #2
The first alternative has NO effect on macroeconomic profit, but the second has. The first alternative is distributionally neutral, while the second feeds the Oligarchy.
By applying a transaction graph#3 one can easily see that government can tax wage income as it is paid out and spend the money later. If this happens in the same period, G=T applies. No time travel anywhere. And no profit for the Oligarchy. No wonder that MMTers insist on bringing money in the economy via goverment deficit-spending.
Again, MMTers in general, and Calgacus, in particular, are stupid or corrupt or both.
Egmont Kakarot-Handtke
#1 The creation and value of money and near-monies
https://axecorg.blogspot.com/2017/12/the-creation-and-value-of-money-and.html
#2 MMT and the promotion of Wall Street socialism
https://axecorg.blogspot.com/2017/11/mmt-and-promotion-of-wall-street.html
#3 Wikimedia, Transaction pattern
https://commons.wikimedia.org/wiki/File:AXEC98.png
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