Saturday, December 22, 2018
Ben Holland — The Secret Behind Growth in Trump’s America Is Deficit Spending
MMT gets a mention. Increasingly, the mentions are not negative, just a statement of the MMT position. That's called educating the public.
Looking at the US economy, things are going quite well based on money creation, both through government injection and private credit extension. This is a reason that the Fed is raising rates as part of its reaction function to balance the trend, in addition to its commitment to normalizing after the effects of addressing the global financial crisis swelled the Fed balance sheet with government securities in order to "provide liquidity during a liquidity trap" by increasing the monetary base. (MMT shows why this strategy is wrongly conceived and won't have the desired effect.)
Raising the policy rate is a price increase that has an "inflationary" aspect in addition to a moderating influence by making credit more costly, which eventually has an effect on the housing market. Moreover, return interest bearing government securities to nongovernment increases interest income, which also has an "inflationary" bias.
But the so-called inflationary bias is due to the stimulative effect of these policy choices. There is no problem in absorbing the stimulus when the economy is still in an expansionary phase and is not "overheated," meaning that there is bidding for scarce resources that drives up market prices if the increased demand cannot be met by expanding production to meet the increased demand with increased supply.
The market's reaction seems therefore to be based on irrational pessimism, the opposite of "irrational exuberance on the upside. If this is so, the present market action would be more on the order of correction after a lengthy run up resulting in part from the historically low policy, instead of an indication of an emerging bear cycle or the signal of economic contraction. There are many factors involved in this sudden turn to pessimism with the monetary indicators signaling real expansion without any sign of accelerating inflation at this point. So the motivation is not without basis. However, the discounting seems excessive based on the factors, positive and negative. Again, "expectations."
Market price is based on both subjective and objective factors. The subjective rules in the day to day trading, while the objective — fundamentals, that is, facts — rules in the long run, that is, investing. Warren Buffet has built a fortune on understanding this and using it to pick up bargains at a discount.
If you want to understand more about this and how to use, treat yourself to a subscription to Mike's newsletter, which is based on using MMT principles in the current market. Info in the left side-panel.
Bloomberg
The Secret Behind Growth in Trump’s America Is Deficit Spending
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14 comments:
and private credit extension Tom Hickey
Except it's not really private but the extension of what is, in essence, the public's credit but for private gain.
But no problem because socialism will fix everything anyway - except those who have experienced real socialism disagree.
But, of course, they didn't have the right people to run things - except the right people don't believe in injustice to begin with - leaving only the wrong people to try to run other people's lives.
Rate increases do not control inflation - that's what taxes are for.
Rate increases do not control inflation - Noah Way
Correct since speculators profit off the spread between interest rates and prices.
that's what taxes are for. Noah Way
Why allow the Central Bank to create fiat for the private sector in the first place?
Also, why not allow the non-bank private sector debit/checking accounts at the Central Bank or Treasury itself to increase the DEMAND for fiat, thus countering price inflation?
And why not abolish other privileges for the banks since those allow the banks to create more price inflation than they otherwise could?
speculators profit off the spread between interest rates and prices. Andrew Anderson
That is an odd criticism coming from a non-Marxist, which I believe is your case.
To the best of my knowledge, the standard explanation given to profit by non-Marxists is that "one buys cheap and sells dear". One, in other words, profits off a price differential. That's what the guy who buys tomatoes at a farm's door and re-sells them for a profit at the market does. Do you criticise him for that?
Isn't that what the homeowner who buys a rural property cheap and sells it dear a couple of years down the track after it was re-zoned as residential does?
So, what makes one kind of speculation (tomatoes and property) smart, acceptable, or at least unremarkable, and the other (financial) odious, disgraceful, or sinful?
and the other (financial) odious, disgraceful, or sinful? Magpie
Unethical fiat and credit creation allows the banks and the rich, the most so-called credit worthy, to profit using what is, in essence, the public's credit but for private gain.
That's obviously wrong and is a major root of unjust wealth and income inequality.
To be clear, inexpensive fiat creation and low interest rates are, in themselves, both good but HOW fiat is to be created and HOW low interest rates are to be produced is a critical moral concern and determine if profits are justly earned or legally stolen.
Thanks for the question.
That's obviously wrong and is a major root of unjust wealth and income inequality. Andrew Anderson
First, Andrew, either you drop the attitude or I'll follow you. I think neither of us will enjoy that.
So, let me try for the second and last time.
You say it's obviously wrong. It's not obviously wrong for those who profit, is it? They say is obviously right. Why your opinion carries more weight than theirs?
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But, in fact, the question I asked can be put better in these terms: why financial speculation is wronger than other kinds of speculation?
That's the question I posed. You haven't answered it.
why financial speculation is wronger than other kinds of speculation? Magpie
I didn't say it was wrong, much less wronger.
My point is that government privileges* for private credit creation, i.e. government privileges for "the banks" is wrong and results in what is, in essence, the use of the public's credit but for private gain.
*e.g.s.
1) government provided deposit insurance instead of FREE debit/checking accounts for all citizens at the Central Bank or Treasury.
2) asset purchases from the private sector by the Central Bank.
3) positive yields on the inherently risk-free debt of a monetary sovereign - what Bill Mitchell calls "corporate welfare."
4) overdraft privileges for banks at the Central Bank.
5) any fiat creation by the Central Bank except for its monetary sovereign.
why financial speculation is wronger than other kinds of speculation? Magpie
I didn't say it was wrong, much less wronger.
My point is that government privileges* for private credit creation, i.e. government privileges for "the banks" is wrong and results in what is, in essence, the use of the public's credit but for private gain.
*e.g.s.
1) government provided deposit insurance instead of FREE debit/checking accounts for all citizens at the Central Bank or Treasury.
2) asset purchases from the private sector by the Central Bank.
3) positive yields on the inherently risk-free debt of a monetary sovereign - what Bill Mitchell calls "corporate welfare."
4) overdraft privileges for banks at the Central Bank.
5) any fiat creation by the Central Bank except for its monetary sovereign.
Thanks for your reply, Andrew.
Frankly, you lost me with this: I didn't say it was wrong, much less wronger, for you did say before that That's obviously wrong and is a major root of unjust wealth and income inequality.
But never mind that.
This is your list of the privileges the government gives to banks:
1) government provided deposit insurance instead of FREE debit/checking accounts for all citizens at the Central Bank or Treasury.
2) asset purchases from the private sector by the Central Bank.
3) positive yields on the inherently risk-free debt of a monetary sovereign - what Bill Mitchell calls "corporate welfare."
4) overdraft privileges for banks at the Central Bank.
5) any fiat creation by the Central Bank except for its monetary sovereign.
Correct me if I'm mistaken, but I think (1) benefits the depositor, the public, not the banks: in case of a bank run, the government guarantees account-holders their money. That's hardly a government-given privilege to the banks.
It'a not clear to me what is it you mean with (2), but I imagine you mean something like what the FED did during the credit crunch immediately after the collapse of Lehman Bros (TARP): the FED bought banks' financial assets at book price, when their market price was peanuts. The "toxic assets" thing. If that's what you mean, I'll agree that it looked like almost a subsidy to banks' recklesness (I say almost, because I understand the government made a profit over its investment, so the banks actually paid for the "subsidy"). But the problem is not the fact of buying bank assets, the problem is buying them for an inflated price. Moreover, the money the FED spent doing that came from nowhere and, as I said above, the banks eventually repaid the government.
I certainly agree with (3). The solution is simple: don't offer positive yields, like Bill Mitchell says.
I see no problem with (4).
Again, it's not clear to me what is it you mean with (5). In this case I rather not speculate.
Correct me if I'm mistaken, but I think (1) benefits the depositor, the public, not the banks: in case of a bank run, the government guarantees account-holders their money. Magpie
Accounts at the Central Bank are inherently risk-free and require no deposit insurance. So why can't citizens, at least, have debit/checking accounts at the Central Bank too, alongside those of the banks?
As for bank runs, once all privileges for the banks are eliminated, the only remaining depositors at private banks shall be 100% voluntary so why should anyone care, any more than we care about gamblers losing?
#DrainTheScientificSwamp
Ben Holland’s ‘The Secret Behind Growth in Trump’s America Is Deficit Spending’ is NOT a secret but old stuff since Keynes.
Keynes, Lerner, MMT, Trump and exploding profit
https://axecorg.blogspot.com/2017/12/keynes-lerner-mmt-trump-and-exploding.html
Keynesianism as ultimate profit machine
http://axecorg.blogspot.com/2015/07/keynesianism-as-ultimate-profit-machine.html
Egmont Kakarot-Handtke
Accounts at the Central Bank are inherently risk-free and require no deposit insurance. So why can't citizens, at least, have debit/checking accounts at the Central Bank too, alongside those of the banks?
As for bank runs, once all privileges for the banks are eliminated, the only remaining depositors at private banks shall be 100% voluntary so why should anyone care, any more than we care about gamblers losing? Andrew Anderson
I'm sure you are right about accounts at the Central Bank requiring no deposit insurance, Andrew. One could say that your idea solves the problem of bank runs without the need to protect depositors. All that may be true and I'm happy to agree with that.
That, however, does not make deposit insurance a government-given privilege to banks.
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Incidentally, returning for a quick moment to the issue of the wrongness or not of financial speculation as compared to other forms of speculation. I'm happy, too, to leave that subject behind, for I didn't expect we would make any progress towards an ethics or morality-based critique of the notions of speculation and profit.
That kind of critique has been attempted since capitalism appeared. We all feel, deep down, that there's something wrong with the notion of "profit". But morality is not the route to find out what's wrong with it. It leads nowhere. The task, in my opinion, is impossible.
So, let me propose something. Today's Christmas (a merry one to you and yours, btw). Let's leave things at that. I'm sure we both have better things to do.
Merry Christmas to you too!
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