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.
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Sunday, September 6, 2020
The Implausibility Of The Lower Bound Escape Clause — Brian Romanchuk
Simon Wren-Lewis tries and fails. Brian explains why.
Brian seems to be arguing against the idea that the debt/GDP ratio might to to infinity. But who ever said it MIGHT to to infinity? No one that I know of. The most vociferous opponents of a high debt/GDP ratio over the last decade has been the well known collection of suspects: Kenneth Rogoff, Carmen Reinhart, etc. But all Rogoff said was that if the ratio rises above 90% there might be a problem.
The debt to GDP ratio relies upon the concept of interest rate feedback - which is a false notion in a sovereign monetary economy as it fails the "and what else do you plan to do with the money" test.
It's a failure to close the model and properly understand how savings stock.
Ralph, I responded to you on my site as well. That’s the technical definition of “unsustainable,” and I believed that SWL explicitly said as much on Twitter.
Brian seems to be arguing against the idea that the debt/GDP ratio might to to infinity. But who ever said it MIGHT to to infinity? No one that I know of. The most vociferous opponents of a high debt/GDP ratio over the last decade has been the well known collection of suspects: Kenneth Rogoff, Carmen Reinhart, etc. But all Rogoff said was that if the ratio rises above 90% there might be a problem.
ReplyDeleteRogoff was wrong about that as well.
ReplyDeleteThe debt to GDP ratio relies upon the concept of interest rate feedback - which is a false notion in a sovereign monetary economy as it fails the "and what else do you plan to do with the money" test.
It's a failure to close the model and properly understand how savings stock.
Ralph, I responded to you on my site as well. That’s the technical definition of “unsustainable,” and I believed that SWL explicitly said as much on Twitter.
ReplyDeleteAnything else is just hand-waving.