Regardless of whether it is called MMT, the trend is now mostly fiscal. Monetary policy is over as central banks "used up all their ammo" and the "bazooka" is still smoking, to no effect. We are entering new territory.
It's mostly fiscal
Christian Kopf | Head of Fixed Income Fund Management at Union Investment
George Selgin hates it.
Ground Proposals for “Helicopter Money”
George Selgin
35 comments:
George Selgin is clueless. His central objection to helicopter money in that article is that “…having supplied it, the Fed has no easy means for taking it back.” And thus that “By making an irreversible addition to the money stock, the Fed credibly commits itself to accept a higher equilibrium inflation rate.”
Well the first flaw in that idea is that the Fed still has a way of combating inflation: raise interest rates.
As to “taking back”, it’s perfectly true given how responsibilities are currently allotted to central banks and governments that the Fed can’t do that. But helicoptering involves a VERY DIFFERENT set up which thus requires a different allocation of responsibilities which COULD ENABLE the Fed to “take back”.
Some good ideas as to what the latter allocation of responsibilities might look like were set out ten years ago by Positive Money, New Economics Foundation and Prof Richard Werner (p.10-11 link below). Plus Bernanke gave his blessing to that sort of PoMo system. It really is time Selgin got up to speed on this.
Under the latter “PoMo/NEF” system, the central bank is allowed to specify how much new money is created (or withdrawn) each year, while POLITICIANS decide exactly what form any extra spending or extra taxes take.
http://b.3cdn.net/nefoundation/3a4f0c195967cb202b_p2m6beqpy.pdf
"As to “taking back”, it’s perfectly true given how responsibilities are currently allotted to central banks and governments that the Fed can’t do that."
The Fed can "take it back" in the same way it does now. By issuing a different form of money. The Bank of England would simply borrow Gilts from the Debt Management Office and sell the Gilts into the repo market. The Fed would do the same with US treasuries, Treasury Bills or any other colour of paper it fancies.
This was all common knowledge in the 60s. https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/1964/the-treasury-bill.pdf
When will this "New territory" trickle down to Main Street?
“Helicopter money” is a fascinating theoretical construct that has proven useful in advancing economists’ understanding of various subtle points of monetary theory“
This is an accurate statement describing the dialogic methodology used by 99% of economists in the Discipline.. relies exclusively on figurative language... . its the opposite of a Scientific methodology..,
Dialogic methodology is never going to work....
“…having supplied it, the Fed has no easy means for taking it back.”
IF the inherently risk-free debt of a monetary sovereign like the US were priced properly, it would extinguish itself via negative interest and yields for large users/hoarders/abusers of what is a public utility, the Nation's fiat.
Negative (merely non-positive for ordinary users) interest and yields would tend to LOWER the DEMAND for fiat but otoh, de-privileging the banks would INCREASE the demand for fiat - one effect countering the other.
So with ethical sovereign debt pricing and an ethical banking model, we can have a self-financing Citizen's Dividend.
Of course we need land reform too to counter rent seeking on essentials such as living space.
“ central banks "used up all their ammo" and the "bazooka" is still smoking, to no effect.”
I’ll tell you what is having no effect is this continuous attempts to be using figures of speech to try to explain/teach what is really going on.... THATS having no effect....
Monetary policy is over as central banks "used up all their ammo" and the "bazooka" is still smoking, to no effect. Tom Hickey
Whocouldaknowed that welfare for the rich would eventually stop working?
We are entering new territory. ibid
In our race to CREATE wealth, we neglected that its just distribution is essential:
“As a partridge that hatches eggs which it has not laid, so is he who makes a fortune, but unjustly; in the midst of his days it will forsake him, and in the end he will be a fool.” Jeremiah 17:11
“ central banks "used up all their ammo" and the "bazooka" is still smoking, to no effect.” I’ll tell you what is having no effect is this continuous attempts to be using figures of speech to try to explain/teach what is really going on.... THATS having no effect....
Actually, they did explain that if you remember. The "bazooka" was QE on top of a low policy rate. The rate change and QE were the "ammo" stock. They've got nothing else as they see it. That sums up their view of monetary policy.
"Helicopter money" was a toy model Friedman used in a specific way, that is, the cb doing fiscal operations directly and on its own. This is hypothetical in jurisdiction where fiscal policy is reserved for the legislative authority. This is the case in the US.
While "helicopter money" has the generic meaning of the cb directly doing fiscal, based on Friedman's proposal, different economists have proposed different schemes for doing that. There is a pretty goodsummary of this at Wikipedia.
Those following MMT should know what the term means and implies since MMT is often characterized as relying on "helicopter money," which is incorrect. The MMT analysis shows how MMT is neither a proposal like Friedman's, nor a way for the monetary authority (cb) to substitute fiscal operations for monetary operations.
The obvious social and political issue with the cb doing fiscal directly is that it vastly increases the role of technocratic governance in a liberal democracy, where "the power of the purse" is held by representatives elected by the people. MMT proposals stay within those bounds.
The obvious social and political issue with the cb doing fiscal directly is that it vastly increases the role of technocratic governance in a liberal democracy, where "the power of the purse" is held by representatives elected by the people. MMT proposals stay within those bounds. Tom Hickey [bold added]
While advocating unlimited, unsecured loans at ZERO percent interest to private depository institutions?
While advocating unlimited, unsecured deposit guarantees for private depository institutions?
While opposing that citizens may use their Nation's fiat in account form? And not have to use the deposits of private banks?
Hypocrisy much?
Then, if the Central Bank is to create fiat, let it do so without violating equal protection under the law.
Specifically MMT tells us why "helicopter money" cannot be used in anything other than the shortest of terms.
A currency is ultimately worth what you have to do to get it.
A currency is ultimately worth what you have to do to get it. NeilW
And that shouldn't include, in addition to lawful taxation, having to slave for a government-privileged usury cartel and the so-called "credit worthy" of what is, in essence due to government privilege, the PUBLIC'S credit but for private gain.
The game's up, Neil, at least conceptually. Why then does the MMT School cling to and seek to perpetuate a thieving remnant of the thieving Gold Standard?
A currency is ultimately worth what you have to do to get it. NeilW
Then paying people to waste their time should reduce the value of it.
Specifically MMT tells us why "helicopter money" cannot be used in anything other than the shortest of terms.
I believe that was included in Friedman's toy model, though-experiment, or whatever. It was a one-time limited untargeted "drop" (fiscal injection by the cb).
Specifically MMT tells us why "helicopter money" cannot be used in anything other than the shortest of terms. NeilW
Ignores that the public has been driven* into onerous debt that "helicopter money" could be used for WITHOUT an increase in the money supply since the repayment of bank credit DESTROYS deposits.
*via government privileges for a usury cartel.
" the repayment of bank credit DESTROYS deposits."
Reification error...
No, because I didn't say that bank credit repayment destroys ALL bank deposits; it only destroys those deposits created as bank "loans", not those deposits created by Federal spending.
The reification error is in using the word “destroys “...,
Delete, erase, nullify.
Cancel.
"Destroy" is an antonym for "create".
Then, if "Bank loans create bank deposits" then the repayment of those "loans" destroys deposits.
The term "loans" is problematic. What are "they", really?
https://www.freshbooks.com/hub/accounting/debit-and-credit
“ A debit increases asset or expense accounts, and decreases liability, revenue or equity accounts. A credit is always positioned on the right side of an entry. It increases liability, revenue or equity accounts and decreases asset or expense accounts.”
You should say “debit Deposit Liabilities”...
No figurative language... then everyone knows what you are talking about...
The "loans" are not actual lending but the creation of additional liabilities for fiat.
However, due to government privilege, the liabilities of banks are largely a sham since, for examples:
1) The non-bank private sector may not even use fiat except in the form of grubby, unsafe Central Bank Notes and coins and then only in limited amounts.
2) The Central Bank stands ready to create fiat as necessary for the banking system should they not have enough to meet their liabilities for it.
The term "loans" is problematic. What are "they", really?
Lonas are a type of legal obligation involving debt (promise to repay under specific conditions). This is dealt with in contract law. You know, like the loan agreement one signs before the deposit account is credited.
"Destroy" is an antonym for "create". Then, if "Bank loans create bank deposits" then the repayment of those "loans" destroys deposits.
"Create" and "destroy" here are problematic unless one knows further what they actually mean. They are shorthand for a series of operations involving law and accounting. Many people have only a vague idea of this and could not explain the actual meaning of these terms or meet objections posed.
This stuff is sophisticated. Look at the freshman mistakes that ZH recently made in criticizing MMT's claim that loans create deposit. And those people are supposed to be experts in finance.
Loan agreements are legit. "Loan" agreements are problematic.
"Bank loans create bank deposits" is one of the most powerful statements ever made wrt banking and exposes government-privileged banks as the racket they are - a counterfeiting cartel for the sake of themselves and for the so-called "credit worthy."
Therefore I will not obfuscate a clear truth with jargon that largely only the thieves themselves and their supporters understand.
So let’s talk about what banks really do when they enter a loan agreement with you. They make sure you have an income stream, ask for some collateral and then they get a legal right to remove x dollars a month from your income stream. They don’t need any reserve liabilities to make that loan, they just need you to have a secure income stream. They aren’t lending anything out, they are taking something of yours in, with your consent. That’s it
So let’s talk about what banks really do when they enter a loan agreement with you. They make sure you have an income stream, ask for some collateral and then they get a legal right to remove x dollars a month from your income stream. They don’t need any reserve liabilities to make that loan, they just need you to have a secure income stream. They aren’t lending anything out, they are taking something of yours in, with your consent. That’s it
From the side of the bank, in making a loan the bank is taking on risk of non-payment, which is offset by collateral, whether secured or unsecured. Interest charged is based on the policy rate, expectation of future inflation, and both a term premium and a credit risk premium based on credit assessment.
That is all true Tom of course. I’m only talking about these arguments about monetary policy where banks are inserted as a sort of third party that takes some savers money and funds a borrower. This is where these discussions of interest rate policy and CB management of such policy, which then start integrating with overall macro management ultimately end up.
The idea that a loan to me involves someone giving up something and that the govt is actually supporting private sector loans by flooding system with reserves is ubiquitous and erroneous
I agree, Greg. My comments on loans above are answers to the question about what a loan is, which includes how it works. One reason it is legal is that both parties are taking on financial exposure under contract law. The art of banking involves correctly assessing the interest premium based on risk.
This has another interesting aspect. All the "money" that is created by bank loans is in a sense government money since the government stands behind both parties in aggregate through deposit insurance and bank supervision for bank customers on one hand and the cb as lender of last resort and government support in the event of a financial crisis on the other. If government did not to absorb this risk, capitalism would be a lot shakier ground—as it was previously. That's why we now have deposit insurance and central banking.
That's why we now have deposit insurance and central banking. Tom Hickey
Government guarantees of private bank deposits would not be necessary if all citizens (at least) could use their Nation's fiat via accounts of their own at the Central Bank.
Then we would have TWO payment systems:
1) The current, at-risk payment system that must work through private banks.
2) An additional, risk-free payment system via accounts for all at the Central Bank.
Then the banks would no longer hold the Nation hostage via a single payment system that mixes what should be risk-free deposits with those that are inherently at-risk (e.g. bank "loans").
Post a Comment