The tensions in the public policy debate between economists is intensifying and on show in Europe, where these sort of obvious conflicts between adherence to dogma and a recognition that ‘out-the-box’ solutions are not only possible but preferred. More of these latter thought offerings are starting to appear as more people come to understand that the mainstream dogma has become more of a security blanket for reputations rather than saying anything about reality. One such proposal emerged last week in the form of a letter to the major European newspapers signed by more than 100 letters calling for the ECB to write-off its massive public debt holdings, which currently amount to around 25 per cent of total outstanding public debt. It is a good idea but some of the framing leaves a lot to be desired. At any rate, central banks everywhere should be buying up massive amounts of government debt and hitting the keyboard with zeros and writing it off. The world would be a much better place if they did that....Bill Mitchell – billy blog
Central banks should just write off all their government debt holdings
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
8 comments:
I had a letter in the Financial Times about five years ago proposing that "write off" idea.
This is false: “ So a rather curious accounting charade with no significance for financial markets outside of the government (once the secondary bond market transactions are made).”
“ The only question then is whether the spending was excessive in relation to the productive capacity of the nations”
Wait a minute I thought “it’s about price not quantity!” ????
“ The only question then is whether the spending was excessive in relation to the productive capacity of the nations” Wait a minute I thought “it’s about price not quantity!” ????
It simply means that if effective demand increases over the ability of the economy to increase supply to match the increased demand, prices will rise for scarce items. If this is a general phenomenon, they the price level will rise, which is the definition of "inflation."
What it says is that if Q (supply) cannot be increased and M (spending) is increased, then P (price level) will rise assuming that V (velocity) doesn't compensate.
It's an accounting identity.
“ The only question then is whether the spending was excessive in relation to the productive capacity of the nations”
Ignores that private depository institutions also create deposits when they "lend."
And also ignores that private deposit creation is for the private welfare of the banks themselves and for the so-called "credit worthy" - not for the general welfare.
So the price govt pays doesn’t matter? Just what govt spends in excess of taxation in aggregate?
I don’t think so...
Appears to be assuming the going market price rather than outbidding the private sector. Government spending is generally at the going price or discounted for quantity. Plus in some cases – anecdotal evidence here – the terms are 180 days. Vendors accept that owing to the huge quantities and certainly of payment.
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