MMT ≠ QE
Stephanie Kelton | Professor of Public Policy and Economics at Stony Brook University, formerly Democrats' chief economist on the staff of the U.S. Senate Budget Committee, and an economic adviser to the 2016 presidential campaign of Senator Bernie Sanders
As ever, stories matter because people believe them, not because they are true.
ReplyDeleteIt's all politics from now on in.
This is a tremendous over simplification: “ Here’s how it works. Whenever Congress and the president agree to spend more, the government’s bank—the Federal Reserve—works with the rest of the financial system to get that money into our accounts.”
ReplyDeletehttps://www.wsj.com/articles/treasury-market-meltdown-in-2020-shows-need-for-overhaul-report-finds-11627480800
ReplyDeleteThese people are doing more important technical work than anything MMT is doing..
“A global dash for cash sparked by the coronavirus pandemic in March 2020 forced the Federal Reserve to buy hundreds of billions of dollars of U.S. Treasury securities in a matter of days to prevent a broader meltdown in financial markets.
A new report from a group that includes former central bankers warns that failing to address key market fragilities revealed by that episode could weaken the confidence in the market for U.S. Treasurys, which is widely assumed to be the global risk-free asset.”
MMT I guess is good to counter the “out of money!” morons …. But there is much more to it once you get past that…
We’ve had 2 significant system failures recently we’ve had the Fed funds market fail in Sept 2019 then the treasury market failed in March 2020 I don’t ever recall MMT explaining what happened there…
ReplyDeleteAt some point you have to get into the details…,
ReplyDeleteThe academic MMT folks didn't explain anything, but you and Mike have. Mike identifies with MMT. Nitpicking, but I follow you way more than I follow those folks.
ReplyDeleteCentral axioms/assumption/presumptions of MMT: The CB credibly, practically always sets and defends short term Tsy rates in both directions. Banks and private sector hold treasuries because CB removes those risks and makes them uncorrelated, or negative correlated to other risk, hence valuable for saving. That value anchors fx.
ReplyDeleteSecond MMT assumption the banking system has a non punitive backstop.
Reality: The CB doesn't have usable backstop and can't set rates in practice. Any use of discount window or persistent borrowing directly from Fed automatically triggers audits and sanction. The irony is that avoiding markets and borrowing directly from the fed is the optimal policy for public and market stability but gets punished. Obviously long and short rates and short term money market failures mean that banks regulatory and capital constraints prevented them from taking arbitrage opportunities that would otherwise transmit fed policy to good financial risks.
The market failures imply the central bank did not have the functional ability to set rates and backstop credit. The regulatory policies were largely driven by "free market" republicans and progressive "punish the bankster" politicians and designed by academic economist cranks that have a reserves ffetish and wild beliefs about rates and QE. Maxine Waters and AOC run the House financial committee with zero attention to systems or function. Somewhat terrifying.
"The irony is that..."
ReplyDeleteThis is textbook Art Degree 'paradox' 101... which is normal for those people...
So you either have to put up with it or get rid of those people...
Art Degree textbooks? Are these Art Degree textbooks available on Amazon?
Delete"The Treasury doesn't look at the balance in its account." -Kelton
ReplyDeleteYellen sure is now.
"Maxine Waters and AOC run the House financial committee with zero attention to systems or function. Somewhat terrifying."
ReplyDeleteWell yes and FD I am probably right of Fascism but the "free market!" Art degree morons on the other side of the aisle can be just as terrifying... they'd probably have us back under the gold...
ie more irony/paradox...
greek its your whole Socratic/Platonist dialogic methodology back from your ancestors which was the sole methodology of the academe for 1000s of years...
ReplyDeleteWhich we shit canned in about 1860 and established the Science Degree... then we literally standing on the moon in 100 years...
It... doesnt... work...
Good god, you’re stupid, Franko:
Delete“we literally standing on the moon”
Get your money back or get Congress to cancel your debt…
ReplyDeleteSome Implications To Equities, Yields As The US Treasury (And The Fed) Navigate Through The US Debt Ceiling
ReplyDeletehttps://seekingalpha.com/instablog/910351-robert-p-balan/5631524-implications-to-equities-yields-us-treasury-and-fed-navigate-through-us-debt-ceiling
Watching Out For The End-Game, Pre Jackson Hole Announcement; And Looking For Market Leads Beyond Jackson Hole
https://seekingalpha.com/instablog/910351-robert-p-balan/5632859-watching-out-for-end-game-pre-jackson-hole-announcement-and-looking-for-market-leads-beyond
"At some point you have to get into the details " - Not just the size of the deficit ?