A few years ago, various policy makers, but mostly central bankers were keen to disabuse anyone of the notion that they were ‘doing’ Modern Monetary Theory (MMT). Some were aggressive in denial, such as US Federal Reserve boss Jerome Powell, who on February 26, 2019 announced to the US Senate Banking Committee that MMT was ‘just wrong’. There was a general pile on from other central bankers and commentators. No way, they were doing MMT. Okay, they were right, one doesn’t ‘do’ MMT, given it is an analytical framework (see below). But, curiously, now, the commentators are falling over themselves claiming that MMT is dead in the water given that it has been tried over the course of the pandemic to date and failed because inflation is out of control. Hilarious really. But what is interesting is Japan (as always). And I wonder whether any of these MMT critics now have considered why the Bank of Japan has not followed the lead of the other central banks that are rushing to exacerbate the temporary inflation spike by deliberately creating unemployment. It seems that there are different paths that policy makers can take within a capitalist monetary economy. They can allow corporations to profit gouge at the expense of the workers and then turn on the workers (creating unemployment) or they oversee a system where all parties (workers and corporations) take real income hits as a result of imported price pressures and wait it out. Japan is in the second category to its credit....Bill Mitchell – billy blog
Why has Japan avoided the rising inflation – a more solidaristic approach helps
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
7 comments:
Economist and former Bank of England adviser Tony Yates all those questions about QE (and its seldom-seen friend QT) that you always wanted the answer to but never dared put.
https://the-blindspot.com/alitf-transcripts-quantitative-easing-the-shocking-truth/
An insight on how these people think.
Once again the obsession with managing 'liquidity'.
It's time for a Full Liquidity Rule to replace the Full Funding Rule.
They have to say this because if you examine it technically from a regulatory perspective it causes the big crashes like in September 2008…. And March 2020…
They don’t want to be seen as responsible for any of that…
And both left and right won’t examine it technically because they have preconceived Platonist ideological theses…
“ Jonathan Ford 06:04
Yeah. And just to Neil’s point, I mean, the Bank of England did anticipate that it could take a loss, unwinding quantitative easing, and therefore did it not obtain at the very beginning, an indemnity effectively from the government say, if you lose lots and lots of money, because you buy gilt for 100, and you can only sell them back for 50, we’ll give you the 50.
Tony Yates 06:26
Indeed, the bank’s own financial position. This is all a material (cosmetically, it’s not immaterial), but yeah, this is one of the great comic aesthetic ironies of the crisis, the authorities created a special purpose vehicle upon which to conduct quantitive easing, you know, the asset purchase facility, you know, which is a separate corporate entity, whose balance sheet, the central bank balance sheet is entirely insulated from legally.
Jonathan Ford 06:51
So the whole thing is on us, the taxpayer. So ultimately, if there are losses in the asset purchase facility, we have to make them up. So the way the circle is closed, is that we get taxed to fill in the losses in the asset purchase facility.”
The US doesn’t have this…
Powell is saying they will claim any future revenues they will get from the remaining portfolio is a current asset to not have to report negative equity…
For years there has been a consensus that interest rate policy and financial asset sale/ purchase policy should be used to stabilise the economy. Which has caused rising inequality, weak nominal wage growth and ecological destruction. All based on the failure of fiscal policy or that interest rate policy would simply " react" and eliminate any positive effects from increased government spending.
The need for expansionary fiscal policy was always framed around " when interest rates are low" and " when central banks can't respond". Which has led to progressives arguing for expansionary fiscal policy but without changing the monetary policy framework at all. Which has effectively kept the central banks in charge of macro policy. Allowing the blob to absorb many different view points and preventing any real change.
Nathan Tankus proposes the following changes.
Turning away from interest rate management and a move towards direct financial regulation. Direct quantitative and qualitative credit regulation of financial institutions. Leverage and liquidity regulations on non financial corporations.
Direct qualitative credit regulation means setting minimum standards in the quality for the loans of The firm's they originate. Requiring that they hold those loans on their balance sheet. Rather than outsource their risk to securities investors. These minimum standards will include regulatory criteria based on quality of borrower, quality of activity and quality of sector.
Direct quantitative credit regulation imposes limits on the credit creation on banks and other financial institutions may engage in for a specific type of lending. Or overall lending.
Direct credit regulation is used to stabilise aggregate demand and reduce demand in certain sectors of the economy.
Full report is here- MONETARY POLICY WITHOUT INTEREST RATE HIKES
https://www.crisesnotes.com
Sounds like more climate nutter “qualitative “ regulation…
Banks are already quantitative regulated…
All these MMT leftoids are pissed there wasn’t another major banking crisis due to Covid.,,,
They predicted there would be and there wasn’t..
"Nathan Tankus proposes the following changes."
Nathan is a bit of a central planner, and not at all what MMT is about.
Never quite understood why people think so highly of him. Just sounds like another Post Keynesian fiddler to me.
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