This article, which is favorable to MMT, contains a good explanation of what MMT is and isn't.
interest.co.nzAs US Modern Monetary Theory advocates make their case in Australia, Gareth Vaughan explains the world through their lens and how it might go down in New Zealand
Gareth Vaughan
Another side of the story.
[US] Conservatives, [El Salvador’s President Nayib Bukele] said, “always tell me that the problem is high taxes, but they are wrong.”
“The real problem is that you pay high taxes only to uphold the illusion that you are funding the government, which you are not,” he claimed, before describing how the government is financed by Treasury bonds, which are purchased by the Federal Reserve with printed money backed by the bonds themselves.
“The government is funded by money printing, paper backed by paper. A bubble that will inevitably burst,” he said, adding that “the situation is even worse than it seems, because if most Americans and the rest of the world were to become aware of this farce, confidence in your currency would be lost. The dollar will fall, and Western civilization with it.”
RT — Question More (Russian state-sponsored media)
The Fed doesn't finance the government. He's wrong.
ReplyDelete"The Fed doesn't finance the government. He's wrong."
ReplyDeleteLet's clarify Russia Today's coments...
Bukele's actual words beginning at 18:55, were "(Federal) taxes are not funding your government...Your government is financed by US Treasury bonds. Who buys the bonds? Mostly the Fed." (The Fed buys Treasury securities that do not get sold on the market.) "How does the Fed buy them? By printing money. What backing does the Fed have for that printed money? The Treasury bonds themselves. So you finance the US government by printing money out of thin air. Why then do you pay federal taxes? To uphold the illusion that you are funding the US government, which you are not. The US government is funded by money-printing. Paper backed by paper."
Bukele goes on to say that the entire American political and economic system is a bubble that will ultimately burst, at which point global confidence in the U.S. dollar will be lost, causing the end of the USA and Western Civilization as we know it. The USA must make systemic changes to head this off, but such changes would require a total re-engineering of the government, top to bottom.
El Salvador's currency since 2001 has been the U.S. dollar, but when Bukele first became president (1 June 2019) he immediately began to shift over to Bitcoin, and to take other measures to wean El Salvador off the U.S. dollar. This process is delicate and requires patience. It continues today.
Bukele's overall speech compares pre-2019 El Salvador to Democrat-controlled areas of the USA, in which the law is weaponized, and judges and unelected bureaucrats wield power by prosecuting the victims of criminals, rather than criminals themselves. As a result, criminal gangs are taking over Democrat-controlled areas of the USA and destroying them, just as gangs did in El Salvador. People in El Salvador joined gangs in order to survive the nightmare created by corrupt judges and politicians, many of them installed with money from George Soros, who Bukele names specifically. (He speaks English.)
(The U.S.-backed civil war in El Salvador lasted 12 years, and it drove a millon refugees to the USA, where they formed criminal gangs. After the war ended in Jan 1992, the USA began deporting the worst of these criminals, so they took over El Salvador with the help of corrupt judges and politicians who gained money and power by supporting the gangs, just like we now see among politicians and gangs in Chicago, New York City, etc. Politiians in these U.S. areas are themselves criminal gangsters).
Thus, Bukele's core message to the CPAC conference was, "Don't become like we were in El Salvador."
His speech can be seen here...
https://www.youtube.com/watch?v=u0e_grWEcB0
The global south are all corrupt sub human USD zombie morons…
ReplyDeleteSomeone needs to call them out on this..,
Bukele is half-right and half-wrong.
ReplyDeleteHe's right about taxes not funding government spending, which is important, so kudos for that. But he is wrong about the Fed buying bonds to finance the government. He doesn't understand what is actually happening institutionally in government finance, which MMT explains in detail. As a consequence El Salvador's adoption of bitcoin does not solve the problem that he thinks it does. This mistake about how government finance operates is one of the reasons that ill-informed people accuse MMT of being "voodoo economics" and see the dollar collapsing because of it.
"Printing money" is an inaccurate and pejorative figure of speech that serves as a tool in persuasion. This is not how the financial system and government finance in particular work.
Rather, the Fed finances government spending directly by crediting accounts in the payments system it administers. Congress appropriates funds for specific purposes. Then the Treasury directs the Fed as its agent to credit the relevant accounts. which the Fed does by "keystroking" its balance sheet to create settlement balances ("bank reserves") in accounts of the recipients banks in the Federal Reserve System. The banks then credit the recipients' accounts. As a result, the Fed creates a liability for itself on its balance sheet and creates a corresponding asset on the banks' balance sheets. Then the respective banks create a deposit (customer asset) on the recipients' accounts and a liability on there own balance sheets. The end-result is a liability for the Fed and assets for non-government.
See Eric Tymoinge's' text on money and banking from the MMT POV. Deficits constitute the net financial assets in aggregate for non-government. Working through the T-accounts shows what actually happens institutionally.
The Fed does NOT finance the government by buying Treasury-issued bonds in the case of deficits. Treasury securities on the Fed's balance sheet are the result of internal operations the Fed uses to make adjustments to the financial system, in particular to ensure sufficient reserves so that all transaction in the banking system clear. This is called "liquidity provision" and it is a chief purpose of a central bank.
The Fed may also use open market operations (buying or selling bonds) to adjust the interest rate ("overnight rate") when not setting the rate to zero or paying interest on reverses (as it is now).
The Fed is actually prohibited by law from buying Treasury bonds directly to finance deficits. Instead, the Fed is required to auction the bonds being issued by the Treasury to designated primary dealers that then selling these securities into non-government.
Sp Bukele has part of the picture but not the whole of it. If he understood the big picture he would understand the mistake of substituting bitcoin for the dollar. It's just substituting one currency that the government doesn't issue for another. Moreover, bitcoin is less secure and more volatile than the USD. Poor move.
The global south are all corrupt sub human USD zombie morons…
ReplyDeleteHasty generalization, maybe?
"The global south" is a high level abstraction (set of sets) that includes a lot of subsets.
One rather vocal subset is the collapsing dollar subset.
Another is the set of governments seeking to avoid the USD dollar not because it is "collapsing" but because it has been weaponized. They are not working on an alternative monetary system as much as taking steps to settle international trade among themselves primarily without becoming a target of the US.
This is the opposite of USD zombies that accumulate USD balances. They want to find alternative settlement vehicles that are safe to save in, e.g., stable and secure. Initially, this seems to be mostly bilateral relations so far, like Rub and CNY. They are trying to devise a more flexible system to accommodate settlement and saving. This seems to be proceeding apace chiefly through BRICS.
Another set is those working on creating an alternative monetary system, e.g., Sergei Glazyev.
There are probably other sets and some overlapping of sets. It's a process that is now ongoing. Further weaponization o the USD, Western seizure of Russian central bank assets, etc. is creating incentive.
Commenters here seem hip to MMT. On the other hand, try to post an MMT-friendly comment about the bizarre misconceptions in the RT article, and the comments are immediately deleted...! Propaganda, gotta love it! (BTW, take a look at the Wikipedia Government Spending page, with all the neoliberal misconceptions, then take a look at the "Talk" tab...what even Wikipedia won't publish...Propaganda, gotta love it!)
ReplyDeleteBikele has more in common with Putin than the Biden Democrats on this…
ReplyDelete“ He doesn't understand what is actually happening institutionally in government finance,”
ReplyDeleteYou need a Science Degree in Finance and Accounting to do that..
Those who don’t have that either have to believe MMT (ie you) or they reify the Accounting abstractions..,
https://en.wikipedia.org/wiki/Nayib_Bukele
ReplyDelete“ Bukele studied law at the Central American University”
It’s JESUIT … look it up…
https://en.wikipedia.org/wiki/Central_American_University,_San_Salvador
ReplyDelete“ José Simeón Cañas Central American University (Spanish: Universidad Centroamericana "José Simeón Cañas"), also known as UCA El Salvador, is a private Catholic university with nonprofit purposes in San Salvador, El Salvador. It is operated by the Society of Jesus.”
J-E-S-U-I-T…
“with all the neoliberal misconceptions,”
ReplyDeleteHey yo, where can I get an Art a degree in “neoliberalism!”?
Where?
Can you point me to the Art Degree school where I can get a degree in that?
All the news is about the crushing of gangs in El Salvador. Not one peep about bitcoin since its inception years ago.
ReplyDelete@ Tom Hickey
ReplyDelete“Nayib Bukele is wrong about the Fed buying bonds to finance the government.”
Agreed. This was clumsy.
“El Salvador's adoption of bitcoin does not solve the problem that Bukele thinks it does. This mistake about how government finance operates is one of the reasons that ill-informed people accuse MMT of being ‘voodoo economics’ and see the dollar collapsing because of it.”
Yes the bitcoin thing is dubious. Meanwhile El Salvador’s use of the U.S. dollar sustains vulnerability to dollar weaponization. Because of El Salvador's large trade deficit, the country must borrow dollars in order to buy imports. Back when El Salvador used its own currency (the colon) inflation was a problem, but external debt was only $7.6 billion. Since adopting the US dollar in 2001, El Salvador’s external debt has steadily risen to $21 billion, and it continues to climb.
So it is only a matter of time before the money masters mount financial attacks on the government in order to get rid of Bukele and restore El Salvador to its former “glory” as a hellhole.
The USA’s buys 40% of El Salvador’s exports. If Washington shuts that down, it will hurt El Salvador.
Bukele’s “crime” is not that he is imprisoning gang members, but that he purged gang members from El Salvador’s government (i.e. purged corrupt judges and politicians). Other national leaders might get ideas about this. The “threat” could spread abroad.
El Salvador could appeal to China, but El Salvador doesn’t export much that China wants, other than coffee, raw sugar, and electrical capacitors. El Salvador exports a lot of clothing to the USA, but China doesn’t need that.
Still, China is building modest infrastructure items in El Salvador (e.g. a new soccer stadium, a new national library, a couple of tourist piers, etc.).
An El Salvador family lives down the street from me. They run a restaurant, and they say that everyone in El Salvador is happier since Bukele restored sanity and stability to the nation. Even the gang members are happier. After all, they only joined gangs in the first place because of the poverty and despair caused by corrupt judges, politicians, and bureaucrats. (It’s the same with gangs in many U.S. cities, meaniing organized theft and robbery rings, plus BLM and Antifa, plus street vagabonds and drug addics and so on. It all starts with corrupt government and evil financiers.)
Another reason why the USA will want to punish El Salvador is that the country has 60,000–100,000 people of Palestinian origin. The capital, San Salvador, has a Palestine embassy. President Nayib Bukele himself is the grandson of Palestinian Christians from Jerusalem and Bethlehem. So Washington DC may feel a need to punish El Salvador.
Continued below
Konrad's posts are slowly being eaten by Blogger.
ReplyDelete