The 20 EMU Member States are not currency issuers in the MMT sense — Bill Mitchell

For some years now (since the pandemic), I have been receiving E-mails from those interested in the Eurozone telling me that the analysis I presented in my 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale (published May 2015) – was redundant because the European Commission and the ECB had embraced and was committed to Modern Monetary Theory (MMT) so there was no longer a basis for a critique along the lines I presented. I keep seeing that claim repeated and apparently it is being championed by MMT economists. While there are some MMTers who seem to think the original architecture of the Economic and Monetary Union has been ‘changed’ in such a way that the original constraints on Member States no longer apply, I think they have missed the point. They point to the fact that the ECB continues to control bond yield spreads across the EU through its bond-buying programs (yes) and that the Commission/Council relaxed the fiscal rules during the Pandemic (yes). But the bond-buying programs come with conditionality and the authorities have now ended the ‘general escape clause’ of the Stability and Growth Pact and are once again enforcing the Excessive Deficit procedure and imposing austerity on several Member States. The temporary relaxation of the SGP rules (via the general emergency clause) did not amount to a ‘change’ in the fiscal rules. Indeed, the EDP has been strengthened this year. The Member States still face credit risk on their debt, still use a foreign currency that is issued by the ECB and is beyond their legislative remit, and are still vulnerable to austerity impositions from the Commission and their technocrats. To compare that situation with a currency-issuing government such as the US or Japan or Australia, etc is to, in my view, commit the same sort of error that mainstream economists make when they say that ‘the UK is at risk of becoming like Greece’ or similar ridiculous threats to discipline fiscal authorities in currency-issuing nations.

There are various interrelated questions that bear on this subject....

    

William Mitchell — Modern Monetary Theory
The 20 EMU Member States are not currency issuers in the MMT sense
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

(II) Xu Gao's case for Beijing to spend — Yuxuan JIA and BU, Xiaoqing

Xu Gao, the Chief Economist and Assistant President of Bank of China International Co. Ltd., and an adjunct professor of the National School of Development (NSD) at Peking University, has been featured on The East is Read several times.

On August 19, 2024, Xu published a new essay on his personal WeChat blog 徐高经济观察 Xu Gao Economic Observation. This long essay, essentially making a case for Beijing to adopt stimulus measures, will be rolled out in three parts.

Amid cautious signals from the Chinese government and the widespread belief in saving policy "ammunition," Xu Gao calls for a shift to macroeconomic thinking. He contends the government shouldn't be tethered to the belief that money spent is money lost, as a company might. The government revenue isn't fixed or exhaustible but "endogenous," says he, driven by government spending, which boosts private income, consumption, and investment. Unlike individuals and businesses who see income as beyond their control, the government, following Keynesian principles, can step in when demand falters. By increasing fiscal spending and liquidity, it can generate demand where the private sector won't, matching purchasing power with the willingness to spend.

Xu argues that the real limit on stimulus isn't money supply—it's supply capacity. Rising inflation and trade deficits mean domestic supply can't keep up with demand, making further stimulus risky. But when inflation is low and there's a trade surplus, it signals excess supply, making stimulus "not only feasible but also essential."….

The East is Read
(II) Xu Gao's case for Beijing to spend: stimulus now doesn't hinder structural reforms-Chief Economist of Bank of China International continues with the sustainability and necessity of stimulus.

Yuxuan JIA and BU, Xiaoqing

Trump to roll out DeFi project this week

Looks like Trump going to start a crypto exchange and a USD stable coin… 🤔

.@WorldLibertyFi is helmed by @realdonaldtrump's sons, @EricTrump and @DonaldJTrumpJr and the 18-year-old Barron Trump is the project's "DeFi visionary.” https://t.co/PSKhQWyQKu

— CoinDesk (@CoinDesk) September 13, 2024

Xu Gao's case for stimulus—Chief Economist of Bank of China International tears apart the opposition — Yuxuan JIA and BU, Xiaoqing

 MMT without naming it.

Xu Gao, the Chief Economist and Assistant President of Bank of China International Co. Ltd., and an adjunct professor of the National School of Development (NSD) at Peking University, has been featured on The East is Read several times.

On August 19, 2024, Xu published a new essay on his personal WeChat blog 徐高经济观察 Xu Gao Economic Observation. This long essay, essentially making a case for Beijing to adopt stimulus measures, will be rolled out in three parts.

Amid cautious signals from the Chinese government and the widespread belief in saving policy "ammunition," Xu Gao calls for a shift to macroeconomic thinking. He contends the government shouldn't be tethered to the belief that money spent is money lost, as a company might. The government revenue isn't fixed or exhaustible but "endogenous," says he, driven by government spending, which boosts private income, consumption, and investment. Unlike individuals and businesses who see income as beyond their control, the government, following Keynesian principles, can step in when demand falters. By increasing fiscal spending and liquidity, it can generate demand where the private sector won't, matching purchasing power with the willingness to spend.

Xu argues that the real limit on stimulus isn't money supply—it's supply capacity. Rising inflation and trade deficits mean domestic supply can't keep up with demand, making further stimulus risky. But when inflation is low and there's a trade surplus, it signals excess supply, making stimulus "not only feasible but also essential."

The East is Read

Xu Gao's case for stimulus—Chief Economist of Bank of China International tears apart the opposition
Yuxuan JIA and BU, Xiaoqing

Wholesale Payments Systems and Bank Reserves — Brian Romanchuk

Some of the nity-gritty involving payments systems that underlies some institutional arrangement needed to understand MMT's analysis.

Bond Economics
Wholesale Payments Systems and Bank Reserves
Brian Romanchuk

The Myth That the US is Rapidly Approaching Bankruptcy — Michael Hudson

 Yves Smith's introduction

Yves here. It is frustrating to see a normally solid YouTuber almost go off the rails by getting outside his area of expertise, geopolitics, and fall for libertarian scaremongering. We’ve commented before on the tendency of certain schools of commentary to fall into belief clusters, so anti-globalists are anti-dollar hegemony (and often crypto fans) to the degree that they have not bothered understanding how a currency issuer like the US operates. A currency issuer can never suffer an involuntary bankruptcy. They can always create more currency. What they can do is generate too much demand compared to the real resources of their economy, as in inflation.

In the discussion below, Micael Hudson has spend [spends] a significant portion of the interview debunking US budget myths to Nima of Dailogue Works. Hudson not only got Nima to agree to a more accurate title but also Hudson starting by laying out MMT basics in his extended opening discussion. As Hudson said via e-mail:

Nima had a sensationalist title, “Is the US rapidly approaching bankruptcy.” I showed that this is a myth and the US can’t go bankrupt.

We pre-arranged that I would give a 25-minute lead-in discussing just whom the US Treasury debt is owed to, and why most of it has no intention of being paid (paper currency, debts to foreign central banks and to the US Fed), and as for debts to bondholders, US Treasury debt continues to be a flight to safety, not to risk...

Naked Capitalism
The Myth That the US is Rapidly Approaching Bankruptcy
Michael Hudson

Modern Monetary Theory: Economics for the 21st Century – MOOC – now available via MMTed.org — Bill Mitchell

I am travelling all day tomorrow so I am bringing forward the normal blog post to today. I am pleased to announce that from today the MMT MOOC which we ran through the University of Newcastle’s edX facility over the last few years is now available through MMTed on an on-going basis. Read on to get the full details and access. 

William Mitchell — Modern Monetary Theory
Modern Monetary Theory: Economics for the 21st Century – MOOC – now available via MMTed.org
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Trump 3% Mortgage Policy

 

Trump promising a return to 3% mortgages if he can get back in…

He’ll have to tell his Central Bank to lower the policy rate down to at least 2% to hope to get his 30-yr fixed back to 3%…

Donald Trump says his plans to slash regulations will get mortgage rates 'back down' to 3%, per FORTUNE

— unusual_whales (@unusual_whales) September 9, 2024

Episode 5 of the Smith Family Manga (Season 2) is now available – the Finance Report hots up Bill Mitchell

Today (September 6, 2024), MMTed releases Episode 5 in the Second Season of our Manga series – The Smith Family and their Adventures with Money. Have a bit of fun with it while learning Modern Monetary Theory (MMT) and circulate it to those who you think will benefit …

William Mitchell — Modern Monetary Theory

Episode 5 of the Smith Family Manga (Season 2) is now available – the Finance Report hots up
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Short term interest rate characteristics…

Some concern by Monetarists out there that current short term risk free rate of interest compared to the average of a past period of the short term risk free interest rate is a cause for serious concern wrt equity prices…

Think of financial asset prices as a function of the equation P = (A-L)/A where A and L are Depository system Assets and Liabilities…

At point 1 the fiscal surpluses were being saved in the TTL accounts at Depositories increasing system L by $100Bs … at point 2 the Fed increased Depository system A by hundreds of billions in September 2008, causing credit provision to cease and the GFC …. and at point 3 they again did the same thing as 2 establishing over $1 trillion of A in March 2020 causing the credit function to again cease until this regulatory function was suspended …. 

Today Treasury no longer utilizes TTL accounts and we are in large fiscal deficit anyway, and no where have I seen currently is the Fed proposing to increase A at this time rather their stated policy is to continue to gradually “normalize” system A at much lower levels…

“Correlation is not causation” etc…