The Hidden Power of Sovereign Wealth Funds — NeilW

A recent UnHerd article warns of a “crypto time bomb,” suggesting that stablecoins could become a geopolitical tool to undermine the U.S. economy by redirecting foreign dollar reserves into U.S. Treasuries. The core assumption is that countries like Japan are sitting on idle piles of dollars, waiting for a stablecoin intermediary to put them to use.

This misreads how international finance operates. Like other major dollar holders, Japan doesn’t need help managing reserves. Dollars earned from trade surpluses are immediately reinvested, often into U.S. Treasuries. There are no dormant pools of dollars needing a middleman. The real action lies not in crypto or stablecoins but in how governments use their currency-issuing powers to actively manage currencies and reserves.
The Real Mechanism: Sovereign Wealth Funds

The real geopolitical financial weapon is the sovereign wealth fund (SWF), not digital tokens. Governments have long used SWFs and their variations to manage foreign exchange reserves, intervene in markets, and subtly manipulate currency values....

New Wayland

The Hidden Power of Sovereign Wealth Funds
NeilW

DOGE deletes 7M Federal ID numbers

If these numbers represent illegal alien people currently working using other dead peoples ID numbers, when the payroll taxes are paid this week and 7M fraud notices go out to the employers it could turn out Elon actually threw 7 million people out of their jobs this week … it could create a mass firing event of 7 million people who are currently working (albeit illegally but nevertheless) in the economy, …. causing a collapse in output and a collapse in tax receipts going forward…

Mike will immediately see the corresponding drop in YoY tax receipts in his reporting data if this is what is really happening… we have to wait and shortly see if this is the real effect is of this policy…

If so, the benefit to Trump politically might come when they rerun the SS actuarial numbers without the future accrued liabilities of the 7 million now marked as dead people… Then he may be able to give current recipients a boost because the SS  “trust fund!” might appear over funded…

For the past 3 weeks, @SocialSecurity has been executing a major cleanup of their records. Approximately 7 million numberholders, all listed age 120+, have now been marked as deceased.
Another ~5 million to go. https://t.co/wtfYvYMIeW pic.twitter.com/z2GUQnPkhd

— Department of Government Efficiency (@DOGE) March 25, 2025

The Effects of Modern Monetary Theory on the Structure of Production — Patrick Newman

 For the record. From an Austrian economist.

Abstract

This paper analyzes the debt monetization proposals of Modern Monetary Theory from an Austrian structure of production perspective. It shows that this policy raises societal time preferences and reduces the number of higher order stages in the economy, leading to a higher interest rate, lower economic growth, and increased prices of consumer goods. In order to demonstrate this, it goes back to the basics and investigates the nature of government spending and how it differs from investment. I argue that Murray Rothbard, a staunch critic of Keynesian economics who would have also fiercely opposed MMT had he lived to see its rise, was correct to classify government expenditures as unproductive consumption that detract from genuine marketplace economic output. I then defend Rothbard’s position by explaining the very serious concerns some economists had in the 1930s and 1940s regarding how to measure government’s contribution to aggregate production statistics. Armed with a proper understanding of government’s antithetical nature to investment, the chapter is then able to explain why MMT’s proposal to expand the money supply to finance government spending shortens the production structure.

"I argue that Murray Rothbard, a staunch critic of Keynesian economics who would have also fiercely opposed MMT had he lived to see its rise, was correct to classify government expenditures as unproductive consumption that detract from genuine marketplace economic output."

This is a huge assumption that Keynesians of all types, many if not most institutionalists and Marxists and neo-Marxists would reject. Some neoclassical economists would agree with this assumption although perhaps in a weaker form. 

This assumption is pertinent at present since it lies at the foundation of DOGE and seems to reflect Elon Musk's monetarist thinking about economics and finance. 

Libertarians would of course agree with the assumption that government expenditure is unproductive and that they should be cut in favor of lower taxes. This is assumption correlates with the assumption that there are no public goods, only private goods.

The market-based state is also foundational for neoliberalism.

SSRN

The Effects of Modern Monetary Theory on the Structure of Production
Patrick Newman, Assistant Teaching Professor of Economics, University of Tampa

An Explanation Of Why Taxes Don’t Fund Spending—And Why Elon Musk Is Wrong About The US Government Deficit — Jim Byrne

Pass it on.

MMT101.ORG - Learn Modern Monetary Theory (MMT)
An Explanation Of Why Taxes Don’t Fund Spending—And Why Elon Musk Is Wrong About The US Government Deficit
Jim Byrne - MMT101.ORG

Reserve flows under debt ceiling

 

TGA down at 450b area now … 

So let’s assume they keep screwing around and eventually bottom it out at 50b leaving the current threat at 400b reserves in TGA that could be forced upon the banking system … 

To cover that 400b, banks would need at least 1/10th of that in capital for SLR of 0.1 … (might be a bit less) but we’ll be conservative …

 1/10th is 40b… so eg if banks were given 40b of additional free capital right now,  then they could cover those additional 400b reserve assets without effecting any other asset levels/prices at the banks…

IOR is providing additional free capital to the banks every month…

H.4.1 this week has reserves now up at >3.4T and IOR is 4.40% so that is approx 12b per month of capital flowing to banks every month … 40b/12b per month = 3.333 months so in a bit over 3 months the banks will have been given the additional capital to potentially support a TGA drawdown to 50b … 

We are about to head into a period of at least fiscal balance as taxes are paid (maybe even surplus) … so if we can stabilize TGA here for 3 months then banks might have near the additional 40b of additional capital by then that they will need to cover an additional 400b of reserve flow from TGA  .. 

So we could stabilize here at the current 10% drop in equities level for a while here if TGA stabilizes…

Then quickly recover this 10% drop when ceiling raised (allowing restart of reserve asset “drains!”) and Fed starts to cut rates in May or June (increasing all bank asset NPVs and capital) … 

The problem has been TGA has dropped from 800b to 450b in just the short period since ceiling hit on Fed 20th forcing non risk reserve assets to flow towards the banks and  negatively effecting the values/quatity of risk assets to maintain a required constant regulatory ratio…

Not out of the woods yet but maybe some relief from the constant liquidation on the way due to the typical fiscal calendar seasonality…. 

🤞

The Loan Lock Paradox — NeilW

It’s been over ten years since the Bank of England published Money creation in the modern economy, yet despite that, I run into people daily parroting untruths about how banking works. As part of the update to the UK Accounting Model, we will enhance the banking chapter to cover how lending institutions work and highlight some of the intriguing artefacts that a proper understanding reveals....

New Wayland

The Loan Lock Paradox

NeilW

Grok: “cash injection pumping liquidity!”

 

Musk’s “AI” can’t apply regulatory math (maybe THIS is where he gets it?):

The graph shows the Treasury General Account (TGA) balance dropping sharply recently, hitting its lowest since COVID. This $170B cash injection over 3 days signals the U.S. Treasury exhausting debt ceiling measures, pumping liquidity into the economy. Risk assets like stocks may…

— Grok (@grok) March 8, 2025

This is funny from it: “Risk assets like stocks may get a short-term boost…” 

LOL stocks are in a free fall!  Grok: “down is the new up!”…

How does a constant proportional (simply numerator divided by denominator) financial leverage system get a risk price increase when non-risk is being added?  It’s 8th grade Algebra… grok can’t apply it…

I think grok is based on language so it’s apparently susceptible to the same reification errors that typical liberal Art (discussion) method Econ is susceptible to… we see it all the time… it just picks up the popular language … is this really valuable?

We in big trouble with these people and their “AI” so-called…

It’s finally March 2025, and I can hardly believe that a date I’ve had in the diary for such a long time has finally arrived. It means, at long last, I can call time on a 30-year contracting career and retire from full-time work….

Congratulations on your retirement. Looking forward to your new focus on MMT research.

New Wayland
Time for a Change
NeilW

Treasury “injects cash!”

 

LOL … yo risk prices went DOWN you fcking idiots… it caused a sell off… forcibly adding non-risk to same system balance sheet causes risk prices to REDUCE… 

Here comes the flood: Treasury injects avalanche of cash into the economy ($170BN in 3 days, the most since covid) as debt ceilling extraordinary measures are exhausted; Should prop up risk pic.twitter.com/N3sDuQG70w

— zerohedge (@zerohedge) March 2, 2025