tag:blogger.com,1999:blog-2761684730989137546.post3283661700199799850..comments2024-03-28T07:50:06.102-04:00Comments on Mike Norman Economics: Paul Krugman — A Double Shot of Misunderstandingmike normanhttp://www.blogger.com/profile/03296006882513340747noreply@blogger.comBlogger167125tag:blogger.com,1999:blog-2761684730989137546.post-89002821741596767482013-01-03T08:11:14.568-05:002013-01-03T08:11:14.568-05:00Of course in my example the 'non-government...Of course in my example the 'non-government' starts off with $1.<br /><br />That $1 has to come from the govt in the first place.<br /><br />So the 'monetary circuit' starts with money creation out of nothing, obviously.<br />yhttps://www.blogger.com/profile/03233997168975370006noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-84006524991383557442013-01-02T20:42:15.517-05:002013-01-02T20:42:15.517-05:00Money - first destroyed, then created again
One a...<i>Money - first destroyed, then created again</i><br /><br />One account debited and another credited at the cb. This reflected in corresponding entries in non-govt, but it's the entries at the cb that "count."Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-45394972290831027322013-01-02T20:28:31.054-05:002013-01-02T20:28:31.054-05:00the relationship between Fed and Treasury is a cas...the relationship between Fed and Treasury is a case of 'intra-governmental' accounting. One part of the government has a liability and the other has an asset. They net to zero. <br /><br />The division is not irrelevant or unimportant, but it needs to be seen for what it is.yhttps://www.blogger.com/profile/03233997168975370006noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-77048625752716038322013-01-02T20:23:52.432-05:002013-01-02T20:23:52.432-05:00this is obscured by the separation of the Treasury...this is obscured by the separation of the Treasury and Fed. However, this separation does not change the basic logic or reality. yhttps://www.blogger.com/profile/03233997168975370006noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-27165124313153386372013-01-02T20:21:45.934-05:002013-01-02T20:21:45.934-05:00yes, though it's worth noting that, when looki...yes, though it's worth noting that, when looking at the government as a whole, spending comes out of 'zero', or nothing. i.e. spending is 'money creation'yhttps://www.blogger.com/profile/03233997168975370006noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-82261307436760345752013-01-02T20:05:06.252-05:002013-01-02T20:05:06.252-05:00Ok, I see what you mean.
Money - first destroyed,...Ok, I see what you mean.<br /><br />Money - first destroyed, then created again. Net change: zero.<br /><br />Bonds: simply created. Net change: plus one.<br /><br />I suppose we can agree on that :)Jose Guilhermehttps://www.blogger.com/profile/00313496015841693181noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-41519768187888639952013-01-02T19:24:33.470-05:002013-01-02T19:24:33.470-05:00Ok, Jose, let's walk through this one together...Ok, Jose, let's walk through this one together.<br /><br />You are the government, and I am the 'non-government'.<br /><br />I have +$1 asset (money). Therefore you have -$1 liability (money).<br /><br />You ask me to lend you $1.<br /><br />So I give you my $1.<br /><br />I now have $0, and you have $0.<br /><br />Money has been destroyed.<br /><br />You then give me a bond (because you're "borrowing the money from me", remember).<br /><br />I now have +$1 asset (bond), and you have -$1 liability (bond).<br /><br />A bond has been created.<br /><br />Then you spend "the money you borrowed from me".<br /><br />I now have +$2 assets (bond + money), and you have +$2 liabilities (bond + money).<br /><br />Money has been created.<br /><br /><br /><br /><br /><br />Destroyed, then created.yhttps://www.blogger.com/profile/03233997168975370006noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-3399160761234024332013-01-02T19:05:21.531-05:002013-01-02T19:05:21.531-05:00Yes. There is net creation of a bond and no destru...Yes. There is net creation of a bond and no destruction of money.<br /><br />Money starts at $1 and ends at $1. Bonds increase by $1.Jose Guilhermehttps://www.blogger.com/profile/00313496015841693181noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-74563847024176421922013-01-02T18:58:47.703-05:002013-01-02T18:58:47.703-05:00(you could do step 3 before step 2 if you want, or...(you could do step 3 before step 2 if you want, or you could do them at the same time, it makes no difference).yhttps://www.blogger.com/profile/03233997168975370006noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-19415020770943039992013-01-02T18:56:26.852-05:002013-01-02T18:56:26.852-05:00Same thing, Jose!
Step 1: Before bond purchase
N...Same thing, Jose!<br /><br />Step 1: Before bond purchase<br /><br />Non-government: +$1 asset (money)<br />Government: -$1 liability (money)<br /><br />Step 2: Non-govt pays for bond<br /><br />Non-government: $0<br />Government: $0<br /><br />Step 3: Govt hands over bond<br /><br />Non-government: +$1 asset (bond)<br />Government: -$1 liability (bond)<br /><br />Step 4: Government spends<br /><br />Non-government: +$2 assets (bond + money)<br />Government: -$2 liabilities (bond + money)<br />yhttps://www.blogger.com/profile/03233997168975370006noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-16901863434829556892013-01-02T18:16:24.568-05:002013-01-02T18:16:24.568-05:00I was referring to your second example, where &quo...I was referring to your second example, where "you buy a bond". This example didn't involve payment of taxes.Jose Guilhermehttps://www.blogger.com/profile/00313496015841693181noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-9520786627604250882013-01-02T17:57:46.396-05:002013-01-02T17:57:46.396-05:00"A bond was created; no new money was created..."A bond was created; no new money was created - or destroyed"<br /><br />No!<br /><br />Step 1: Before tax payment<br /><br />Non-government: +$1 asset (money)<br />Government: -$1 liability (money)<br /><br />Step 2: Tax payment<br /><br />Non-government: $0<br />Government: $0<br /><br />Money destroyed!!!<br /><br />Step 3: Government spends<br /><br />Non-government: +$1 asset (money)<br />Government: -$1 liability (money)<br /><br />Money created!!!<br /><br />That's what I mean: destroyed, then created. <br /><br />For example:<br /><br />1. write the word 'one' in pencil on a piece of paper.<br /><br />2. Erase it with an eraser.<br /><br />('one' destroyed!)<br /><br />3. write the word 'one' on the piece of paper with a pencil again.<br /><br />('one' created!)yhttps://www.blogger.com/profile/03233997168975370006noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-56734813376223638952013-01-02T17:46:00.123-05:002013-01-02T17:46:00.123-05:00That is, rb is debit to one acct and tsy is credit...That is, rb is debit to one acct and tsy is credited to another.<br /><br />1.<br />Non-government: +$1 asset (rb)<br /><br />Government: -$1 liability (rb)<br /><br />And ends with<br /><br />Non-government: +$2 assets (tsy + rb)<br />Government: -$2 liabilities (tsy + rb)<br /><br />2.<br />rb is debit to non-govt acct, some govt asset acct is credit in amt of real resources purchased.Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-50875890242612706562013-01-02T17:35:09.748-05:002013-01-02T17:35:09.748-05:00When payment is made to the Treasury's account...<i>When payment is made to the Treasury's account at the Fed, money is destroyed - whether it's for payment of taxes or for the purchase of bonds.</i><br /><br />If you don't count bonds as "money." <br /><br />Whar actually happens is some numbers are deleted on one account at the Fed, a deposit acct, and are entered in another acct, a time acct.Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-33473378746353996602013-01-02T17:21:26.759-05:002013-01-02T17:21:26.759-05:00y,
"The point is that money is first destroy...y,<br /><br />"The point is that money is first destroyed, and then an equivalent amount of money is created when the government spends."<br /><br /><br />Your own example starts with<br /><br />Non-government: +$1 asset (money)<br />Government: -$1 liability (money)<br /><br />And ends with<br /><br />Non-government: +$2 assets (bond + money)<br />Government: -$2 liabilities (bond+ money)<br /><br />A bond was created; no new money was created - or destroyed.<br />Jose Guilhermehttps://www.blogger.com/profile/00313496015841693181noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-23247870398115922972013-01-02T17:11:31.317-05:002013-01-02T17:11:31.317-05:00If one considers govt bonds to be money, then when...If one considers govt bonds to be money, then when a bond is purchased from the Treasury:<br /><br />1. money is destroyed in payment to the Treasury.<br />2. money is created in the form of a bond,<br />3. money is created when the Treasury spends.<br /><br />But the basic logic still holds even if you don't consider govt bonds to be money.yhttps://www.blogger.com/profile/03233997168975370006noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-43117573682229216852013-01-02T17:07:07.710-05:002013-01-02T17:07:07.710-05:00Tom, I disagree.
When payment is made to the Trea...Tom, I disagree.<br /><br />When payment is made to the Treasury's account at the Fed, money is destroyed - whether it's for payment of taxes or for the purchase of bonds. yhttps://www.blogger.com/profile/03233997168975370006noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-70939387554707151702013-01-02T16:44:56.251-05:002013-01-02T16:44:56.251-05:00"Money" is destroyed in two ways, 1) tax..."Money" is destroyed in two ways, 1) taxation, and 2) loan extinguishment.<br /><br />When a tsys is bought money is not destroyed but its form switches from "money of zero maturity" to "money of non-zero maturity" (NFA remains the same).Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-90457266831068576522013-01-02T16:39:57.525-05:002013-01-02T16:39:57.525-05:00Jose,
The point is that money is first destroyed,...Jose,<br /><br />The point is that money is first destroyed, and then an equivalent amount of money is created when the government spends.<br /><br /><br />"You consolidate the Treasury and the Fed into a single entity"<br /><br />Yes, that entity is called 'the federal government.'<br /><br />The Fed and Treasury are different parts of the federal government.<br /><br />The money issued by the Fed is an obligation/liability of the federal government. <br /><br />There is no such thing as money issued by the Fed which is not simultaneously issued by the government. There is no such thing as a Treasury asset which is not simultaneously an asset of the government. There is no such thing as Treasury spending which is not simultaneously government spending.<br /><br /><br />Think of it this way: <br /><br />You, Jose, are the government. <br /><br />You issue liabilities with your right hand (i.e. pieces of paper with "I, Jose, owe the bearer $10" written on them). <br /><br />You then you collect them in taxes with your left hand. <br /><br />Your right hand is the "central bank", and your left hand is the "Treasury". <br /><br />When a liability issued by your right hand ends up in your left hand, that liability is extinguished.<br /><br />That piece of paper is no longer a liability to you. It is no longer "promise to pay" anyone. It is now just a piece of paper with words and pictures on it. <br /><br />It is no longer money!<br /><br /><br />Then, when your left hand 'spends' by re-issuing those pieces of paper, they once again become liabilities, i.e. "promises to pay", i.e money.<br /><br />So taxation destroys money, and government spending creates it.<br /><br />Understanding this idea requires a realisation that money is simply a liability of the issuer and nothing more. <br /><br />In the case of US currency, the issuer is always the US government. the US government issues it liabilities through both the Fed and the Treasury.<br /><br /> yhttps://www.blogger.com/profile/03233997168975370006noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-31788841222875867052013-01-02T15:18:48.686-05:002013-01-02T15:18:48.686-05:00José, as I understand the MMT argument it is in ag...José, as I understand the MMT argument it is in aggregate, so that existing reserves held by non-govt in deposit accounts at the Fed (some of which are proxies for bank customer accounts) are switched in form from rb to tsys, that is, from a deposit acct at the Fed to a time acct, to use Warren's analogy. New rb in the same amount are created by crediting deposit accts in deficit expenditure. Thus, the initial NFA now held as tsys remains, and new NFA now held in deposit accts is added, increasing consolidated non-govt. NFA in aggregate. So there is a reserve drain into tsys and a reserve add through deficit expenditure.Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-26249482689008189342013-01-02T15:09:26.949-05:002013-01-02T15:09:26.949-05:00y,
I have just re-read your accounting examples. ...y,<br /><br />I have just re-read your accounting examples. They are technically correct, IMO.<br /><br />But, also in my opinion, you haven't actually made the case that the government creates money when it deficit spends after selling a bond to the public. <br /><br />You consolidate the Treasury and the Fed into a single entity. In the beginning they have a liability of $1(bank deposits at the Fed); in the end they have this same liability plus a T bond.<br /><br />The commercial banks have no net change in their position.<br /><br />The household sector started with a $1 deposit and ended with that same deposit plus a $1 T bond.<br /><br />So what was a created was a T bond, not money (deposits at commercial banks).<br /><br />Of course, you may consider T bonds as money. In that case you're right, but only by changing the definition of money to include bonds.<br /><br />So let's just agree by saying that said deficit spending created a new NFA - a Treasurty bond, or bill. And let's leave the discussion over the proper definition of money to specialists in metaphysics. For me, in this example, it's enough to say that no new bank deposit was created, as opposed to the case where the Treasury sells a bond to a depositary institution - then, and only then is a new deposited created via deficit spending.Jose Guilhermehttps://www.blogger.com/profile/00313496015841693181noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-50299857546043656662012-12-31T18:27:22.447-05:002012-12-31T18:27:22.447-05:00real in the sense of what do poor people actually ...real in the sense of what do poor people actually earn.yhttps://www.blogger.com/profile/03233997168975370006noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-32398097148157049072012-12-31T18:21:19.742-05:002012-12-31T18:21:19.742-05:00Real in what sense?
It's the Federal MW but s...Real in what sense?<br /><br />It's the Federal MW but some states have a specific - and higher - MW. It's R$755 or about US$ 370 in São Paulo state, for instance.Jose Guilhermehttps://www.blogger.com/profile/00313496015841693181noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-83678629418886562242012-12-31T18:04:22.827-05:002012-12-31T18:04:22.827-05:00what's the real minimum wage?what's the real minimum wage?yhttps://www.blogger.com/profile/03233997168975370006noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-67155403206157563322012-12-31T17:52:55.666-05:002012-12-31T17:52:55.666-05:00The minimum wage is R$678, about US$330 (monthly) ...The minimum wage is R$678, about US$330 (monthly) at current exchange rates.Jose Guilhermehttps://www.blogger.com/profile/00313496015841693181noreply@blogger.com