Michael Stephens — “Who Is Minsky and Why Should We Care?”

Video of interview with Marshall Auerback and Ed Harrison.

Multiplier Effect
“Who Is Minsky and Why Should We Care?”
Michael Stephens

Tim Duy — When Deficits Become a Problem

Tim Duy on Randy on Paul Krugman.

Tim Duy's Fed Watch
When Deficits Become a Problem
Tim Duy

MMT's all the buzz. 

Surprising, too, to see so many professionals unaware of the MMT literature that impacts their field. Maybe they will start.

Edward Harrison ratchets it up a notch

Drilling down to the basic issues.

Read it at Naked Capitalism
Money, the financial system and the Federal Reserve

by Edward Harrison

Edward Harrison — Chart of the Day: Monetary Transmission Mechanisms

Edward Harrison explains the difference between monetary base and money supply in MMT terms.

Read it at Credit Writedowns
Chart of the Day: Monetary Transmission Mechanisms

by Edward Harrison

Edward Harrison at AlterNet — United States of Europe?

Read it at AlterNet
United States of Europe? What it Will Take to Save the Continent from Economic Collapse

by Edward Harrison | Credit Writedowns

Edward Harrison on cognitive bias, ideology, opinion and argumentation

The last time I mentioned this topic was when I was explaining that researchers have postulated that "reasoning was not designed to pursue the truth. Reasoning was designed by evolution to help us win arguments." So its not about the "facts" per se but rather positioning the facts in a light that advances your own agenda or ideas.

Read the rest at Credit Writedowns
The Sovereign Debt Crisis and Confirmation Bias

by Edward Harrison

My prediction: As the sovereign debt crisis deteriorates [in the EZ], it is these kinds of world view conflicts which will make nationalism a very potent force to deal with.

P.S. – Last night, a friend from college turned me on to the You Are Not So Smart book. I am reading it now. Highly recommended.

Here is the You are not so smart website. Good cognitive resource.

Edward Harrison — The Job Guarantee, Kleptocracy and Blogging

Read it at Credit Writedowns
The Job Guarantee, Kleptocracy and Blogging

by Edward Harrison

(h/t Anonymous)

Austrian MMT proponent Edward Harrison on the JG debate

Edward Harrison is the only subscriber to the Austrian school of economics who has publicly embraced the monetary economics aspect of MMT, to the best of my knowledge anyway. He is also favorably disposed to much of the MMT macro. He has said that his main reservation has to do with controlling malinvestment, and MMT does not deal with this to his satisfaction as an Austrian schooler.

The current debate was sparked by John Carney's suggestion that MMTers and Austrians find common ground. So Edward Harrison's thoughts are extremely significant in this controversy.

Read it at Credit Writedowns
My comments on MMT’s job guarantee idea

by Edward Harrison

In this post, Harrison refers to a previous post that is a must-read, too.

Unemployment insurance for the 21st century

Edward Harrison on government, regulation and free markets

I want to talk about why people blame government for the state of the economy more than Wall Street and what I think the remedies are. This will be a long post. So feel free to bookmark it to read it and the links when you have a moment.

On government, regulation, over-regulation and free markets by Edward Harrison at Credit Writedowns.

Roubini is catching on

Edward Harrison summarizes a recent article by Daniel Alpert, Robert Hockett, and Nouriel Roubini, The Way Forward: Moving From the Post-Bubble, Post-Bust Economy to Renewed Growth and Competitiveness. Harrison's summary is short and to the point and definitely worth a read if you don't have time to read the paper.

I think that most MMT economist would agree with the overall approach, which sees the problem as a "balance sheet recession" (Richard Koo) morphing into debt-deflation.

What is particularly promising is that more economists are getting closer to getting MMT. Roubini seems to be moving in this direction.

Edward Harrison on Currency Revulsion

Edward Harrison of Credit Writedowns comes from the Austrian school, but he has recognized that MMT is the correct description of the existing monetary system and has integrated it into his thinking. He explains the distinction between nations that are sovereign in a non-convertible floating rate (fiat) currency, like the US, UK, and Japan, and those that are not, i.e., the EZ. This is a good read to pass on to others, too. It hits the main points of the MMT approach with respect to currencies, interest rates, the bond yields, and the like.

Currency Revulsion

Edward Harrison explains the carry trade and swap lines

The Carry Trade and Fed Swap Lines

Bottom line: the Fed is stuck at permanent zero and that means the carry trade is on. If we did have another panic, those swap lines would be handy because the Fed would again become the global lender of last resort.

Edward Harrison: Metrics for Growth

Does positive growth in Q2 or Q3 mean the recession is over?

GDP is only one of five factors. The others are industrial production, employment, retail sales and personal income....

So when we get the GDP report next Friday, we might could (as my grandmother would say) see positive numbers for the change in GDP. Some people will be dancing in the street, proclaiming the recession is over. Hold the phone on that one though, because you’ll know that it doesn’t really mean anything until it is confirmed by the other four metrics that we should be watching.

Edward Harrison Clears Up An Apparent Contradiction By Bill Gross

Edward Harrison of Credit Writedowns has an explanation for Bill Gross's seemingly contradictory views about the need to reduce the deficit and his call for instituting a job guarantee, which would increase the deficit — and Ed credits MMTer Marshall Auerback for it. BTW, Marshal is a consultant to PIMCO, so it is possible that he is the source of Gross's position.

On why Bill Gross supports a job guarantee despite railing against the deficit

Jobs have to come first. We are already seeing cyclical unemployment turn into structural unemployment – and that permanently lowers output and increases deficits. [MMT economist] Stephanie Kelton is right when she says that “as long as unemployment remains high, the deficit will remain high.”

When the private sector is not willing or able to step up to the plate, then government has to.

Ed points out that, moreover, just increasing aggregate demand through stimulus is generally politically co-opted, channeling the stimulus to the influential rather than toward creating effective demand.

Trader's Crucible pointed out in a recent post that MMT economist Pavlina Tcherneva observed:

“As already noted, for Keynes, the principal goal of fiscal policy was to secure true full employment and the principle measure for adjudicating among different policy responses was their employment-creation effects (Kregel 2008). Unfortunately, what is considered to be Keynesian policy today is largely a misinterpretation of the Keynesian prescriptions, which largely stems from a fundamental misidentification of Keynes’s theory of effective demand with the theory of aggregate demand (Tcherneva 2011). In the General Theory, Keynes carefully articulated that employment determination depended not on the volume of aggregate demand but on the point of effective demand which was very hard to stabilize and fix at full employment.”

(emphasis added)

The TC Rule: MMT Inspired Fiscal Policy

Edward Harrison sums up QE1, QE2, and QE3

Edward Harrison of Credit Writedowns explains QE1, QE2, and QE3 from the Fed's announced perspective and his own views, which is consistent with MMT.

What are the differences between, QE1, QE2, and QE3?

Ed thinks that should QE3 come, it will be after the Fed has firmly established the the overnight rate at zero, when it will shape the yield curve by setting price rather than quantity, reversing the strategy of QE2.

If this happens it will be completely in line with MMT's position that the government controls interest rates as it chooses, and the natural rate of interest (overnight rate) is zero.

While this is admittedly an emergency measure, it demonstrates what MMT has been claiming as a feature of the federal government's monopoly power as issuer of a nonconvertible floating rate currency.

Bernanke finally gets it that the Fed controls the yield curve?

Edward Harrison of Credit Writedowns:

This time the Fed will target price instead of quantity.

Gross and Rosenberg: QE3 will see Fed target rates

MMT economists were saying from the beginning that this is what the Fed would have done to control the yield curve. Now Bernanke seem to have figured out that he should be targeting price (yield) instead of quantity (announcing the total projected buy).

Harrison sums up what is likely to happen very well including this important quote of Bernanke:

So what then might the Fed do if its target interest rate, the overnight federal funds rate, fell to zero? One relatively straightforward extension of current procedures would be to try to stimulate spending by lowering rates further out along the Treasury term structure–that is, rates on government bonds of longer maturities. There are at least two ways of bringing down longer-term rates, which are complementary and could be employed separately or in combination. One approach, similar to an action taken in the past couple of years by the Bank of Japan, would be for the Fed to commit to holding the overnight rate at zero for some specified period. Because long-term interest rates represent averages of current and expected future short-term rates, plus a term premium, a commitment to keep short-term rates at zero for some time–if it were credible–would induce a decline in longer-term rates. A more direct method, which I personally prefer, would be for the Fed to begin announcing explicit ceilings for yields on longer-maturity Treasury debt(say, bonds maturing within the next two years). The Fed could enforce these interest-rate ceilings by committing to make unlimited purchases of securities up to two years from maturity at prices consistent with the targeted yields. If this program were successful, not only would yields on medium-term Treasury securities fall, but (because of links operating through expectations of future interest rates) yields on longer-term public and private debt (such as mortgages) would likely fall as well.

There's much more in Harrison's summary, including a quote from Scott Fullwiler. However, I disagree with Ed about the outcome, which he thinks will result malinvestment. (Ed is an Austrian economist.)

Edward Harrison on Austrian School Economics and MMT

Edward Harrison of Credit Writedowns is an Austrian School economist that has integrated MMT. Taking a cue from Rogue Economist's suggestion that Austrians and MMT'ers have many significant points in common they should explore, Harrison composed a thoughtful piece, On Ideology, economics and the compatibility of Chartalists and Austrians, which is followed by many comment from a variety of viewpoints. Having a foot in both camps, he is perhaps the ideal person to comment on this contentious area of debate between two apparently opposing schools of thought.

Rogue Economist Encourages Austrians and MMT'ers To Get Together

"Austrians and MMTers should be on the same side. After all, both camps understand the relationship between money and credit, and both understand the full ramifications of having fiat money. They should be on the same side arguing against economists who argue that demand can be created by flooding the banking system with reserves, and both should be on the same side arguing against those who think that increasing inflation expectations is an effective way to get an already over-indebted economy to take on more debt...."

Read the rest, Austrians and MMTers should be on the same side, at Rogue Economist Rants.

Interesting take. Edward Harrison of Credit Writedowns is an Austrian economist that has incorporated MMT, for example, so it is not as farfetched as it may first sound.

Edward Harrison on the Sitglitz proposal for a new global reserve currency

Stiglitz proposes a new reserve currency

Good read.

My comment to Ed:

Any fixed rate system is going to turn out to be deflationary rather than "stablizing," putting national policy in a bind in downturns. Is there going to be a lender of last resort? Who sets the conditions? Is this government body in control of the world's reserve currency elected and accountable, or it is composed of the world's super-bankers? The New World Order people would have a field day with this, and I suspect that a lot of the Tea Partiers now in control of the GOP are NWO'ers.

Sovereign governments would have to give up monetary sovereignty to join such a currency union even at the international level. Is the world an optimal currency area?

See also Dani Rodrik's "inescapable trilemma of the world economy".

Lots of issues here. Look forward to your thoughts on this.

Edward Harrison on the Fed's Conundrum

"I would argue that inflation expectations are rising as we speak. They are still anchored but they will not be if they continue to rise any more. And if inflation expectations become unanchored, it will mean that policy tightening will have to be much more aggressive – and that leads us back to debt deflation in a hurry –exactly the problem CBs wish to avoid. If CBs are prudent, they will not only be aware of this Scylla – Charybdis conundrum, but act in order to keep the global economy away from either outcome."

Read more: The Scylla – Charybdis of Anchoring Inflation Expectations