Ben Holland — The Secret Behind Growth in Trump’s America Is Deficit Spending

MMT gets a mention. Increasingly, the mentions are not negative, just a statement of the MMT position. That's called educating the public.

Looking at the US economy, things are going quite well based on money creation, both through government injection and private credit extension. This is a reason that the Fed is raising rates as part of its reaction function to balance the trend, in addition to its commitment to normalizing after the effects of addressing the global financial crisis swelled the Fed balance sheet with government securities in order to "provide liquidity during a liquidity trap" by increasing the monetary base. (MMT shows why this strategy is wrongly conceived and won't have the desired effect.)

Raising the policy rate is a price increase that has an "inflationary" aspect in addition to a moderating influence by making credit more costly, which eventually has an effect on the housing market. Moreover, return interest bearing government securities to nongovernment increases interest income, which also has an "inflationary" bias.

But the so-called inflationary bias is due to the stimulative effect of these policy choices. There is no problem in absorbing the stimulus when the economy is still in an expansionary phase and is not "overheated," meaning that there is bidding for scarce resources that drives up market prices if the increased demand cannot be met by expanding production to meet the increased demand with increased supply.

The market's reaction seems therefore to be based on irrational pessimism, the opposite of "irrational exuberance on the upside. If this is so, the present market action would be more on the order of correction after a lengthy run up resulting in part from the historically low policy, instead of an indication of an emerging bear cycle or the signal of economic contraction. There are many factors involved in this sudden turn to pessimism with the monetary indicators signaling real expansion without any sign of accelerating inflation at this point. So the motivation is not without basis. However, the discounting seems excessive based on the factors, positive and negative. Again, "expectations."

Market price is based on both subjective and objective factors. The subjective rules in the day to day trading, while the objective — fundamentals, that is, facts — rules in the long run, that is, investing. Warren Buffet has built a fortune on understanding this and using it to pick up bargains at a discount.

If you want to understand more about this and how to use, treat yourself to a subscription to Mike's newsletter, which is based on using MMT principles in the current market. Info in the left side-panel.

Bloomberg
The Secret Behind Growth in Trump’s America Is Deficit Spending

Ben Holland

Alan Longbon — Good News: U.S. Government Posts A $214 Billion Deficit For August 2018, The U.S. Private Sector Posts A $214 Billion Surplus

Summary

The US budget deficit is $214 billion in August 2018; this is a net add of income to the private sector and a bumper month.

• The good news is that dollars are being added to the economy by the Federal government, allowing the private sector to post a $214 billion surplus.

• Further, net inflows are expected for the rest of the year from the Federal government and private credit growth.

• Private credit growth is a big surprise, growing strongly despite Fed rate rises.

Seeking Alpha
Good News: U.S. Government Posts A $214 Billion Deficit For August 2018, The U.S. Private Sector Posts A $214 Billion Surplus
Alan Longbon

FRED Blog — Did the U.S. government just achieve a surplus? : A closer look at our national accounts

Almost all governments run deficits, so it’s a big deal when a government achieves a surplus. This graph includes data for all levels of U.S. government (local, state, and federal) on the net result of their lending and borrowing: A net deficit appears below the zero line, and a net surplus appears above the zero line. Notice the sudden jump in the fourth quarter of 2017 that reaches just above zero? This is a seasonally adjusted data series, by the way, so this jump has nothing to do with the regular influx of tax payments as the filing deadline approaches. (And that particular seasonal jump is in the second quarter, anyway.) So what’s going on here?...

Notice "achieve." No one ever says, "achieve a deficit," only "achieve a balance" and "achieve a surplus."

FRED Blog
Did the U.S. government just achieve a surplus? : A closer look at our national accounts