I was going to write about the situation in Timor-Leste after its national elections were held on Saturday. But I will hold that over for another day as I get some more information. So today, I think we can learn a lot from an issue raised in the Bloomberg article (May 14, 2018) – Kuroda’s Stimulus Saves Japan $45 Billion, Easing Debt Pressures – which discusses the QE program in Japan and introduces several of the basic errors that mainstream financial commentators make when discussing these issues. The article traverses all the usual suspects including the misconception that numbers in official accounts are ‘costs’ to government and that smaller numbers in official accounts mean the government can put larger numbers in other accounts than it might have been able to. These articles are as pervasive as they are erroneous. Hopefully, as the precepts of Modern Monetary Theory (MMT) spread and are understood more journalists will endure scrutiny of the rubbish they write and the public commentary and debate will progress towards a more reasonable – realistic – appraisal of what is going on in the world of finance and money. This article is one of the worst I have read this year so far. And there have been some real terrors!This is about government finance rather than Japan alone.
The paperback edition of Understanding Government Finance has been released. It is currently available at the Amazon stores in the United States and the United Kingdom, and will appear at other Amazon regional sites over the next few days. (Not all of them, unfortunately.) It will be available at other retailers either on online stores or via special order, but it may take weeks for it to appear elsewhere.…Bond Economics
To briefly recapitulate the Simplified Framework, it is a system in which bank reserves do not exist. Since bank reserves have not yet been abolished in the United States, and most economic textbook writers are American, too much emphasis is placed upon the role of bank reserves in most descriptions of the financial system. Moreover, the "monetary base" consists of the sum of currency outstanding and bank reserves, which leads some analysts to treat bank reserves as somehow being interchangeable with currency. The beauty of eliminating bank reserves from the analytical framework is that such confusion is essentially impossible.Bond Economics
The key assumption of the Simplified Framework is that in the absence of bank reserves, all net transactions at the end of the day between the government and the banking sector have to be settled with a transfer of government bills and bonds (since those are the only instruments that appear on the central bank's balance sheet at the end of the day). This assumption colours our analysis of the role of currency within the system.
During the day, banks could have non-zero settlement balances, but those balances have to be netted out to zero by the close. Yes, the situation is slightly more complicated in the actual Canadian banking system, and those complications are addressed later in Understanding Government Finance. However, it is best to understand a simpler framework before attempting to deal with every possible complication that has been embedded within financial systems.…
The BondEconomics.com eReport Understanding Government Finance has been released, and is available at online retail stores.
It is currently available at: Amazon, Kobo, and Tolino, and should appear at a few other retailers within a few days.Bond Economics
This report examines the underlying principles of government finance for a central government with a free-floating currency.This is done by examining financial operations within a simplified yet realistic monetary framework. Then the effect of deviations from this framework by real world governments are discussed. What is demonstrated is that we cannot compare such a government to a household. Unlike a household, governments are not bound by purely financial constraints, nor is there any need to pay down its debt.Bond Economics
This report is aimed at a relatively wide audience that has an interest in finance and economics. The focus is on the operations behind government finance, and so there is limited discussion of economic theory. However, the analysis is within the tradition of Modern Monetary Theory (MMT), and so it provides an introduction to some of the concepts used within that body of thought.
There was an extraordinary article published on the University of New South Wales News page (January 29, 2015) by a Professor of Finance (Peter Swan) entitled – Federal finances and family budgets have a great deal in common. Juxtapose that with a blog I wrote in December 2012 – Government budgets bear no relation to household budgets. Seems – we have a problem, Houston. Well, Peter Swan has a problem and along with him a raft of mainstream economists, including some who claim to be progressive. They are coming out of the woodwork where they hid during the peak of the crisis, as fiscal stimulus packages were saving the World economies, and are now rehearsing their usual erroneous claims about the dangers of on-going deficits. Their grasp of history and facts appears to be flimsy and their logic nonsensical.…Bill Mitchell – billy blog
This proposal is for a conversion of the existing dated 'debt' liabilities into a modern form of the undated credit instruments ('stock') which pre-date modern banking by hundreds, if not thousands of years.
The Proposal
Firstly, Greece would dedicate an agreed proportion of tax income to long term funding. Let us say 5% of Greek tax income and an initial allocation of €12bn.
Greece then issues stock (undated credit instruments) at a discount, each of which is returnable in payment for €1.00 of Greece's taxes. This new issuance would then be allocated between the different creditors in a way reflecting the repayment date and interest rate of Greek liabilities.
From then on Greece would use 5% of its tax income to buy back this stock for cancellation, and the faster the growth of Greek GDP and taxation, the faster would be the rate of return of the stock.Pieria
Paul Krugman pointed out out in a recent post that whether a government finances itself through bond purchases, which are later bought by the Fed, or whether it prints money directly, makes no difference. The two are in effect the same. Some, however, still question this idea because they wrongly believe the Fed and the Treasury to be two separate entities. While this may be the case on paper, in reality they represent more of a married couple with a joint account than two separate entities.
To help explain, we’ve done some balance sheet exercises to show how it is that the ultimate outcome of bond-funded spending, whether QE supported or pure money printing, is the same.FT Alphaville
