Jared Dillian — It's Dumb To Have No Gold Amid All Of This

A bit of ideological bias at work influencing view of causality, namely, that austerity is expansionary because saving funds investment?

I suppose that if Modern Monetary Theory (MMT) were implemented, foreign exchange markets would have their say about it (provided we still had floating exchange rates).

Do you think it is a coincidence that the two biggest bull markets correspond with government austerity? I do not.

And tell us what happened after the two biggest bull markets? MMT explains why.

Hint: The expansion was funded by unsustainable private debt that culminated in Ponzi finance as Hyman Minksy's finanical instability hypothesis would predict. MMT develops this explanation in terms of the crucial difference between a sovereign currency issuer and users of the currency that have to obtain it to meet obligations.

Seeking Alpha
It's Dumb To Have No Gold Amid All Of This

Jared Dillian

Harje Ronngard — She's Not Serious…Is She?

What happens when a business runs at a loss?

If it happens for long enough, eventually it’ll go bust.

So why should it be any different for the government?

Doh. Another Johnny-come-lately who still hasn't heard that the government is the currency issuer and that everyone that uses the currency must obtain it ultimately from the issuer as the monopoly provider.

Therefore, currency users are financially constrained, whereas a government that is sovereign in its currency is not constrained financially. Since the government is the currency issuer, it can always meet its obligations denominated in that currency.

The constraint on such governments is not financial but real. The constraint is the availability of real resources priced in the currency that the government issues. This implies that the government can always purchase and deploy idle resources without affecting prices.

However, if the government competes with the private sector for real resources in markets, then prices will adjust to what the government offers. This can increase market prices of scarce goods unless production increases to meet the higher demand.

MoneyMorning (Australia)
She's Not Serious…Is She?

Harje Ronngard

Heiner Flassbeck — The debtor is always guilty

In German debt and guilt are the same word: Schuld. So, in Germany, debt has a morally negative connotation. Further, the state budget is referred to as “Haushalt”, which is the word for household. Germans equate state finances with those of personal finances, a concept that is reinforced by German political parties across the whole of the political spectrum.

Flassbeck Economics
The debtor is always guilty

Heiner Flassbeck

UK Labour’s Fiscal Credibility Rule: Neoliberal Orthodoxy Dies Hard — Joe Emersberger interviews Bill Mitchell

MMT!

The problem is that when you just define these fiscal aggregates within their own financial terms you’re really losing the purpose and meaning of fiscal policy. The purpose of fiscal policy isn’t to achieve any particular fiscal outcome whether it be a balanced fiscal position, or a deficit of whatever percent or even a surplus of whatever percent. The purpose of fiscal policy as a tool is to advance wellbeing in the economy, to engage in government spending programs which are consistent with its electoral remit, and taxation to manage total expenditure in the non-government sector so that there is space – and what I mean by “space” is real resource space – for the government to basically buy those resources and conduct its programs. Taxation creates that space by depriving the non-government sector of the use of resources...

This is the purpose of fiscal policy. In a cyclical sense – in other words in the variation of economic activity – fiscal policy should play a very important role in being able to offset any fluctuations in non-government spending that would either cause unemployment if it were not offset, or would drive inflation if it were not offset. Fiscal policy has to be flexible enough to allow the government to meet that purpose. If you start imposing rules that are independent of purpose then you are likely to end up not meeting that purpose but also failing to meet your rules....

Excellent!

Counterpunch
UK Labour’s Fiscal Credibility Rule: Neoliberal Orthodoxy Dies Hard

Joe Emersberger interviews economics professor Bill Mitchell about the British Labour party’s fiscal credibility rule

See also

More MMT.

Arcade
The Unheard-of Center: Critique after Modern Monetary Theory

Scott Ferguson | Associate Professor and co-director of the Film & New Media Studies Track in the Department of Humanities & Cultural Studies at the University of South Florida. a Research Scholar at the Global Institute for Sustainable Prosperity), co-founder of the Modern Money Network: Humanities Division), and co-host of the Money on the Left podcast

John Lounsbury — Documentary Of The Week: But How Will We Pay For It?

On Stephanie Kelton and MMT.

econintersect.com
Documentary Of The Week: But How Will We Pay For It?
John Lounsbury

See also at econintersect

Even The Statisticians Are Highly Dubious Of Applying Their Methods In Economics!
Philip Pilkington

Bill Mitchell – The government is not a household and imports are still a benefit

A key post on MMT. Plus, it is short.

Bill Mitchell – billy blog
The government is not a household and imports are still a benefit
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Ellis Winningham — The Bond Market Doesn’t Control Anything; the Currency-Issuing National Government Does

More myth debunking.

Ellis Winningham — MMT and Modern Macroeconomics
The Bond Market Doesn’t Control Anything; the Currency-Issuing National Government Does
Ellis Winningham

Ann Pettifore — Is there no such thing as public money, only taxpayers money, as PM asserts? Was £375bn of QE raised from taxpayers?

Lump of money fallacy.

We disagree with the ‘there is no money’ mantra. Within a sound financial and monetary system, there need never be a shortage of money to meet society’s needs. There may be limited resources, and limited brainpower but there need never be a shortage of money. In this briefing I set out to explain why.....

Debtonation
Is there no such thing as public money, only taxpayers money, as PM asserts? Was £375bn of QE raised from taxpayers?

Ann Pettifore

Also put up by Ann today:

Eurozone QE: Better ways to boost the economy and employment

New Publication on Islamic Finance

Brian Romanchuk — Note To Reporters: You Cannot Analyse A Sovereign Like A Corporation

Reporters and (apparently) readers have a hard time differentiating between the different fields within finance, and so they happily treat comments made by people like internet analysts (!) as representing "what the markets think" about government fiscal ratios. Since bad fiscal analysis is more exciting than good analysis, that is what appears in the media.

Very Quick Justification 

I am not going to give a long explanation of why you cannot analyse a "sovereign" (see comment below) like a corporation here. I will instead offer a simple example of how the logic in one area is diametrically opposed...

Bond Economics
Note To Reporters: You Cannot Analyse A Sovereign Like A Corporation
Brian Romanchuk

Geoff Coventry — When good analogies go bad

We've all heard it.

"If I ran my business like the government I'd be bankrupt".

It sounds so intuitive; so moral. It would be irresponsible for a government to keep spending more than is earns. And for many governments, it really is true - all those cities, states, and the nations that do not issue their own currency (like Greece). Yep - they all have to get the money they spend because they are all users of a currency.
But what about nations that issue their own currency? After-all, that's most sovereign nations.

Let's go back to our analogy. We said if I ran my business like the government... stop right there. What business issues its own money? Businesses are currency users just like cities, but the United States is a currency issuer. In what way can a business ever run like a currency issuer? 

Yep, some analogies are just bad. So bad, in fact, that they can mislead whole nations into thinking something false is true, and something true is false. Or, to put it in moral terms, they lead us to believe that something very destructive to our economy is actually the only righteous solution, and that the very thing that could help society and people is deemed irresponsible and even evil.

That's what happens when good analogies go bad....

It's the people's money
When good analogies go bad
Geoff Coventry

Bill Mitchell — The Australian government is not akin to a household

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
The Australian government is not akin to a household
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the Charles Darwin University, Northern Territory, Australia

Warwick Smith — Repeat after me: the Australian economy is not like a household budget

MMT.

The Guardian
Repeat after me: the Australian economy is not like a household budget
Warwick Smith | chairman of ANZ New South Wales and chairman of the advisory board of Australian Equity Group

ht Warren Mosler

Robert Skidelsky — Four Fallacies of the Second Great Depression

Robert Skidelsky demolishes of four popular fallacies:

1. That because it makes sense for a household to live within it’s means, that therefor the private sector as a whole should live within its means in the sense of saving up ever increasing stocks of money.

2. That government cannot spend money it doesn’t have.

3. That the national debt is deferred tax.

4. That the national debt is a burden on future generations.

Project Syndicate
Four Fallacies of the Second Great Depression
Robert Skidelsky | Professor Emeritus of Political Economy at Warwick University and a fellow of the British Academy in history and economics, is a member of the British House of Lords
(h/t Ralph Musgarve via email)

Bob Veres — Why Deficits Don't Matter

Stephanie Kelton, Associate Professor of Economics at the University of Missouri/Kansas City, believes that the root of all these problems can be found in a fundamental misunderstanding – shared by Democrats, Republicans and mainstream voters alike – about the government's balance sheet. She argues, plausibly, that the whole idea that we should control the deficit at all is costing our nation trillions of dollars in lost output. The result is lost income, savings, wealth and prosperity.

"As a society, we don't understand government finance," says Kelton. "Most people – including most economists, think that it operates by the familiar rules of household finance. Therefore, we find it plausible when we hear politicians and government watchdogs urging us to balance the budget, control the urge to spend and pay down the debt."

The mantra on the right: the federal government has to stop spending money it doesn't have. The mantra on the left: we need higher taxes on "the rich" in order to balance the budget and pay down the federal deficit. Moderates call for a little bit of each.

"We act like there is some limited amount of money available," says Kelton, "and that government competes for savings with the rest of the economy, and that too much competition for savings drives up interest rates, and higher interest rates crowd out all productive private investment. We act like the federal government is walking a fine line between solvency and insolvency – that if the debt gets too big, our creditors may begin to get nervous, downgrade our debt, our interest rates go up, and suddenly we end up like Greece."

Yes. So? "That picture has no economic meaning whatsoever," says Kelton. "None."

Advisor Perpsectives

Why Deficits Don't Matter
Bob Veres
(h/t Stephanie Kelton on FB)

Winterspeak — No Conspiracy Needed -- the debt ceiling is Sound Finance

As usual, Winterspeak lays out the MMT-functional finance position clearly.

No Conspiracy Needed -- the debt ceiling is Sound Finance
Winterspeak

Rodger Mitchell — The single reason for the repeated U.S. financial crises

Spoiler: It's the government is like a household analogy. As long as a vast majority believes this, progress on the fiscal front is going to be blocked, which means fiscalists like MMT proponents will be stymied. Overcoming this obstacle is second only to getting the money out of politics and locking the revolving door. The good thing is that the false analogy is an easier block to remove and that alone would open the way to significant progress.

The truth is, federal finances are not like your personal finances....

Shout it from the rooftops.

Monetary Sovereignty
The single reason for the repeated U.S. financial crises
Rodger Malcolm Mitchell

Bill Mitchell on Marriner Eccles

[Economic liberals] deliberately create unemployment and poverty and try to spin a narrative that this is labour market reform or essential fiscal consolidation. Marriner Eccles clearly saw through all of those arguments when they were used in his time.

This narrative is usually based on the false analogy between a government as the currency issuer and households and firms, which are currency users.

Neoliberals claim that governments, like households, have to live within their means. They say budget deficits have to be repaid and this requires onerous future tax burdens, which force our children and their children to pay for our profligacy.

The false neoliberal analogy between national budgets and household budgets resonates strongly with voters because it attempts to relate the more amorphous finances of a government with our daily household finances.

"Labor market reform" amounts to reducing the economic position of workers enough to induce "wage flexibility," that is, undermining labor bargain power so that employers can offer less, even less than a living wage, driving workers into debt — as is presently the case with major employers in the US such as Walmart, in a return to Dickensian times. For further development see Michal Kalecki in Political Aspects of Full Employment

Bill Mitchell – billy blog

There is nothing new under the sun

Bill Mitchell

Rodger Malcolm Mitchell — What the heck is a “meme” and why should you care?

I would add that "meme" was proposed by evolutionary biologist Richard Dawkins in The Selfish Gene (1976) as an explanation for "cultural heredity," where certain ideas and behaviors replicate across time and even generations, mimicking genes in individual evolution, as it were. And like genes, memes result in traits that have evolutionary advantages and disadvantages for groups and therefore individuals that comprise them. This may be the difference affecting whether a group is one the right or wrong side of history.

Religious beliefs are an example of the kind of ideas that can result in behavior effects lasting for centuries, and also affecting other cultures. Capitalism is another, and some have argued that conventional economics is the new secular religion underlying capitalism and the major economists are its high priests. See Robert H. Nelson, Economics As Religion: From Samuelson to Chicago and Beyond (2002).

Memes are propagated through language and behavior. Meaning is context-dependent, so memes become norms that shape the context. This context includes cultural rituals and social institutions and dominant memes also shape these.

A cultural worldview is shaped by a complex of frames and chief among these frames are the dominant memes of the culture. Memes gather into "memplexes" that in which memes reinforce each other in constructing a rationale for behavior, the "philosophy" that is evinced as the foundation for cultural rituals and social institutions. 

In the West of the Middle Ages it was religion, today it is "capitalism," which is based on beliefs (assumptions) and myths (models) become memes — like the government as big household analogy that underlies austerianism, as Rodger points out. See, for instance, Ha-Joon Change, 23 Things They Don't Tell You About Capitalism (2012).

Monetary Sovereignty
What the heck is a “meme” and why should you care?
Rodger Malcolm Mitchell

Nick Rowe — Words and wartime austerity

"Austerity" and "profligacy" are perfectly good words to describe the consumption decisions of a household. But they are bad words to describe the consumption and investment and taxation decisions of a government. Because public finance is not like household finance.

Worthwhile Canadian Initiative
Words and wartime austerity
Nick Rowe | Associate Professor of Economics, Carleton University

Good for Nick. Those are some of the most important words in the world right now.

Bruce Bartlett — Mismeasurement of Federal Spending, Investment and Saving

One solution to this problem [of cutting government investment in deficit reduction] would be to have a capital budget that segregates government investment spending from consumption spending. Virtually all the states do this already. Conservatives who routinely defend a balanced-budget amendment to the Constitution, on the grounds that the states must balance their budgets annually, appear to be unaware that such requirements apply only to operating budgets, excluding capital outlays. 

If households were required to balance their budgets the way balanced-budget amendment supporters want the federal government to operate, they would almost never be able to buy homes or cars. Such outlays almost always exceed their annual incomes over and above consumption and would thus constitute deficit spending.

Of course, families could draw down savings to buy homes and cars. But that’s an option not available to the government because it has no savings, only a large debt. Treating it and private individuals the same way, as balanced-budget supporters propose, would require the entire national debt to be paid off and a surplus accumulated before it would be permitted to make new investments in roads, bridges, buildings and other long-lived assets.

The New York Times — Economix
Mismeasurement of Federal Spending, Investment and Saving
Bruce Bartlett

Another silly thing about the government as big household or firm analogy is debt to GDP (national income) ratio compared with corporate debt to firm income ratio, which is often much higher.

While the analogy fails on the currency issuer v. user basis, it also fails on the basis of actual operations and financial ratios.