MMT stands for “Modern Monetary Theory” which isn’t really a good name for it, it’s just sort of the name it got stuck with. It’s not monetarism at all. It’s called “post-Keynesian”. It’s also called “heterodox”, to distinguish it from orthodox, or mainstream economics.
There are only a handful of academics (tenured professors) who are pushing it, most of them at UMKC.
I’m not criticizing the Fed for buying US debt. I think it should keep on doing it.
It is, however, the definition. (of monetizing the debt)
Yes, we know this. What is not so widely understood is the fact that the fed has very little control over the long end of the yield curve and it is the long end that the current round of QE is designed to affect. I’m not however convinced you understand why that is though.
Wrong. From whom do you think the fed buys those assets? Where do you think the cash that’s created goes? Do you think it stays in cash or do you think it gets put into other investments?
Just to show how little you seem to understand, the recent collapse in the value of the currencies of India and Indonesia was the direct result of fed policy. If you can explain that nexus, then the nexus to the wealth effect should be cake for you.
You’re missing the multiplier effect that you get from spending which I’ve tried to explain several times before and which you seem to refuse to understand. Aside from that, the savings rate is not appreciably higher now than it was pre-recession so THAT clearly isn’t the issue, but by focusing on psychology you’re getting generally warmer.
That link doesn’t work but I’m well aware of what monetizing means as I’ve already defined it for you and acknowledged that but for the expression of the fed’s intent to resell the debt it holds it could be considered monetization. Please try to pay attention.
This is not correct.
A perfectly balanced budget is when the money that goes into Treasury from taxes perfectly equals the money that leaves the Treasury from spending. That is the definition. They don’t have to drop “previously taxed” money from helicopters. They can print it up and drop it while it’s still warm from the presses. This doesn’t change the budget deficit in the slightest: the money was created not taxed, and it was given freely away not spent. They could dump billions out of the helicopter without directly changing the budget deficit by a single dollar. (Subsequent spending behavior would be taxable, but the very act of dumping money wouldn’t change the deficit.) I already defined the budget deficit in this thread. More money can easily enter the economy without any spending.
There are laws against this, but that’s exactly my point: everything about government money is a legal construct of one kind or another.
Yes, it is a better way of doing it. Naturally.
And having a “warehouse” is a better way of doing things, too. We can see that conventional taxes are good, because every functioning nation on earth uses some manner of conventional taxation. We can also see that the warehouse is good, because every functioning nation on earth uses some manner of money warehouse for their government. I could probably list five other advantages of the “warehouse”, a couple of them language-based but also including political and accounting advantages. But we don’t even need those arguments: again, we know it’s useful because it’s used literally everywhere with a stable government.
This has nothing whatever to do with what I said. This is not a response to my point.
Completely true. Absolutely correct.
And the same is true for every other legal construct.
They are all fictions, and yet they have effects on our behavior, in one way or another. Some of them are direct effects, and some of them are indirect effects. Some of them are important for people’s spending behavior, some of them are important for labor markets, some of them are important for us to speak clearly about these issues, and some of them are important for political stability. You pointed at the warehouse and said “It’s a fiction!” Then I pointed out every other law in the universe and said that they’re fictions, too. But I never said they were unimportant. I’m going to repeat a previous sentence, in bold and in a slightly larger size, because you aggressively missed it the first time:
You don’t get to ignore the legal institutions you dislike, while simultaneously defending the legal institutions you like.
If every nation on earth uses a certain institution, and you can’t personally see the value in that institution, then you should consider the possibility that the fault lies with you and not with every government on the planet.
I know this feels like a revelation for you.
You’ve attained a holy truth, as if given by god on stone tablets at the top of some mountain in a desert-filled country, and you want to share your insight into these matters. You’re here to preach to the rest of us in the valley below of your newfound insight. So confident are you about your newly discovered monetary religion that you proselytize to the masses on this message board repeatedly, including this thread, this thread, this thread, this thread, this thread, the present thread we’re posting in, and likely several others that I missed.
The problem for you is that the rest of us here are older than nineteen.
We already know what your conclusion is. Some of us are not unaccustomed to climbing mountains in the desert ourselves. I even agree, to a certain extent, with that conclusion. The government should do more to help the economy. Where I disagree, strenuously, is the specific nature of what the government should do. If I were having a conversation with a rational person, interested in facts and evidence, then that person would not simply repeat their same dogmatic conclusion again and again, even after half the evidence presented to support that conclusion turned out to be baboon feces.
What you write is basic facts mixed indiscriminately with nonsense. You speak of behavior while showing no awareness of incentives. You speak of government spending with half your statements about it totally incorrect. You speak of bank accounting, while knowing nothing of accounting. All of us here can see with our own eyes that in your previous thread you demonstrated that you’d never opened an accounting book in your life. When I pointed out in this thread that you still hadn’t taken my advice to educate yourself before preaching your holy conclusion, you told us all that you hadn’t had time to do so. But you still have time to preach the same sermon! You’re even preaching to me now, of all people, as if I’ve somehow forgotten your posts from ten previous threads. You are constitutionally incapable of discussing facts, by themselves, with no reference to the conclusions you like to sermonize endlessly about. But these sermons of yours are nothing to me. I care only about your many mistakes. And now in this thread you have happily admitted that you didn’t bother to learn from your previous errors. You believe the same things, always, regardless of how ignorant you are and regardless of how many mistakes you’ve made along the way. Like all true fundamentalists, your dogma doesn’t change no matter how many errors you make.
You’ve misjudged my motives in nearly every thread we’ve been in, so let me clarify just this once for you: I’m not here for you. Your character was clear to me long ago. I don’t care what fundamentalist nutters think about the age of the universe. I’m here for everyone else who might be reading. I’m talking at you, with my posts addressed at you with the quote function, but my words are for every single other person in the thread except for you. I’ve had more exposure to you than the average poster, and I’m trying to show everyone else that you’re the monetary equivalent of a creationist. You are cut from the very same cloth, the set of people who grasp tenaciously to their holy beliefs without any concern for the facts that should ostensibly support those beliefs.
And thankfully, I’ve already succeeded in showing this in this thread.
I could continue. I could list at least half a dozen other errors you’ve made in this thread that I haven’t had the patience to get to yet. But I’m not going to bother with that, unless I get a specific request from someone else to go on. I engage in these “discussions” for them, not for you. I love the SDMB because I can see people of all manner of expertise explain their own fields. I can learn directly from the pros in practically every field imaginable. Sometimes their explanations must necessarily include taking out the garbage. It’s only fair that I return the favor when this particular topic comes up, even given the drudgery. I know it can be worthwhile to at least some people out there. I’ve been thanked previously for my contributions in some of your threads. You are clearly going to continue your pattern of preaching your Religion of Money, just as you did in all the many other threads you started on exactly the same topic. You will continue to climb up on your pulpit and preach about things you only half understand. If in the future I feel it might be helpful to correct at least some of the nonsense, I’ll step into a future thread. If not, I won’t.
But I’m not trying to do you a favor when I follow behind you with a pooper scooper after you shit all over the place. It’s for everyone else.
[hijack] I have multiple reading speeds: blur, skim, read and study are four. Lesser posters receive the blur. Hellestal gets my closest attention.
I’m not trying to be mean here, but when I see multiple points of confusion presented by a poster, I’m not apt to focus on his work. I don’t actually mind LinusK, but I haven’t taken the time to work out his position. I don’t apologize for this. [/hijack]
Macro seemed all so clear to me in 2006, relatively speaking. The lesser Depression has taught me a lot about political economy and financial markets. But I don’t think we’ve cracked the code. By 2016 though, we will have witnessed the aftermath of Abenomics and possibly a shift in regime in the US c. 2014. We will have a new Fed chair and it’s possible that the 2010-2013 era of fiscal retrenchment will have leveled out, though I don’t expect to see much needed stimulus. Europe will be the control group.
I said that earlier, but you (or maybe it was one of the others) corrected me and told me I didn’t know what I was talking about. But you’re right: banks (collectively) are stuck with whatever reserves the Fed chooses to stick them with. They can trade them back and forth, but they can’t get rid of them. (I even limked to an article that said the same thing.) the idea that banks’ excess reserves are evidence they’re “hoarding” money, or refusing to make loans is flat out wrong. It’s the Fed that decides the amount of reserves in the system, not the banks themselves. They can’t, and don’t, lend out reserves. When the Fed makes a purchase from a broker, though, two accounts get credited. One is is the dealer’s bank account (a liability on the bank); the other is a credit to the bank’s reserve account, which gets credited for the same amount.
But I agree ultimately loans are based on demand, not on how much reserves there are.
And you’re right, reserves themselves always stay within the reserve system (except for the part that escapes as cash).
I agree. The central bank controls interest rates, but it must provide at least the minimum reserves required by banks, unless it pointlessly wants to create a banking crisis, which is the opposite of what it wants to do.
I agree again. In fact that’s exactly what I’ve been saying throughout this thread.
It may be rare, but there have been no harmful effects from it, and there’s no reason why the Fed shouldn’t continue buying Treasuries.the fact that the Fed can and is wing to purchase Treasuries is why they’re such a safe investment,and why they carry such ow interest rates.
No. The reason it’s not harmful is the fact that people believe the fed when it says that it’s intention is NOT to monetize the debt. If people believed otherwise you would see a very different result regardless of how reserves are treated. That you could erroneously put so much faith in the idea of a significant increase in the savings rate, which existed only for a very brief time during the depths of the recession and wasn’t even all that dramatic and miss other basic points of market psychology is beyond me. I really do have to believe that what you aren’t parroting back to us you just pull out of your butt. I would be inclined to give you some credit for you other admissions had I not formerly dealt with your intransigence on so many points so many times before.
You also overlook a point that I mentioned early that distinguishes cash from reserves and that is the fed practice of paying interest on excess reserves. This creates a built-in firewall to inter-bank lending that makes the free flow of reserves from bank to bank more problematic and less free, further locking them into the system and out of the economy. This is all covered in that 15 page article I keep encouraging you to read.
The problem right now is psychology, as I have previously intimated. This is the problem you have with every credit inspired recession and why they are so pernicious. Once the trust that the financial markets are built upon is shaken, it is extremely difficult to rebuild. Having a central bank like the fed that inspires confidence the world over is a huge step to restoring that trust but ultimately it has to come from the market itself and we’re only starting to see that again.
In the interim, the companies that survived the recession have built up their cash positions and trimmed costs to the bone. No one has any confidence in the future so no one is hiring and no one is investing. And a big part of the reason for that is the turmoil we see in Washington. We should be well into a robust recovery by now but we’re not and the reason is not economic but psychological.
From what I understand, the Fed trades with what it calls “designated primary dealers”. I don’t know who they are, exactly. I believe they’re probably big banks and Wall Street firms. But I don’t know that it matters, in terms of this discussion.
When the Fed buys something, two different transactions happen. 1. The person who sells the asset gets a credit at his bank, equal to the value of the asset. (The credit, obviously, is also a liability against the bank). 2. The bank gets a credit, for the same amount, in its reserve account at the Fed. (Which is similarly a liability against the Fed.)
In terms of where the cash goes, I guess it depends on what cash you’re talking about. The Fed money stays (mostly) within the banking system. With the relatively minor exception of currency, there is no where else for it to go. Banks trade it back and forth with each other, but since one bank’s gain is another’s loss, collectively they’re stuck with whatever reserves the Fed chooses to provide.
If you’re talking about commercial bank liabilities (bank deposits) those go wherever the owner wants them to go. If he chooses to use them to pay off loans, then the money disappears. If he buys something - a car, stocks, municipal bonds, whatever - then the deposit simply changes owners.
I’m sure you didn’t mean it this way, but when you use the phrase “put in” (to other investments), it makes it sound like you think the money becomes the investment. Money only changes hands, of course. It never becomes something other than itself.
You’ll have to explain the India and Indonesia thing to me. Consider it a way of showing me how little I know.
It’s not that I’m missing the multiplier effect, it’s that the multiplier effect itself is missing.
I’m not sure what you mean by “savings rate”. Are you talking about people spending less than they make, or about macro identity that says savings = investments?
Because you agree - right? - that collectively we can never spend less than we make, or make more than we spend.
You Fail Economics Forever.
LinusK: So basically you don’t have a clue. I figured as much. As for the connection between fed policy and emerging market currencies, why don’t you try using google for once. I’m tired of wasting my time with you. There should be a hit from theWashington Post on the first page that looks like it addresses the issue. Let’s see if you actually understand it.
I’m not sure what institutions you think I’m ignoring.
I’ve said that we could simplify the current Fed-Treasury situation, without losing anything important, by simply taxing money out of existence to fight inflation, and spending it into existence when unemployment was the problem.
We don’t have to get rid of the Fed to obtain the same outcome: instead the Treasury can print bonds, and the Fed can buy them. It’s a perfectly legal strategy. In fact it’s what’s happening now. Many people seem to think that there’s something wrong or bad about it, but I’d argue it’s exactly what we should be doing. In fact, I’d argue we should be doing more of it.
Which institution are you talking about? The Fed? The Treasury?
I’ve argued that a country could simply spend money into existence, when that was necessary, and tax it out of existence when that was prudent, and that the effect would be the same as running up deficits, and then monetizing them with a central bank.
It’d be simpler, more straight-forward.
But I’m not calling for the elimination of the Fed. As long as its doing the right thing, it doesn’t matter much whether the system is complicated, or straightforward. (And of course, the Fed does other things besides monetize the debt: it regulates the financial system, which has to be done by someone. And it facilitates bank-to-bank transactions, which again, has to be done by someone.
Anyway, I’m not calling for the elimination of the Fed, if that’s what you think. I’m simply pointing out its not strictly necessary for a country to have a central bank, in order to create and destroy money.
That’s your interpretation. My interpretation is that this is something I’m interested in, and interested in discussing. This is a discussion board, so it seems like an appropriate place to discuss it. I appreciate anybody who wants to contribute, and I try to have a thick skin. This is the Internet, after all.
But I recognize this as a distraction, as entertainment. Sometimes I watch Netflix (just finished Orange is the New Black: I know the premise sounds shitty, but you should check it out; it actually very good.) Sometimes I discuss fiscal and monetary policy with anonymous strangers.
Anyway, it’s not like Ben Bernanke is monitoring this thread, or that anything anybody says here is going to change the real world. I’m not trying to belittle it. It’s an interesting, important topic. I’m just saying there’s no reason to take it personally.
I have been pretty repetitive. In my defense, many people haven’t read what I’ve said before. I could, I suppose, just link to previous posts. But frankly, I think that would be kind of stupid. It’s is, after all, a discussion board, and just saying “Here, go read this.” Would be boring, and maybe even a little disrespectful.
So you see yourself as the self-appointed SDMB pooper-scooper?
Sounds like a thankless job.
Back on post 96 I answered some questions you put to me about bank accounting. I’m curious if you have anything to say about it, because you haven’t mentioned it since.
I’ve been critized for repeating myself, but here I’ll be doing it again. My argument is that it’s the Treasury that’s the prime mover, not the Fed. In our system, the Fed plays an important role, but it’s not the Fed itself that creates or starts the “wealth effect” (as you call it). It’s the Treasury, by creating private sector (non-government) wealth in the form of Treasury bonds. The Fed plays a supporting role by, first, actually turning Treasuries into money; and second, simply by its willingness and ability to do it. It’s an important role, but it’s not the Fed itself that’s creating net financial resources for the non-government sector. It’s the Treasury.
I would also argue that trillion+ deficits the the government created, and the trillions of government debt purchased by the Fed have had an appreciable effect: they prevented the financial panic from turning into something much worse. What we saw was an economy going off the cliff. The government stepped into something that looked a lot like a death spiral, and the US economy responded and has slowly started to grow again. My argument is that we could have gotten here faster, and be doing better now than what we are, if the government had done more.
Let me turn it around on you. You say there’s no “appreciable effect”. But a few years ago the stock market fell by, what? Fifty percent? Two-thirds? Now where is it?
Suppose the markets believed the Fed was going to go on buying Treasuries, or that it was going to hold onto the ones it has, indefinitely? What would the markets do then?
Would everyone go into a panic and start selling off their stocks? Why?
Would they refuse to buy Treasuries?
What is it you think they would do?
The fed does NOT normally do what it has done for the past 5 years as I have already stated. QE is an extraordinary remedy for extraordinary situations. If you don’t get that and understand how this situation is different from the normal business cycle that the fed would normally deal with, well, that just demonstrates the depth of your ignorance. Point me to any other time in history when the fed has done anything remotely comparable. You can’t because it has never happened before. The fed normally manipulates the short end of the yield curve via mechanisms such as the fed funds rate, NOT the long end via QE.
As to the questions you’ve posed, if you’d been paying attention, I’ve already answered those. Monetization devalues a currency. When people believed that’s what was happening, that’s when gold soared to $1900 an ounce. What is it selling for now? It’s not even at $1400 last I checked. And yet the fed continues to purchase $85B in US treasuries and MBSs every single month and has not even begun to taper that buying program as of yet.
No, the Fed has never bought so many assets before. As I said a few posts ago, it’s more than quadrupled its balance sheet in the last few years. That has never happened before. I’ve never said or implied otherwise. Why did you think that I had?
The best analogy to the current situation is the deficits the US ran up during WWII. Those were comparable (though greater than, relative to GDP) the trillion+ deficits we had a few years ago. Yet after the war, instead of being crushed under the weight of all that debt, or sliding back into the depression that had gripped the US for the ten years before the war, the US economy expanded.
And that wasn’t even debt for infrastructure or investment. It went to kill people and blow stuff up.
You say that monetization devalues currency. But despite unprecedented levels of monetizing, the dollar remains strong against other currencies, and inflation remains low. If your theory predicts “A” will happen, but “A” doesn’t happen, is there some point where you question your theory?
Really? Like we haven’t already discussed this to death in this very thread not to mention several others. As I’ve said, I’m not wasting any more time. :smack: :smack: :smack:
Well, at least the Fed agrees with me:
That’s some consolation, I guess. (Emphasis mine.)
And this guy seems to have it right:
But maybe some name-calling would set him straight.
You make it sound like this is some revelation. Since when? All you have to do is look at what happened in peripheral Eurozone countries in the wake of the fiscal tightening that occurred in places like Ireland, Greece and Spain. The whole area pretty much dipped back into a recession that they are only now starting to recover from, and that’s only until the next crisis.
I and probably others have pointed out the importance of fiscal policy in stimulating the economy. I have also noted countless times that fed policy is dependent upon not only the willingness of people and businesses to borrow but the ability and willingness of institutions to lend - things over which the fed has very limited control when manipulation of interest rates proves, as now, to be an insufficient incentive.
So if you think that you’ve stumbled on some great truth of which none of us were previously aware, please think again.