MMT: The Fed Neither Has Nor Doesnt Have Dollars Deficit Owls 2024-10-22 | MMT: The Fed Neither Has Nor Doesnt Have Dollars
Pavlina Tcherneva: Coronavirus Response? Deficit Owls 2020-03-19 | Professor Pavlina Tcherneva discusses how to respond to the coronavirus crisis, through the public sector.
Whats the Real Problem With Social Security? Deficit Owls 2018-10-17 | Professor Stephanie Kelton (Stony Brook University) on the Jimmy Dore Show discussing Modern Monetary Theory, and what Alan Greenspan had to say about Social Security.While the "common wisdom" is that Social Security is slowly running out of money, the truth is that isn't true at all: the US Government cannot run out of US dollars. It is always able to make payments in dollars, and if it promised dollars to future Social Security recipients, then it can always make good on that promise.The more important question is, will there be real goods and services for those dollars to buy? As Baby Boomers move into retirement, there will be fewer workers in the US workforce, but US consumers will still be buying just as much stuff. If our economy can't produce that stuff (the food, clothes, cars, homes, electronics, appliances, energy, etc), then competition for scarce goods will drive up prices, and we'll get inflation.So the real dilemma for Social Security is not "where will the money come from." The problem is, how do make sure that our economy is productive enough to sustain Social Security without causing inflation?Watch the whole video here: youtube.com/watch?v=5baKgv7Zl5gFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:https://www.facebook.com/ModernMoneyM...twitter.com/ModernMoneyMeme
Foundations of Modern Monetary Theory Deficit Owls 2018-06-29 | Rohan Grey, President and Founder of the Modern Money Network, discussing some of the foundational logic behind Modern Monetary Theory. Following anthropological evidence, MMT begins its origin story of money not with people bartering goods, but with tribal soceities in which barter was unnecessary because everybody knew each other. When your primary trading partners are your family and friends, it's not necessary to place exact numerical terms on who's giving what to whom. Instead, in these societies we observe informal credit relations: you give me that and I'll owe you something roughly equivalent later.It seems more likely that the idea of making exact value comparisons between objects arises from codes of punishment for bad behavior. To avoid anger, blood feuds, and cycles of revenge, justice for crimes must be doled out in exact quantities. The authority for setting these quantities forms the precursor to what we today call "the state," and these authorities would find it convenient to express penalties for each different crime using a common measuring unit, a "unit of account," often based on a weight of grain. This is the origin of prices.As groups grow too large for face-to-face relationships to be the rule, informal debt relationships gave way to formal, transferable debt relationships, where you might hold my IOU, but you could sell my IOU to somebody else in exchange for goods. These IOUs would get denominated in the unit of account created by the authority, making the debts quantifiable.State money comes in when the authority, rather than demanding that fines or taxes be paid with goods, begins issuing its own IOUs (denominated in the same unit of account) and accepting these back in payment. So, the state money system becomes a vehicle for moving real resources from the private sector to the public sector. Once this system gets going, citizens may find it convenient to use state money for their own private transactions, but this is built on top of the circuit of state money, which flows from the state to the private citizens when states purchase resources, and then from the citizens back to the state when taxes are paid.Watch the full video here: youtu.be/Yror3i1TRjkFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
Money Did Not Come From Barter - It Came From Blood Feuds Deficit Owls 2018-06-03 | Professor L. Randall Wray, discussing the origin of money, which forms the foundational conception of money in Modern Monetary Theory. The usual origin story for money as given by economists is that humans began by bartering in markets, but that this was difficult because of the "double coincidence of wants" problem: I have to have something you want and you have to have something I want, right now, or else we can't trade. From this, a medium of exchange is selected by an evolutionary process, beginning with seashells and beads, and eventually settling on gold. Then, the story goes, people discover that gold is sort of burdensome to carry and difficult to protect, so they arrange to keep it with the village goldsmith. The goldsmith hands out receipts, and people realize that these receipts can be used as money in place of the gold. This is, supposedly the beginning of paper money. Then the goldsmith realizes that not everybody will come to claim their gold on the same day, so the goldsmith can create receipts from thin air and spend or lend them as money. This is, supposedly, the origin of bank lending, or credit money.The biggest problem with this story is that there's no historical evidence for it whatsoever, nor do we observe barter-based markets today within the tribal societies that are still around. The reason is obvious: if you're living in a small tribe, you know everybody. You don't need exact, proportional, spot-trade equivalence of the kind used in barter if you're doing all of your business with your cousin, or your neighbor. In practice, we find that these kinds of societies arrange themselves along informal credit relations: I'll help you out a bit here, then you'll help me out with something else later.This is problematic for the barter story because it doesn't involve quantitative relations, ie. there are no prices. When you are engaged in repeated informal credit with your cousin, you don't need to keep track of exactly who owes whom how much, nor what kind of goods are exactly equivalent to other goods. The time when you DO want exact proportional equivalence is during punishment for crimes. This is the ancient tribal tradition of "weregild," or "man price," in which tribal societies would draw up detailed codes of law specifying fines imposed for specific crimes. Without these kinds of legitimated official punishments, violence would tend to cycle into blood feuds. Weregild is instituted in tribal societies to stop the blood feuds and revenge cycles.So while exchange of goods for daily subsistence involved no prices, these lengthy schedules of fines would have exact, detailed prices for everything to be found in the village, to tell you what sort of payment would absolve you of your crimes. If the prices weren't viewed as fair, then the warring families would not be satisfied and the revenge would ensue.From these fine schedules arises naturally the concept of the "unit of account," that is, money as a social measuring unit, which is used to measure the value of things. Almost always a measure of a weight of grain, this could serve as a common basis for specifying fines. Ie. cutting off somebody's ear would require paying 50 shekels, while cutting off their nose would require 70 shekels, etc, which a detailed listing of how many shekels a chicken was worth, how many a cow was worth, etc. Next, as societies grew larger such that not everybody knew all of their neighbors, the concept of rough credit equivalence was transformed into exact credit. That is, instead of an informal IOU between neighbors, you could record (in some form) an IOU for an exact quantity, and this IOU could be transferable. These IOUs would get denominated in the unit of account used for the schedule of fines, and connote a obligation for general value ('you owe somebody something worth 50 shekels') rather than a specific good ('you owe me 10 pigs'). And finally, the schedule of fines would be managed by some sort of authority, which today we would call "the state." Fines might have originally began as payments to the victim's family, but along the way became payments directly to the authority, for use in the "public purpose." The authority could also issue IOUs in exchange for goods, and did so. When authorities would levy these fines, they would have realized that they could require the fine to be paid in the authority's own IOU, which would create a demand for that IOU (also denominated in the unit of account). The authority would be able to spend its IOUs to anybody in the community, then that person would spend that IOU with the person who owed the fine, and finally that person would use that IOU to satisfy the fine. Today we call these state IOUs "currency" and we carry them around in our wallets.
The Job Guarantee and Foreign Exchange Devaluation Deficit Owls 2018-04-02 | Professor L. Randall Wray, discussing how a Job Guarantee can be implemented in a way that takes pressure off of a nation's foreign exchange rate. One potential problem of a JG is that it could have an adverse effect on the nation's exchange rate: if workers wages increase from what they previously were, then they are likely to import more goods from abroad. This either means that the nation must export more to match, or there must be foreign savers who are willing to accumulate the nation's currency (that's the other side of importing: you end up with foreign goods, they end up with your money). If neither of those happen, then the nation's exchange rate will fall until one of them does.For developed nations, this probably isn't an issue, as there are foreign investors who hold the currencies of the major world economies in their portfolios. But for developing nations, it could be a problem. In this video, Wray mentions several possible tactic to address it.One is to run the JG in a way that stimulates development of export industries, and the simplest way to do this is probably to use JG workers to cultivate and improve tourist sites, to encourage foreigners to visit your nation. Another tactic is to pay the workers in a way that prevents them from spending their income on imports. This can be done by payment-in-kind, where instead of money, workers are directly given goods and services. Since this is a Job Guarantee, some of the jobs in the program could be directly to create these goods. (Presumably, this would not be the workers' entire paychecks, but only some portion of them.)Yet another way not mentioned in the video is with trade policies: simply ban imports in certain quantities or products. The downside to this of course is that it limits consumer freedom. An additional note on fixed exchange rate regimes: in a fixed exchange rate, the central bank uses foreign reserves to buy back the domestic currency in order to raise the exchange rate (eg., China uses dollars to buy back Yuan). So if full employment is leading to more imports, then rather than seeing the exchange rate fall, you'd see the central bank eventually run out of foreign reserves, then face a currency crisis as it is unable to maintain the fixed exchange rate. The above tactics apply in exactly the same way to this situation.See the whole video here: youtube.com/watch?v=yFSKaCRpL-sFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
The Job Guarantee and Inflation Deficit Owls 2018-03-27 | Professor L. Randall Wray discussing the Job Guarantee and inflation. Orthodox economists have enshrined the idea that there's a tradeoff between unemployment and inflation: they believe that if unemployment gets too low, it will cause inflation (because workers gain bargaining power, and fight for higher wages). Therefore, the mainstream approach is to try to keep unemployment at or above some minimum level (essentially prevent people from getting jobs, to weaken worker bargaining power) in order to fight inflation.The Job Guarantee takes a different approach. It uses something called a "buffer stock." A buffer stock scheme is a price stabilization mechanism, which works like this. Suppose that some entity (it can be public or private) would like to stabilize the price of corn. It can do so by announcing a price for corn, then buying and selling any quantity of corn at that price. So if the market price for corn is $390 per bushel (you don't even want to know how much corn that is) but I announce a target price of $400, then I will have to buy corn continuously until the price rises to $400. Or, if the market price for corn were $410, then I would have to sell corn continuously, flood the market, until the price falls to $400. So, in a buffer stock, price stays fixed while the quantity in the buffer stock (how much corn I am holding) adjusts to clear the market. This stabilizes prices.The Job Guarantee does the same thing with labor, by fixing a wage at which the government will hire workers. If the government stands ready to hire anybody who wants to work, at a wage of, say, $12 per hour, then if the market wage for comparable work is $7 per hour, everybody doing those jobs can quit their jobs and join the JG pool, until market wages rise to $12. Or, if the market wage was $15 but everybody in the JG pool was working for $12, the private sector would be able hire JG workers (essentially like buying corn out of the buffer stock) until the market wage for unskilled labor falls back to the JG wage of $12. The buffer stock stabilizes prices.(This was exactly how the gold standard worked, except instead of a buffer stock for labor or corn, it was a buffer stock of gold, whereby the government would announce a price for gold, then buy and sell in unlimited quantities to maintain that price).This is in contrast with the usual "Keynesian" or "pump-priming" method of government fiscal stimulus to create jobs, whereby the government builds infrastructure or war machines or just buys stuff, in the hopes that increased aggregate demand in the economy will create more jobs. The problem with that approach is that it leads to bottlenecks. For instance, if we try to create jobs by building bridges, then we'll need a lot of structural engineers. We might get into a situation where there are few or no more available engineers, which gives them substantial bargaining power to bid up their wages. This tends to happen before jobs are created for the lowest skilled workers, meaning the "Keynesian" "pump-priming" method does tend to be inflationary, as its critics have claimed. But the Job Guarantee by contrast takes a bottom-up approach, providing jobs directly where they're needed, in the exact quantity they're needed, and so cannot be inflationary.Watch the whole video here: youtube.com/watch?v=yFSKaCRpL-sFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
How The Fed Mishandled The 2008 Financial Crisis Deficit Owls 2018-03-25 | Professor L. Randall Wray discussing the Federal Reserve's response to the 2008 crisis.To understand how the Fed messed it up, you first have to understand what the Fed should have done. To understand that, start with the two kinds of crises a bank can face.If a bank faces a "liquidity crisis," this means that the bank cannot make the payments it owes to other institutions, because the bank is not receiving payments it expected from other people. In simple terms, Paul can't pay Marry, because Paul was expecting a payment from John but John hasn't made it yet. When a bank is illiquid, it needs a loan, so that it can make the payments it already promised to make, but just until it receives the payments it was supposed to receive.Or a bank can face a "solvency crisis." This means that the bank's liabilities are larger than the value of the banks assets, so that the bank has negative net worth. In other words, if the bank sold off all of its assets, it would still not be enough to repay its creditors. In still simpler terms, the bank owes more than it owns. If a bank is insolvent, then what it really needs is a new income source, to be able to reduce its debts and/or acquire more assets.However, we know from experience that banks can't be allowed to become insolvent and keep operating. Banks become insolvent from taking risky bets that turn out to fail. When a bank is insolvent, it has incentive to take any amount of risk to try to regain solvency, including taking crazy bets that will severely hurt the economy. So, when a bank is insolvent, the government (the FDIC, in the US) is supposed to either shut the bank down, or take it over and fire the management, then run it until it is solvent again.But a bank can become illiquid even if it was acting very conservatively, simply due to macro conditions during a financial crisis. So if a bank is only illiquid but still solvent, then it is in the national interest to save that bank. In the mid-1800s, Walter Bagehot outlined a guide for how to do this. He suggested that the government/central bank should act as Lender of Last Resort, lending to institutions that can't find funds from any other source. Because the government issues the currency and cannot run out of funds, it can afford to act in the national interest this way, when no other institution can.Bagehot wrote that central banks should lend to illiquid institutions, but should do so in a way that discourages banks from taking the loan unless they absolutely need it, and ensures that insolvent institutions cannot take advantage of it. He put forth 3 rules. 1) The central bank should lend unlimited amounts. But 2) it should do so at a penalty (above-market) rate of interest to ensure that only those in serious need apply, and 3) it should only lend against good collateral, meaning that if the bank can't show the central bank that it has an otherwise-healthy balance sheet and can't promise something else to the central bank in the event that the bank can't repay the loan, then the central bank won't lend. These 3 rules ensure that the crisis will get resolved quickly, and that banks who failed due to their own actions will be shut down while while banks facing crisis through no fault of their own will be saved.In the 2008 financial crisis, the Fed screwed up each of these rules. At first, they were not lending without limit. Then they were lending below market interest rates, rather than at a penalty rate. And they were auctioning off funds rather than forcing the banks to open their books so the Fed could examine them to make sure they weren't insolvent. As such, almost certainly, the Fed saved financial institutions that should not have been saved, creating moral hazard for the next crisis.See the whole video here: youtube.com/watch?v=yFSKaCRpL-sSee our other videos about the financial crisis here: youtube.com/playlist?list=PLZJAgo9FgHWZxS0CGYWas9s-gx2tHFr9TFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
What Caused The Global Financial Crisis? Deficit Owls 2018-03-16 | Professor L. Randall Wray, discussing the global financial crisis in broad strokes. The economist Hyman Minsky developed a theory of financial fragility and the long-run evolution of the economy, summarized briefly as "stability is destabilizing." In the aftermath of the Great Depression, the worst banks had failed, the remaining ones were scarred by the memories of the disaster, and the government had put in place extensive regulation to ensure they behaved, and this variety of capitalism (what Minsky called "paternalistic capitalism") proved very stable.But stability is destabilizing. As time wore on and memories faded, people changed their outlook and changed their behavior. Banks took on greater risk, and fringe financial institutions (which came to be known as shadow banks) put increased pressure on the traditional banks by taking on even bigger bets. Politicians came to view financial regulation as burdensome, and academic economic theory became so far removed from reality that the models used by the top economists at the central banks didn't even allow for the possibility of a financial crisis. As a result of World War 2, government debt ballooned, and these safe government bonds served as private wealth which was leveraged in order to grow and keep full employment in the post-war era. But as fiscal policy tightened (the focus shifted from "full employment" to "balance the budget"), and real wages stagnated, further growth could only be accomplished by piling on private debt, which grew to astounding heights by the mid-2000s. These debts are liabilities for the borrowers, but assets for the holders, and so the huge increase in debt meant huge increases in financial wealth for the top 1%, and all this money needs to be managed, hence Minsky's term "money-manager capitalism."Important changes were also happening to the way financial institutions were operating. The mid-century bank business model consisted of issuing deposits (bank money) in order to finance purchase of mortgage notes from borrowers, which the bank would then hold and collect the interest income. But to evade regulations, compete with shadow banks, and avoid a potential adverse change in the interest rate, banks shifted to a new much more fragile business model. In the new model, banks would make loans with the intent to package them into securities and sell them as quickly as possible, and as a result, the bank didn't care very much whether you could pay back the loan, and didn't bother to find out (which is sort of the whole point of having banks). Other institutions would then issue short-term or even overnight debt to yet other financial institutions, in order to finance their purchase of these packages of mortgages. These mortgage-backed securities would then be carved into sections and sold to yet other financial institutions. As a result of all of this, debt between financial institutions rocketed upward. All of this private debt makes the system increasingly fragile, leading to what Minsky called "Ponzi finance." If you are dependent on your income to be able to make your debt payments, then an unexpected fall in income could force you to default. If your creditors were counting on your debt payments to be able to make their own debt payments, then now they are forced to default as well. And so on. The result is a ripple of contagion, leading to bankruptcies, fire-sales of assets, and possibly bank runs. As financial institutions stop lending or even close down, normal business investment falls, and the result on Main Street is unemployment and people losing their homes. To get more detail on the causes of the crisis and the long-run evolution of the financial system, as well as suggestions for what to do about it, read Wray's book on Minsky's work, entitled "Why Minsky Matters": barnesandnoble.com/w/why-minsky-matters-l-randall-wray/1121862471;jsessionid=4B1D3C3E49A1D26A8E0657B1BB975EDC.prodny_store02-atgap08?ean=9780691178400#Watch the whole video here: youtube.com/watch?v=yFSKaCRpL-sFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
Federal Reserve Operations: Some Basics Deficit Owls 2017-12-25 | Rohan Grey, founder and President of the Modern Money Network, on with Steve Grumbine at Real Progressives, outlining the basics of the payment system and central bank operations. When I want to pay you, unless I hand you cash, I'm not actually paying you directly. Instead, I make a payment to my bank, then my bank makes a payment to the Federal Reserve, then the Federal Reserve makes a payment to your bank, then your bank makes a payment to you. In concrete terms, this happens through reserve accounts, which are accounts that banks keep at the Fed. My bank will mark-down my account, then the Fed will mark-down my bank's reserve account and mark-up your bank's reserve account, then your bank will mark-up your account. When a bank makes a loan, all it does is mark-up your account. It is creating money when it does this. It is NOT "lending" you something it already had. Rather, it is creating its own IOUs, and these IOUs move through the economy as money.When you go to get cash from the bank, they pull from their inventory, called "vault cash." If the bank is short vault cash, it will get cash from the Fed. The Fed will mark-down the bank's reserve account, then send an armored truck with the cash. Likewise, if a bank has more cash on hand then it wants, it will send an armored truck to the Fed, then the Fed will mark-up the bank's reserve account.Banks use reserve accounts only for paying each other and meeting requirements. The Fed supplies reserves by choosing an interest rate, then supplying whatever amount banks need, at that interest rate. If it didn't do this, then banks would be unable to make payments, meet withdrawals for cash, or meet its reserve requirements. See the whole interview here: youtube.com/watch?v=eP3CkeMfw54Follow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
Cryptocurrency vs Fiat Money Deficit Owls 2017-12-23 | Professor Stephanie Kelton, economic adviser to Bernie Sanders and leading light of Modern Monetary Theory, on the David Pakman Show discussing bitcoin and cryptocurrencies, and contrasting with what MMT has to say about fiat money. In MMT, the catchphrase is "taxes drive money." That means that demand for government money, like dollars, is generated and maintained by enforcement of taxes: if the government declares that you owe $100 in tax, and that it will do something very unpleasant to you if you don't pay, then you had better go out and get $100 somehow! It is the government's ability to enforce taxes that prevent fiat currency from being abandoned (and when government loses this ability, the result is usually hyperinflation). By contrast, cryptocurrencies, at least the models we've seen so far like Bitcoin, don't have any sort of demand or price anchor. There is nobody forcing you to pay taxes in Bitcoin, so participation is purely voluntary, and if people change their minds about using it, its value could drop quickly to zero. Learn more about MMT: youtube.com/playlist?list=PLZJAgo9FgHWZzhpkjtMxIwZns26A0OdFzSee the whole interview here: youtube.com/watch?v=LjO5bEGv1lAFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
MMT: Taxes Drive Money Deficit Owls 2017-12-21 | Rohan Grey, founder and President of the Modern Money Network, explaining a core tenet of Modern Monetary Theory, derived from the "Chartalist" doctrine, expressed in shorthand as "taxes drive money." What this means is that if the government is able to impose and enforce some sort of obligation on (at least some of) its citizens, then this will create a demand for whatever object extinguishes that obligation.In other words, if the government declares that you owe $100 in taxes, and that there will be a very unpleasant penalty for failing to pay, then you now have to do something to go out and get $100. Taxes are just one way to do this, and historically fees, fines, and tithes all might have been more important for getting currencies started. Another way is by limiting access to necessary public resources. For instance, if some entity had monopoly control over the water supply, then it might declare it will only deliver water to citizens who present its tokens, and that it will sell these tokens in exchange for goods and labor. So we see that using its ability to impose and enforce a non-reciprocal obligation, the state gives value to its otherwise valueless tokens. Therefore, the nature of monetary systems is intrinsically tied up with power relations and coercion. In the case of modern democracy, we might amend this to say that the majority provide consent to the government to use its coercive power to move real resources to itself in order to achieve the democratically-decided public purpose. See the whole talk here: youtube.com/watch?v=4hUItzbGP7k
The Left is Wrong On Debt and Deficits Deficit Owls 2017-12-20 | Warren Mosler, father of Modern Monetary Theory, speaking with Steve Grumbine of Real Progressives, discussing how the "headline" leaders of the Left continue to approach government debt and deficits incorrectly. They have erroneously conceded that there is a long-term debt/deficit problem that need to be addressed, but usually simply say that we should do it later.The fact is that this is completely wrong. The US government is monetarily sovereign (meaning it issues its own currency, has a floating exchange rate, and has no foreign-denominated debt), and therefore there's no such thing as a long-term debt problem. The debt is nothing more than dollars previously spent by government, which have not yet been used to pay taxes. These get converted from reserves (which are basically checking accounts at the Federal Reserve Bank) into Treasury Bonds (which are basically savings accounts at the Federal Reserve Bank), because savers holding them desire to earn interest on them, and government makes a policy choice to accommodate this desire and pay that interest. There is no possibility of government going "bankrupt," or being unable to spend, or being forced to raise taxes on account of any ratio of outstanding Treasury Bonds to anything else.The only possible problem from deficits is inflation: if government tries to buy more than the economy can produce, then this will only push up prices, causing inflation. So if you want to make the case that there's a long-term deficit problem, the burden of proof is on YOU to show that there's an expected future inflation problem. However, all of the inflation forecasts we have today (which include the Federal Reserve and Congressional Budget Office projections, as well as free-market expectations as measured by the price of TIPS) show inflation of no more than 2% out for decades. This means that there is absolutely ZERO evidence that there's a long-term deficit problem. So if you believe that there is, (and who knows, maybe you're right) you've got to show why all of these inflation forecasts are wrong. To read Mosler's article "Modern Monetary Theory: The Last Progressive Left Standing," go here: huffingtonpost.com/warren-mosler/modern-monetary-theory-th_b_872449.htmlSee the whole interview here: youtu.be/E3HqM5b42uA
Where Did Money REALLY Come From? Deficit Owls 2017-10-17 | Professor David Graeber, anthropologist and author of "Debt: The First 5,000 Years," discussing the history of money and credit. The economics profession tends to teach that money arose from barter. However, anthropologists have been searching for 200 years and found absolutely no evidence for this. Instead, it seems that early human societies were had reciprocal gift exchange, whereby one person would gift something to their neighbor, and that person would be tacitly indebted for something of similar quality. Barter has only been observed between groups that didn't frequently come into contact, and sometimes between outright enemies, or among people that are already used to money but for some reason have no access to it. Watch the whole talk here: youtu.be/CZIINXhGDcsFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
How Could Euro Nations Start A New Currency? Deficit Owls 2017-10-14 | Warren Mosler, father of Modern Monetary Theory, answering a question about how a Euro country could switch to its own currency. Mosler outlines the steps that would be involved. In Mosler's proposal, the government would simply switch its taxing and spending to the new currency, without forcing anybody to convert their savings, and without trying to convert the existing Euro debt.Note that at 3:26, Mosler says "Lira debt" when he should have said "Euro debt."See the whole interview here: youtube.com/watch?v=gQZCMatLEpEFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
Government Spends First, THEN Borrows Deficit Owls 2017-10-09 | Warren Mosler, one of the fathers of Modern Monetary Theory, explaining the logical sequence of government spending. To get the currency system going, the government first imposes a tax liability on the population, which can only be paid using the government's IOUs. Now the citizens need the government's IOUs in order to pay the tax. How can they get those government IOUs? They can work for the government. That's why the government is doing this: to transfer real resources (labor and goods and services) to the public purpose.If the government imposes a tax of, say $10, then it must spend *at least* $10 (a balanced budget), or else the citizens won't be able to pay the tax, because they won't have enough dollars. That means there will be involuntary unemployment, as people look for paid work but are unable to find it. What i some people want to save dollars? The government will then have to spend more (a deficit); it will have to spend enough for citizens to be able to pay the tax and meet the desire to save, or else there will be involuntary unemployment.Since the government is the issuer of the dollar, it cannot receive tax payments before it spends, because spending is how it gets the dollars out there. So the cycle goes like this: the government spends first, and then later receives those dollars back in taxes or "borrowing."That means the money the government "borrows," (aka the national debt) is only money that it has previously spent, that it is borrowing back! Why is it doing that? The reason is purely historical: under the gold standard, if the government "borrowed" money from you, by selling you a Treasury Bond, then you wouldn't be allowed to convert that Treasury Bond into gold, whereas you would be allowed to if you held currency. So if the government was scared that it was running out of gold, it could start borrowing more from the citizens, to prevent them from converting to gold. But today, it serves little purpose, other than to provide savers a way to earn risk-free interest on their savings.See the whole video here: youtu.be/Z1uWVj0YJ3MFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
Endogenous Money, Explained Simply Deficit Owls 2017-09-27 | Nathan Tankus, of the Modern Money Network, explaining the difference between exogenous money theories and endogenous money theories. "Exogenous" means that something is determined outside the system, such as by the government deciding what the amount of money should be. "Endogenous" means that something is determined by the internal workings of the system itself, such as the economic forces of private sector borrowing and lending determining what the amount of money is.Orthodox economics often uses an exogenous money perspective: the central bank decides what the quantity of money should be, through the "money multiplier." However, there is now an overwhelming amount of evidence (and even some neoclassicals are starting to admit) that this is not how it works in real life. In the real world, the quantity of money is endogenous: money is created when banks make loans, and destroyed when people repay debt. Though the central bank might exert some influences on this (such as by setting a price, the interest rate, or by imposing regulations on certain activities), it is in fact the needs of the economy, and individual borrowing and lending decisions, that determine how much money there is.This has a few implications. 1) There is no "fixed" quantity of money. Money is constantly being created and destroyed, every second of every day. 2) There is no such thing as a limited pool of funds available for investment. In the orthodox story, there's a fixed supply of funds available for business investment (which must be shared by the public and private sector). In the real world, whenever there's a business venture that's expected to be profitable that needs to be financed, the financing is created, from thin air, and destroyed once the venture is completed.3) There is no such thing as the government "choosing" to "print money." The private sector determines how much money exists. If it doesn't have enough, it will be created. If it has "too much," it will be destroyed, as loans are repaid.4) There is no such thing as "crowding out," where government competing for a fixed pool of funds drives up interest rates. Watch the whole video here: youtube.com/watch?v=Fnqk41vUfrQFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
Loanable Funds and Crowding Out Dont Exist Deficit Owls 2017-09-02 | Professor Bill Mitchell discussing the functioning of the banking system. Neoclassical models of "loanable funds" and "crowding out" are simply wrong. These things just do not exist. The typical story goes that there is a fixed supply of funds available for investment, "loanable funds," and the price of borrowing, the interest rate, is set by supply and demand in this market. Furthermore, when the government runs deficits, because it is borrowing to raise funds to spend above what it collects in taxes, this puts pressure on the supply of loanable funds, raising interest rates, and taking away funds that would otherwise be available for private investment.Fortunately, every part of this story is false. As is increasingly acknowledged even by the mainstream, banks do not take money from savers and lend it to borrowers. In fact, banks create money every time they make a loan, hence the short-hand "loans create deposits," and they are not constrained in their capacity to make loans by reserve requirements or anything else, except the availability of creditworthy loan applicants. This means that there is no such thing as a fixed supply of funds available. Instead, the monetary system is elastic: when the funds for investment are needed, they are loaned into existence; when the investment is complete and the debt repaid, the funds disappear, destroyed.Furthermore, we must look more closely at government spending. Government bonds, which the government issues when it "borrows," can only be purchased using government currency, which can only come into the hands of the private sector from government spending or government borrowing (unlike bank money, which is created by banks making loans). This means that as a matter of logic, government spending must come BEFORE government "borrowing": the government creates the money it's spending from thin air, and then borrows it back afterwards. So in fact, not only is it not true that government deficits raise interest rates, from inception the opposite is true: when a government check clears, this adds to the monetary base held by the private sector, which all else equal will LOWER interest rates, potentially to zero. Then, to avoid this outcome, the government sells a bond, "borrowing" back its currency, draining excess reserves. So we see that the (overnight) interest rate gets set wherever the government wants (and long term rates follow closely) and there is no possibility of "crowding out."Watch the whole video here: youtu.be/MLKrBsTQntAFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
How Much Do You Really Know About Hyperinflation? Deficit Owls 2017-08-25 | Professor Bill Mitchell discussing the MMT take on hyperinflation.MMT has an extremely coherent and much more sensible way of explaining hyperinflation than "mainstream" economics. In the mainstream narrative, hyperinflation is caused by the government simply "printing too much money," sometimes in an effort to pay back its debts. MMT shows how this could not be further from the truth.Each case of hyperinflation is unique. You can't explain it without knowing something more about the political, economic, or ecologic catastrophes that caused. That is, in the mainstream conception the hyperinflation is caused by the money printing, and the rising prices and any political turmoil it causes are consequences. In the MMT explanation, it is the political or economic turmoil that comes first, and the rising prices and expanding money supply are the consequence. In Zimbabwe, poor land policies resulted in a massive reduction of farm output. Guess what happens if there's no food, but people still need to eat? Prices rise, and they don't stop rising. (If people need more money to pay these higher prices, then that money is created for them, automatically by our modern elastic currency systems.)In Weimar Germany, there was a similar case of reduced output due to land confiscations and worker strikes, but there was also an added element of the foreign-denominated war reparations that were imposed on Germany. This meant that Germany had to aggressively buy foreign currency, driving down their exchange rate, which pumps up the price of imports, which brings along everything else in the economy. It also didn't help that they had strong unions that had negotiated contracts that indexed cost of living to inflation: as prices rose, so did wages, which put upward pressure on prices, which made wages rise, which put upward pressure on prices..An indeed some of the common themes of hyperinflation are as follows: loss of a war, destruction of factories or supply capacity, foreign-denominated debt, fixed exchange rate currencies, and extreme political corruption.So we see that hyperinflation is not merely a "monetary phenomenon" caused by idiot central bankers. All inflation, including hyperinflation, is better thought of as indicating competing claims for control over real resources. Although poor government policy can cause hyperinflation in the extreme, it takes unbelievably poor policy, and is usually a symptom of already dysfunctional or unsustainable circumstances, which is why hyperinflation has only happened a small number of times throughout history. And it has never happened in a functioning democracy that has a sovereign currency with a floating exchange rate and no foreign-denominated debt.Watch the whole video here: youtu.be/MLKrBsTQntAFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
Bond Issuance Does Not Reduce Inflation Deficit Owls 2017-08-21 | Professor Bill Mitchell, debunking a commonly held misunderstanding of government "borrowing." Most people believe that a government has 3 choices to "raise funds": it can tax, borrow, or "print money." Further, they believe that "printing money" is more inflationary than borrowing. This could not be more wrong. In fact, a government deficit (spending more than taxing) will be exactly as inflationary regardless of whether it's matched by bond sales (aka. "borrowing") or not (aka. "printing money").First, the conventional narrative gets the order that things happen in wrong. When the government "borrows," it sells Treasury Bonds. But the private sector can only purchase Treasury Bonds using the government's own currency (paper notes or bank reserves). Where did the private sector get the currency that it uses to purchase the bonds? It can only come from previous government spending: the currency is created by the government only, and the way they get it out there is by spending it (or lending it). So any funds that the government "borrows" are necessarily funds that it has previously spent (or lent). So it is incorrect to say that government is borrowing and then spending. Logically, this is wrong. First it is creating funds by spending, and then borrowing back funds it has previously spent, effectively destroying them. That is the way the cycle works, every time. The case that people call "borrowing" is in fact the government spending and then selling bonds, and the case that people call "printing money" is in fact the government spending and then not selling bonds. Nothing more.Next, a lot of people think that choosing "borrowing" over "printing money" is more inflationary because it increases the money supply. This is false. It might (only might) be true that "the money supply" increases, but in fact they are equally inflationary. Remember, the government is only borrowing back funds it has previously spent. After the government spent them initially, they circulated and eventually wound up in somebody's savings, when that person decided not to spend them. Then that person can use their savings to buy a Treasury bond. Thus we see that a Treasury bond is nothing more than an alternate way to hold savings: an interest-bearing asset, rather than a non-interest bearing asset. And when the government "borrows" all it is doing is changing the form of the private sector's savings, from currency to bonds. Note that the key word here is "savings." The fact that somebody purchased a Treasury bond indicates that they weren't spending their money. If Timmy needed his $100 for groceries, then he wouldn't have been participating in a Treasury Security auction! The total amount of spending in the economy would be the same regardless of whether the government changed the form of Timmy's savings from currency to bonds, because Timmy wasn't spending in either case. And if there's no change in the amount of spending on goods and services, then how can prices change? They can't. The two scenarios ("borrowing" vs "printing money") have exactly the same impact on on prices, output, and employment.Now, clever readers might say, "aha, but wait! Timmy might not need his $100 at the moment he buys the bond, but what if he needs it later? What if he buys a 30-year bond, but next week he realizes he needs to spend the $100? In the scenario where the government sells him a bond ('borrowing') he can't spend the $100, whereas in the scenario where the government doesn't sell him a bond ('printing money') he still has the $100, and can spend it next week. So 'printing money' is still more inflationary." This is clever, but incorrect. The reason is because there is an extremely robust secondary market for Treasury bonds. In fact, in the US in particular, the Treasury bond market is the deepest and most liquid market on Earth. This means there is *always* somebody standing ready to buy your Treasury bond from you, in exchange for currency/deposits (often a dealer bank), to give you the funds you need if you decide to spend, nearly instantaneously. This means there is no such thing as being in a situation where you are prevented from spending because you're holding a Treasury bond instead of cash. And that means that the same amount of total spending would occur regardless of whether the government sold Treasury bonds or not. And that means that "borrowing" is exactly as inflationary as "printing money." Watch the whole video here: youtube.com/watch?time_continue=2&v=MLKrBsTQntAFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
MMT Is A Lens, Not A Regime Deficit Owls 2017-08-08 | Professor Bill Mitchell, discussing the nature of Modern Monetary Theory. People sometimes say "if we had MMT," or "when we have MMT," but this misunderstands what MMT is. MMT is a lens to view and make sense of the existing world, not a proposal for changing it. (Though there are some proposals that many MMTers agree upon, particularly the Job Guarantee.)Professor Mitchell also outlines two alternative ways to view the role of the economy, one he associates with a "neoliberal" ideology, and one he declares is a "progressive" vision.Watch the whole video here: youtube.com/watch?time_continue=2&v=MLKrBsTQntAFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
How The Federal Government Actually Spends Deficit Owls 2017-08-02 | Professor L. Randall Wray, on with Steve Grumbine of Real Progressives, explaining what actually happens when the Treasury spends. Wray goes through a simplified version that leaves out some intermediate steps, but these intermediate steps all cancel out of the final process, and the end result is exactly what he describes. (Sort of like how if I gave something to you to give to your cousin for me, the net result is that I gave something to your cousin).When the Treasury goes to spend, it tells its bank, the Federal Reserve, to credit (turn a number into a larger number) the reserve account of a bank (banks all keep "reserve accounts" with the Federal Reserve, which they use to settle payments), and then the bank credits the checking account of whomever is receiving the payment. So, the Fed credits a bank's reserves and a bank credits a customer's account.The reverse happens when the Treasury receives a tax payment. The Federal Reserve debits (turns a number into a smaller number) the reserve account of a bank, and the bank debits the checking account of whomever sent the payment. The net result here is that federal government spending adds to the quantity of reserves and deposits, while taxing decreases from it (as do bond sales, aka government "borrowing"), and it all happens via keystrokes. Or in short, the government does all of its spending by simply crediting bank accounts. There is no possibility of it being unable to make a payment, no possibility of it being forced into bankruptcy or default, no possibility of interest rates being forced up because of government deficits (on a floating exchange rate), and no purely financial limit on government spending, only real resource limits.If you want to know more details about the exact procedure, all of the steps, as well as citations to back it up, check out these links:The Greatest Myth Propagated About The Fed: Central Bank Independence (Part 2): http://neweconomicperspectives.org/2014/01/greatest-myth-propagated-fed-central-bank-independence-part-2.htmlTreasury And Central Bank Interactions: http://neweconomicperspectives.org/2016/02/money-banking-part-6.htmlTreasury Debt Operations: papers.ssrn.com/sol3/papers.cfm?abstract_id=1825303And see how this incorporates into a broader heterodox worldview on the nature of money, as contrasted with the establishment orthodox views: http://neweconomicperspectives.org/2013/12/essays-monetary-theory-policy-nature-money.html---Watch the whole video here: youtube.com/watch?v=OCNXfNTAez0Follow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
The Job Guarantee: What About Automation? Deficit Owls 2017-06-14 | Professor L. Randall Wray, on with Steve Grumbine at Real Progressives, discussing automation and the Job Guarantee. One of the arguments sometimes made against the Job Guarantee is that, "well we don't need jobs. Automation is coming and it will destroy all jobs. Trying to give people jobs is clinging to the past."It's true that automation destroys jobs. But this should be a good thing! If automation eliminates boring and grueling jobs, then this frees up people to be able to do things that are more fulfilling and creative. "But this time is different," they say, "the automation will destroy all jobs, even creative ones." Firstly, just look outside your door: how much stuff needs doing that's not being done? Sure, we can imagine robots making human labor unnecessary on a wide range of tasks, but the idea that it will become impossible for any person to meaningfully contribute to society through effort is ludicrous. There has always been more work to be done than people available to do it, and there always will be, because every time we become more technologically sophisticated, our standards and expectations about what quality of life should be like go up proportionately too.What's more, the problem with automation is that it eliminates **paid** work, not the possibility of working. This might be an imperative for the private sector, to maximize profits, but it's not for society as a whole. There are many reasons why society might want humans to do jobs that robots could do, even if the robots could do it more profitably: perhaps consumers prefer interacting with a human (like doctors); there are some jobs that people enjoy doing and would rather do themselves than delegate to robots (like playing music, or teaching). The government, through its power to issue currency, can enable this.Bottom-line: criticisms about automation generally mistake what the purpose of an "economy" is for: the economy exists to serve people, not the other way around. If something happening in the economy is not making life better for people, then we don't have to do it.Watch the whole video here: youtube.com/watch?v=OCNXfNTAez0Follow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
A Job Guarantee Creates Jobs Where People Are Deficit Owls 2017-05-28 | Professor L. Randall Wray, on with Steve Grumbine at Real Progressives, discussing the spatial aspect of the Job Guarantee. The purpose of the JG is to create opportunities for people to earn an income improving their local community, and so the JG is meant to create jobs wherever people already are, rather than forcing them to move to cities or the latest boom-town.Watch the whole video here: youtube.com/watch?v=OCNXfNTAez0Follow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
Wray: Politicians Know That Government Cant Go Broke Deficit Owls 2017-05-22 | Professor L. Randall Wray, on with Steve Grumbine of Real Progressives, discussing some political aspects of Modern Monetary Theory. MMTers have met with many politicians over the years, and many of them do understand some of the basic ideas of what it means to be monetarily sovereign. They know the US government cannot run out of US dollars, they know that there's no necessity to balance the budget, and they know that national debt isn't a threat. But for political reasons, they can't say these things in public.Watch the whole interview here: youtube.com/watch?v=OCNXfNTAez0Follow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
Minskys Insight on Monetary vs. Fiscal Policy Deficit Owls 2017-05-20 | Professor Scott Fullwiler, discussing an insight by Hyman Minsky on the difference between fiscal and monetary policy. Monetary policy (lowering interest rates to stimulate the economy and raising it to dampen the economy) attempts to stimulate the economy by getting the private sector to spend more of its income. Lowering interest rates encourages borrowing from banks or capital markets in order to invest and consume, even though your income hasn't changed.But fiscal policy is about trying to get private sector entities to spend more by increasing their income. The income of the private sector as a whole comes from either the government or the foreign sector. Increasing government spending (or decreasing taxes) will increase private sector incomes, which might lead to more spending, and therefore more output and employment.Or in other words, monetary policy achieves growth by driving the private sector deeper into debt. Fiscal policy achieves growth by increasing private incomes (and therefore reducing private debt).Watch the whole video here: youtube.com/watch?v=I0YZ6n9u6n4Follow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
Warren Mosler: Discussion of Progressive Resource Allocation Deficit Owls 2017-05-19 | Warren Mosler, on with Steve Grumbine of Real Progressives, discussing some issues that intersect progressive policies and fiat currencies.Watch the whole video here: youtube.com/watch?v=1RJP52bwmcwFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMemeFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
Warren Mosler: Discussion of Bank Reforms Deficit Owls 2017-05-17 | Warren Mosler, on with Steve Grumbine at Real Progressives, discussing reforms of banking. In order to reform banks, we have to first decide what banks are for and what they should and shouldn't do. The first purpose of banking is to have a stable payment system. This is infrastructure that undergirds the economy, so that individuals or corporations can make payments. Decades and centuries of experience show that banks on their own cannot create a stable payment system, and instead have a tendency towards bank runs, panics, and financial crises. This is the argument for deposit insurance.With deposit insurance, the government protects bank customers from their bank. It ensures that even in the event of bank failure, customers can still withdraw or transfer their accounts, stabilizing the payment system. Furthermore, centralized payment clearing at a central bank (where the central bank (like the Fed) makes payments between banks) is necessary to ensure that $1 in every bank will actually be equal to $1.Once there is deposit insurance and central banking, the banking system becomes dangerous. This is because they have government guarantees behind their actions, so they cannot fail. It's like letting a gambler loose in a casino, then saying "you get to keep all of your winnings and the government will pay for all of your losses." It encourages extreme risk-taking. This therefore demands full banking regulation, to ensure that banks aren't taking advantage of government protection.The next task of banking is lending. There are many purposes to lending, with probably the most important being the capital development of the economy. So, entrepreneurs and businesses can take out loans in order to finance investment in new technology, jobs, factories, etc. This kind of financing activity is a major contributor to the improvement of quality of life. One question here is, should banks do this? The private sector is capable of lending even without banks doing it. This is what the bond market does, and what private companies can do to finance their customers' purchases (think auto loans from a car company). However, there are 3 key differences between bank lending and other private sector lending. First, because banks are lending their own IOUs rather than lending from a pre-existing pile of cash, this means that lending for the capital development of the economy is not limited by any quantity of saving. Second, because banks are backed up by government guarantees, they don't have to lend based on the value of the assets, but can lend based on the ability of the borrower to pay. And third, because banking is heavily regulated by government, it is an opportunity for public policy to shape the development of the economy, by encouraging banks to lend for things that serve public purpose, and discouraging (or banning) lending for things that don't.Since banks are already functionally public-private-partnerships, should we just nationalize banks and make them all into public institutions? Mosler argues that we should not. The reason is because public banks are subject to political pressures and can make huge losses, therefore public banks are highly susceptible to corruption. With the public-private model, Mosler asserts, the banks have incentive to lend based on risk, not based on political favors.Watch the whole video here: youtube.com/watch?v=1RJP52bwmcwFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
Modern Money Theory Is Spreading Deficit Owls 2017-05-04 | Warren Mosler, on with Steve Grumbine at Real Progressives, discussing the spread of MMT ideas.(For a little more on the point on why Quantitative Easing is ineffective, see here: youtu.be/CO6GS13rEuE?list=PLZJAgo9FgHWaMs-WzbMAUw91u5pjGaR59)Watch the whole video here: youtube.com/watch?v=1RJP52bwmcwFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
The Gold Standard Mostly Ended in 1933-34 Deficit Owls 2017-04-26 | Warren Mosler, father of Modern Monetary Theory, on with Steve Grumbine of Real Progressives, discussing the gold standard. Although sometimes the dates of 1971 or 1973 (when the Bretton-Woods system fell apart) for the end of the gold standard, Mosler argues here that 1933-34, when the US suspended domestic convertibility into gold, is the better date to use. Though a strict convertibility regime would limit domestic policy (see here: youtu.be/3OJFjzckZYM?list=PLZJAgo9FgHWZvuoben7kGyEH292iPmoBo), the US was able to mostly ignore these kinds of considerations because it faced very limited demand to convert dollars to gold.Learn more about how Bretton-Woods worked here: youtu.be/ape4ZcSGCFo?list=PLZJAgo9FgHWZvuoben7kGyEH292iPmoBoSee more about how Bretton-Woods fell apart here: youtu.be/Ydo-vr9XlIQ?list=PLZJAgo9FgHWZvuoben7kGyEH292iPmoBo Watch the whole interview here: youtube.com/watch?v=1RJP52bwmcwFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
Universal Healthcare Probably Requires LOWER Taxes, Not Higher Deficit Owls 2017-04-24 | Warren Mosler, one of the fathers of Modern Monetary Theory (MMT) on with Steve Grumbine over at Real Progressives, discussing the tax implications of a universal healthcare policy. Such a policy, along the lines of "Medicare-For-All," shifts health insurance spending from the private sector to the government. The interesting implication of this though, is that a lot of duplication of services will be eliminated.To have private health insurance markets, there's a lot of tasks that each private firm needs workers to do, such as advertising, administrative work, evaluating applications, etc. Each company hires employees to do these things. But in a universal healthcare policy, those tasks will shift to the government (which wouldn't even need to do all of them, most likely) and so duplication of work is eliminated. What this means is, universal healthcare spending, even if it added to the deficit, would probably be **deflationary** and increase unemployment. Suppose (using imaginary numbers) that the government needed 10,000 people to do administration for Medicare-For-All, but this causes 50,000 people to lose their jobs. This means that the government would need to LOWER taxes in order to ensure that there is enough total spending in the economy to create new jobs for the 40,000 people to enter into. If the government raised taxes, it would only reduce private spending, and make the unemployment problem even worse. So, universal healthcare probably requires LOWER taxes, not higher taxes.(How would the federal government pay for the program? The same way it does all spending: by crediting bank accounts. More on that here: youtu.be/zRI1FkhC0E0?list=PLZJAgo9FgHWZzhpkjtMxIwZns26A0OdFz)Watch the whole video here: youtube.com/watch?v=1RJP52bwmcwFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
A Gold Standard Is Extremely Wasteful Deficit Owls 2017-04-17 | Warren Mosler, on with Steve Grumbine at Real Progressives, discussing the gold standard. The fundamental problem with a gold standard, and any fixed exchange rate regime, is that it limits the economy. The government might not be able to spend (or lend) because doing so would cause it to run out of gold; if the banks clear payments in gold, then they might not be able to lend to fulfill investment desires because they'd run out of gold. This is why, whenever government needs to 'step on the gas' of the economy, and move the economy to full employment to fulfill some purpose like to win a war, they go off the gold standard.But in additional, as Mosler points out, maintaining the gold standard is extremely wasteful. Labor and resources get devoted to digging up, processing, purifying, transporting, and storing gold which serve no other public or private purpose. When the gold standard gets dropped, all of this can be re-allocated towards more pressing public purpose, or simply for the private sector to use as it sees fit.In addition, a gold standard destabilizes the domestic price level, and links output, employment, and the price level to the rate of discovery of gold. If the price of gold is fixed, then if the relative value of gold changes (because more has been dug up or found or something), then all the other prices in the economy must move to reflect that, because the price of gold is fixed. And, discovering extra gold will tend to ramp up the economy, while not discovering enough gold will cause recessions, since the money supply doesn't keep up with the needs of the economy. The whole thing is totally arbitrary.Watch the whole video here: youtube.com/watch?v=1RJP52bwmcwFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
The Dollars Value Dropped 95% Since 1900...But Standard of Living Rose 1000% Deficit Owls 2017-04-13 | Warren Mosler, on with Steve Grumbine of Real Progressives, discussing the drop in value of the US dollar over the last 100 years. Often libertarians and other folks like to point out that the purchasing power of $1 (typically relative to gold) has declined by around 95% in 100 years. However, Mosler makes a few replies. First, this is an implied inflation rate of about 3% per year, which is not far off from the official government target of 2% per year. So if the people think the government's inflation target is too high, they're welcome to petition their democratically elected leaders to change it.And second, while it might be true that $1 buys less, this completely ignores everything else in the economy that's changed since then! Real wages are far higher, meaning each hour of your labor buys way more than it did 100 years ago. Standard of living is around 10 times higher. Dollars can buy technology that didn't even exist 100 years ago, making life dramatically better.A one more point in reply that Mosler didn't mention: interest rates over the last 100 years have been generally above or close to the rate of inflation. So as long as your money was in basically any form of savings other than under your mattress, you not only didn't lose value but gained it. People are upset because if you had $1 in 1900 then you'd need $95 today to match the purchasing power, but if you had put that $1 in the stock market in 1900, then you'd have over $300 today. Data on standard of living, as measured by GDP per capita: http://visualizingeconomics.com/blog/2011/03/08/long-term-real-growth-in-us-gdp-per-capita-1871-2009Watch the whole video here: youtube.com/watch?v=1RJP52bwmcwFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
Currency Is Simply A Tax Credit Deficit Owls 2017-04-09 | Warren Mosler, on with Steve Grumbine of Real Progressives, discussing the nature of money. One way to think of currency is as a tax-credit. A one dollar bill is an IOU, whereby the government promises to accept it to extinguish $1's worth of taxes owed. They are freely transferable tax-credits. (The fact that they can be used in the private markets for transactions doesn't discredit this. Tax credits will be valuable as long as people owe taxes, and so they will trade for their face value in private markets).Watch the whole video here: youtube.com/watch?v=1RJP52bwmcwFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
Government Is Money Monopolist, Therefore It Sets The Price Deficit Owls 2017-04-08 | Warren Mosler, on with Steve Grumbine of Real Progressives, discussing the source of the price level, which is made very explicit in Modern Monetary Theory (MMT). The currency is a simple public monopoly. Because the government issues the currency under monopoly conditions, the normal rules of monopoly apply: the government is necessarily the price setter. Suppose a new government was creating a new currency, and declared that every citizen owed a tax of 10 coins per month. What would be the value of these coins? The answer is, whatever the government says you have to do in order to get the coins. If the government declares it will pay 1 coin per hour, then the coins will be worth 1 hour of labor, and everybody will work for the government for 10 hours per month in order to get the coins they need to pay the tax. Or, if the government said it would pay 10 coins per hour, then one coin will be worth 1/10 of an hour's worth of labor, and everybody will work for 1 hour per month for the government in order to get the coins they need to pay the tax.(And clearly, the government must spend the coins by hiring the people BEFORE those people become able to pay the tax, because otherwise they wouldn't have any coins.)Read an MMT research article on the source of the price level: http://www.modernmoneynetwork.org/sites/default/files/biblio/Pavlina_2007.pdfWatch the whole video here: youtube.com/watch?v=1RJP52bwmcwFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
Against Free Banking: The Liability Side Isnt The Place For Market Discipline Deficit Owls 2017-04-07 | Warren Mosler, former banker and investor, discussing bank regulation, and specifically the institutional structure called "free banking." In free banking, the government would not backstop the banks at all, and instead private citizens would have to choose which bank was safest when deciding where to keep their money. If the bank fails, then the depositors lose their money.Contrast this with the situation we have today, where the federal government backstops the banks. It does so in two ways: first, the Federal Reserve will lend to any bank that is illiquid (meaning that the bank is still solvent, but that it's incoming cash flow isn't enough to meet its cash outflows). And second, the government provides deposit insurance to protect bank customers. In the event that a bank is insolvent (meaning that its assets are greater than its liabilities (or, in simple terms, it owes more than it owns)), the Federal Deposit Insurance Corporation will ensure that bank customers get their money back. Many free-market types (particularly Libertarians) point out the problem with this situation: with the bank's customers' welfare guaranteed by the government, the bank is effectively playing with "house money," and has incentive to do irresponsible things with it. It's sort of like saying "if your bet goes well, you get to keep the profits. If it goes poorly, the government will bear the costs." Big incentive problem. One possible response to this would be to have free banking, where there is no government backstop. However, this makes the system excessively prone to bank runs, to private citizens losing their savings for no real reason, and to general financial panics. It also means that there won't be "par clearing," so that $1 in your bank account might not actually be worth $1. We used to have this in the United States, and each bank printed its own banknotes, so that there were hundreds of different currencies circulating at once. Merchants had to keep books telling them at what rate each banknote was being accepted for (perhaps CitiBank's $1 notes would be accepted for $0.98, while Bank of America's might only be accepted for $.70.). The system proved quite unpopular, and so the government took steps to stabilize the system.The alternative approach is to acknowledge that the government backstop creates perverse incentives for banks, and also that it effectively turns them into public/private partnerships. As such, the government should treat them as vehicles for enacting the public purpose, by regulating what they can and can't do, to make sure the banks' actions are consistent with the goal of the development of the economy.Watch the whole video here: youtube.com/watch?v=1RJP52bwmcwFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
Former Banker: The Fed is NOT Run By Private Shareholders Deficit Owls 2017-04-05 | Warren Mosler, former banker, discussing "ownership" of the Federal Reserve. Many people believe that the stock that banks own in the Fed proves that it's a private organization, operating for profit of its shareholders. This is simply not true. The Fed was created by Congress, given its mandate by Congress, and all its profits above statutory outlays go to the US Treasury. The "shares" in the Fed do not convey ownership nor are they transferable. The dividend is a fixed interest rate, therefore even if stockholders could influence policy, they have no incentive for the Fed to make more profit (in fact they have incentive for it to make *less* profit because this generally means higher interest rates). There are many quotes of Fed staffers saying this, some under oath. From Chairman Marriner Eccles: "One of your favorite complaints is that the Federal Reserve Banks are owned by private bankers and that the Board of Governors in Washington as well as the Federal Reserve Banks are operated in the interest of private bankers. These charges will not stand up under examination. The Board of Governors, the members of which are appointed by the President and confirmed by the Senate, is a public body. As to the Federal Reserve Banks, you rest your case upon the slender point that the stock of the Federal Reserve Banks is owned by the member banks. Congress specifically provided for this, as well as for the rate of dividend and Congress can change the nature of the stock and the rate of return at will. This so-called stock ownership, however, is more in the nature of an enforced subscription to the capital of the Federal Reserve Banks than an ownership in the usual sense. The stock cannot be sold, transferred or hypothecated, nor can it be voted in accordance with the par value of the shares held. Thus the smallest member bank has an equal vote with the largest. Member banks have no right to participate in earnings above the statutory dividend, and upon liquidation any funds remaining after retirement of the stock revert to the government. You greatly exaggerate the significance of this so-called stock ownership. At the current dividend rate of six per cent, it involves the payment annually of approximately $8,000,000 to more than 6,000 member banks, and could be done away with altogether without important effects except to put an end to an illusion created by you and others in the minds of some people." (goo.gl/rgd7bv)From Bruce MacLaury, Former President of the Minneapolis Fed and Deputy Secretary of the Treasury: "First, let's be clear on what independence does not mean. It does not mean decisions and actions made without accountability. By law and by established procedures, the System is clearly accountable to congress—not only for its monetary policy actions, but also for its regulatory responsibilities and for services to banks and to the public... Nor does it mean that the Fed is independent of the government. Although closely interfaced with commercial banking, the Fed is clearly a public institution, functioning within a discipline of responsibility to the “public-interest.” It has a degree of independence within the government—which is quite different from being independent of government. Thus, the Federal Reserve System is more appropriately thought of as being “insulated” from, rather than independent of, political—government and banking—special interest pressures." (goo.gl/l0Migk)Here's former Chairman Bernanke telling Congress under oath that the Fed will do whatever Congress tells them: youtu.be/pH2RLObp41oAdd to that Mosler's account that his bank had "shares" in the Fed yet this gave him no policy influence.Plus due to the nature of Fed and Treasury operations, it's necessary for them to be in near-constant communication. More about this here: goo.gl/uPqIDfThe Fed is a public/private hybrid, chartered to operate in the public interest. The Board of Governors, which oversees everything the Fed does, is clearly a public body (with their pay fixed at the level equal to that of a Cabinet Secretary). The remaining Fed employees, while technically considered "private," are also chartered to operate in the public purpose (with their pay decided by the Board of Governors).That doesn't mean the Fed does a good job or that it's decisions aren't heavily influenced by financial lobbies. They've enacted tons of bad policy and the bias towards banks is clear. But it's not because they're operating for shareholders, but rather through the same ways by which the rest of the government is bought by banksters: groupthink, tribalism, lobbying the President/Congress to appoint friendly Governors, and forming cozy relationships with regulators. This is typical "institutional decay" flavor of corruption, not "shadowy conspiracy" flavor. More discussion of this: goo.gl/5Kkz60Watch the whole talk: youtube.com/watch?v=1RJP52bwmcw
Former Treasury Staffer: US Debt-to-GDP Doesnt Matter (But Greeces Does) Deficit Owls 2017-04-03 | Frank Newman, former Deputy Secretary of the US Treasury, discussing the US national debt, how it compares to other countries' debt, and debt-to-GDP ratios. For a country with its own currency (who doesn't promise to keep it at a fixed exchange rate), the national debt-to-GDP ratio simply does not matter. There is no chance of markets 'getting spooked' and pulling out of US Treasury bonds. This is because there is nowhere else for dollars to go. No matter how much spending or lending or trading people do with US dollars, at the end of the day *somebody* ends up with them, and whoever this is has exactly two choices: they can hold on to the dollars (as reserves or as currency) or they can sell them to the US government for a Treasury bond. There are no other choices. The person could choose to sell the dollars to somebody else, but this just pushes the choice to the next person. *Somebody* has to choose between holding dollars and holding Treasuries.And Treasuries is the logical choice. Treasuries and cash are exactly as risky (since they are both merely IOUs of the federal government), except that Treasuries pay interest while cash does not. And very wealthy people and institutional investors won't choose to keep their money sitting in a bank, because banks are risky and deposits are only ensured up to $250,000, while Treasuries are backed by the full faith and credit of the US government. Between these forces, there will ALWAYS be a strong demand for US Treasuries.But even if for some reason there weren't, this still wouldn't affect the US government's ability to issue them as part of its spending procedure, because there are special banks who by law must buy any Treasuries that the broader market doesn't want at auction. More on that here: youtu.be/u0e4afZElBE?list=PLZJAgo9FgHWZZHf8kluvJT3MwQmLQ9XX0Watch the whole talk here: vimeo.com/41449585Follow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
Former Treasury Staffer: US National Debt Never Needs To Be Paid Down Deficit Owls 2017-04-02 | Frank Newman, former Deputy Secretary of the US Treasury, talking about the US national debt. The US national debt is nothing more than the sum of outstanding Treasury bonds. People often think of the national debt as if it were a credit card loan, but this is wrong. The federal budget works nothing like a household budget, and the national debt works nothing like a household debt.A Treasury security (like a bond, bill, or note) is an asset that an investor can hold to earn interest. It is functionally equivalent to a savings account (specifically a Certificate of Deposit): you give up dollars today, you get them back after a fixed amount of time, plus interest. And they get created and paid back exactly the way a savings account does at a bank. If you purchase a CD from your bank, the bank debits your checking account, and credits your savings account. When the CD matures, the bank debits this savings account, and credits your checking account. Same with a Treasury security. If you buy one, the government (specifically the Federal Reserve) will debit your bank account, and credit a "securities account" in your name. When the bond matures, the Fed will debit the securities account, and credit your checking account. It's true that we need to pay *back* the debt. And we do this, every single day: as bonds mature, the Fed debits the securities accounts, and credits people's checking accounts. And then, frequently, new bonds are sold to other people, whoever would prefer to hold their savings in bond form rather than deposit form. What we never need to do is pay *down* the debt, ie to reduce the amount of Treasury bonds in circulation. (This would be accomplished by not issuing new bonds as old ones are paid back) This is simply not necessary, and we have only even done it on a very select few times throughout our nation's history. It's also NEVER necessary to raise taxes based on the size of the debt, so long as we have a floating exchange rate and the debt is only denominated in the currency we issue. Given those circumstances, the ONLY reason we would *need* to raise taxes is to reduce private sector spending in order to control inflation. But if inflation isn't a worry, then there is no need to raise taxes, no matter how large the debt is, no matter what the interest payments are, etc.Watch the whole video here: vimeo.com/41449585Read Frank Newman's book, The Six Myths That Hold Back America: amazon.com/Myths-that-Hold-Back-America/dp/098398851XFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
Economic Myths and the Fallacy of Composition Deficit Owls 2017-04-02 | Frank Newman, former Deputy Secretary of the Treasury and author of the book Six Myths That Hold Back America, discussing myths and logical fallacies in economics. People like to imagine that the government works the same way as a household or a business, and that the economy as a whole works a lot like their household budget.But they don't. It's called the fallacy of composition: it is a fallacy to assume that a group of things has the same properties as an individual thing. Or similarly, it's a fallacy to believe that something that's good for one person to do would be good if everybody did it. The conclusion does not follow from the premises. A simple example is traffic: if there's a traffic jam from 8 to 9 am every day, one person can avoid it by leaving an hour earlier and driving at 7. But if everybody did this, they wouldn't reduce traffic at all, they would just move the traffic jam one hour earlier. Another example is standing up at a sports game. If one person stands up they will get a better view, but if everybody stands up, nobody's view improves.In economics, one famous example of this is the "paradox of thrift." An individual can save more by reducing his spending today. But society as a whole cannot save more by reducing spending. The reason it's different is because while your income might not depend very much on your spending, at the societal level it does, because one person's income had to come from somebody else's spending. So reducing spending reduces income, and so attempts to spend less don't actually result in more saving, they just reduce income, output, and employment.Another example would be the myth of "crowding out." This myth says that if the government tries to "borrow" more from the private sector by selling bonds and then spending, this will raise interest rates, "crowding out" private investment. At a simple level, it seems intuitive because if you buy a government bond then you won't have money to lend to a business to invest in a new factory. But it's wrong, because the money the government spends becomes income and savings for somebody else, so the savings is not "used up" in any way. In fact, savings has *increased* because you now hold your savings in the form of government bonds while somebody else holds new savings in the form of cash.There are many other examples.Watch the whole talk here: vimeo.com/41449585Follow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
Dollars Do Not Leave The US Financial System Deficit Owls 2017-03-26 | Frank Newman, former Deputy Secretary of the US Treasury, discussing the relationship between the US national debt and China. Dollars (the ones that can be used to pay taxes or buy Treasury bonds) can only exist in the US financial system (with the small exception of paper dollar currency, but most of the dollars that exist are electronic). If a foreign entity holds US dollars, it either means that their bank has a US branch which has an account at the Federal Reserve, or their bank has a partner correspondent bank who's actually holding the dollars for them, who has an account at the US Federal Reserve. Even the dollar accounts that foreign government have all only exist at the US Federal Reserve. The reason we "owe money to China" is because we run a trade deficit with them. We import more from them than we export to them, so they end up accumulating dollars. Those dollars appear in the Chinese government's account at the US Federal Reserve. They came from US banks' accounts at the Federal Reserve, and all they did is change ownership. Regardless of whether the dollars (reserves) are held by banks or by China, or some other nation, they only have 2 options of what to do with them: they can either hold them as dollars, or use them to buy US Treasury bonds, part of the "national debt." (They could sell them to somebody else, but this just pushes the same choice to somebody else).Since reserves at the Federal Reserve are exactly as safe of a financial asset as US Treasury bonds (which are also operationally equivalent to accounts at the Federal Reserve), most banks or governments holding reserves will use them to purchase Treasury bonds, so that they can earn interest. So, selling bonds is best thought of as a service that the US government provides to savers: it allows them to earn a higher interest rate on their US dollar assets, rather than letting them earn zero or near-zero by holding their dollars as dollars. Watch the whole video here: vimeo.com/41449585Follow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
Merely Printing Money Is Not What Causes Hyperinflation Deficit Owls 2017-03-24 | Rohan Grey, of the Modern Money Network, on with Steve Grumbine of Real Progressives, discussing the causes of hyperinflation. Although the conventional wisdom is that hyperinflation is caused by simply "printing too much money," MMT asserts that this is not the case, and has never been the case. Rather, hyperinflation is almost always caused by some sort of political, ecological, or other economic crisis or breakdown, which in turn is reflected in the monetary system. The simplest cause of hyperinflation is supply-chain collapse. If the real productive sector in the economy suddenly becomes unable to meet demand for goods on a wide scale (for instance, if factories were decimated after a war, or farm output collapsed due to a famine), then prices must rise. If the demand is unable to subside (such as for essential goods like food) and supply cannot be restored or replaced (by substitution or imports) then prices will continue rising and won't stop. This is without regard to the size of the money supply. In fact, the money supply tends to endogenously grow: as prices rise, people need more money to make the larger transactions, so they borrow more from banks and liquidate assets with the central bank, growing the money supply. In this way, "printing money" is actually a consequence, not a cause, of hyperinflation. If the government were to try to clamp down on the money supply, chances are that 1) they wouldn't be able to, and/or 2) people would start using other things as money. (Government deficits can also become a positive feedback mechanism in this way, because the government pays current prices but tax collections are calculated on a lag, so the deficit will tend to widen, making the problem worse.)This is what happened in Zimbabwe and in Venezuela. In Zimbabwe, racial politics trumped economics, leading the Mugabe government to evict all the experienced white farmers with inexperienced black ones, with little provision for transition or training. The result was that farm output collapsed by 80%. Prices must rise in that situation. In Venezuela, the government imposed price controls below the cost of production, which forced most of the private sector out of business. Due to their large foreign debt in dollars, they restricted imports (which would lead to loss of dollar reserves for the government, and therefore inability to service its dollar-denominated debt), leading to severe shortages that could not be solved. In this situation, prices must rise. In Weimar Germany, the situation was caused by huge imposition of Germany of reparations for WW1, payable in gold and foreign currencies. When it became clear that Germany didn't have this foreign currency, and that there would be no debt relief from Germany's creditors, Germany was forced to sell its own currency in the foreign exchange markets, in amounts of something like 30% of GDP, which drove down the exchange rate. This increased the cost of imports and, coupled with foreign occupation of industrial lands and mass worker strikes reducing domestic capacity too, led to elevated inflation in Germany. Workers began to demand that their wages be indexed to inflation, leading to a self-feeding spiral: as the exchange rate went down, wages went up, leading to higher prices, leading to a lower exchange rate and higher wages, leading to higher prices...This is called a "wage-price spiral."So clearly, the cause of hyperinflation is not simply the government "spending too much." Each case is unique, but the elements that tend to be present can include fixed exchange rates, foreign-denominated debt, crisis of supply, indexation of prices or wages, loss of ability to enforce taxes, political or other social breakdown, or losing a war. Read a bit more about hyperinflation here: pdfs.semanticscholar.org/e20b/05c4630543d7506d93b89713685c9372717a.pdfRead about why it's not simply caused by government debt or deficits: http://www.realprogressivesusa.com/news/economic-issues/2017-01-26-what-if-the-government-prints-money-to-pay-the-national-debtSome statistical evidence that money supply growth doesn't cause inflation: ineteconomics.org/perspectives/blog/rapid-money-supply-growth-does-not-cause-inflationMore about the specific case of Weimar Germany: http://socialdemocracy21stcentury.blogspot.com/2014/04/joan-robinson-on-weimar-hyperinflation.htmlMore about the specific case of Zimbabwe: http://bilbo.economicoutlook.net/blog/?p=3773Watch the whole video here: youtu.be/D3hu3rt2SOIFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
A Social Service Job Guarantee Proporsal Deficit Owls 2017-03-23 | Fadhel Kaboub, Associate Professor of Economics at Denison University, on with Steve Grumbine of Real Progressives, discussing a specific proposal that could be used to implement a Job Guarantee. This flavor of JG would use existing local non-profits and service organizations to employ workers applying for JG jobs. Read more about this proposal here: http://www.levyinstitute.org/publications/the-social-enterprise-model-for-a-job-guarantee-in-the-united-statesWatch the whole interview here: youtube.com/watch?v=7fG-waLKrOs&feature=youtu.beFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
Would A Job Guarantee Work For Developing Nations? Deficit Owls 2017-03-22 | Fadhel Kaboub, Associate Professor of Economics at Denison University, on with Steve Grumbine at Real Progressives, taking a question on the feasibility of the Job Guarantee proposal for developing countries. A central tenet of MMT is that any government that 1) issues its own currency, 2) floats the exchange rate, and 3) has no foreign currency debt, can always afford full employment through direct job creation, through a Job Guarantee-like policy.But some developing nations need to peg their exchange rate, in order to run trade deficits to import food and fuel to sustain their citizens. To do this requires reserves of foreign currency, which will be scarce. For such a nation, a Job Guarantee could be problematic: if there was full employment, then citizens would be paid better; if they were paid better, they'd import more; if they import more, then keeping the exchange rate from falling (eliminating the necessary trade deficit and causing pass-through inflation) will require more and more foreign reserves to buy the domestic currency to support its price, and this might cause the domestic government to run out of foreign reserves. So a Job Guarantee might conflict with the policies needed to import necessary food and fuel.However, Professor Kaboub here suggests that for some nations, the better strategy might still be to implement a Job Guarantee, and use the labor resources to create domestic sources of food and fuel and other necessary goods, and eliminate the need to run long-term trade deficits. This might not be workable for every developing nation, but it may be for some.For more discussion of MMT on the issues affecting developing nations, see here: http://neweconomicperspectives.org/2014/02/mmt-external-constraints.htmlWatch the whole interview here: youtu.be/7fG-waLKrOsFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
Why Did The US Oppose Keyness Bancor Plan? Deficit Owls 2017-03-21 | Fadhel Kaboub, Associate Professor of Economics at Denison University, on with Steve Grumbine at Real Progressives, on the Keynes Bancor Plan. When a country runs a trade deficit, then they are losing financial assets to the rest of the world (they import more goods than they export, so money/financial assets go to other nations). On fixed exchange rates, this can be a problem because domestic policy space is limited by the need to maintain that fixed exchange rate, and this might lead to the country having weak employment at home, and potentially running out of foreign reserves. So the "pain" of imbalanced trade is felt almost entirely by the deficit nation.On the Keynes Bancor Plan, nations would have traded with each other in a currency called Bancor, and there would be a charge for both holding too much Bancor, and being deficit in Bancor. So the "pain" would be split evenly between surplus and deficit nations, incentivizing both of them to try to restore balanced trade. America emerged from WW2 in comparatively great shape, while Europe needed to import the materials necessary to rebuild after the war. So America was expecting to run huge trade surpluses for a while, and didn't want to be limited by the Bancor plan. So they opposed it.Watch the whole video here: youtube.com/watch?v=7fG-waLKrOsFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
Why Do Developing Nations Often Have High Inflation? Deficit Owls 2017-03-20 | Fadhel Kaboub, Associate Professor of Economics at Denison University, on with Steve Grumbine of Real Progressives, discussing the issues faced by developing nations. The reasons these nations tend to face chronically high inflation, even in the presence of large unemployment, has to do with their lack of resources.If a developing nation is unable to produce enough food and energy for itself, and unable to produce products that foreigners have a high demand for which they could use to trade, then it becomes necessary for the nation to run trade deficits (importing more than they export) in order to support their citizens.Trying to chronically import more than you export will tend to push the exchange rate between your currency and foreign currencies down (especially if you don't have one of the world's major currencies that many world investors want to save in). This will make these imports even more expensive, and because energy is needed to run other manufacturing in the country, this will tend to push up all prices.One way to combat this is for the central bank to try to stabilize the exchange rate. They try to do this directly, by using foreign currency to purchase their own to push the exchange rate up, or indirectly, by selling bonds in the domestic currency at a high rate of interest, to try to lock up currency so that fewer savers will convert to the foreign currency, or both. But in order to be able to sell foreign currency, it is necessary for the central bank to *have* the foreign currency to sell. This may require them to borrow it, and this is one way that developing nations can end up with large foreign denominated debts.Another way would be to attack the root of the problem: try to increase domestic food and energy production. This is not necessarily easy to do though, in the face of predatory financial markets, and corrupt governments.In short, developing nations have it hard, and this is reflected in their monetary system.See the whole video here: youtube.com/watch?v=7fG-waLKrOsFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
Rohan Grey: History of the Federal Reserve Deficit Owls 2017-03-14 | Rohan Grey, of the Modern Money Network, discussing the history of the Federal Reserve, on Real Progressives with Steve Grumbine.See what the Modern Money Network is up to: http://www.modernmoneynetwork.orgSee what Real Progressives is up to: facebook.com/RealProgressiveFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
MMT: A Balanced Budget Amendment Would Be Disastrous Deficit Owls 2017-02-28 | Professor L. Randall Wray and Steve Grumbine of Real Progressives discussing the proposed Balance Budget Amendment (BBA) to the US Constitution. Such an amendment would mandate that the federal government only run balanced budgets. Modern Money Theory is very clear on this: a BBA would be unworkable and a disaster.Firstly, it's doubtful that the government even can balance the budget. They can try, but the reduced deficits will result in recession and slower economic growth in the private sector (maybe even a financial crash), which will automatically grow the deficit back, as tax receipts decreased and automatic assistance spending like unemployment insurance increased. Further attempts to increase taxes and/or cut spending more would just make it worse. We've seen this happen in Europe for the last decade, and it's why Greece is now in "worse condition than the US Great Depression." Further attempts to balance the budget have only made the disaster worse.Second, the sectoral balances are unsustainable. You *might* be able to get a balanced budget without a collapse if the private sector were willing to borrow to sustain it, like they were in the 90's. But this eventually collapsed when the private sector became unable to take on any more debt in 2008. It goes like this: in the US we run a trade deficit with the rest of the world, which means that dollars are constantly leaving the country. This would mean that the private sector is running down debt or going into savings, except that the government is spending more than it's taxing (running a deficit) and supplying these savings back to us. If we took away the government deficit, then we'd be constantly losing financial assets to the foreign sector, implying that the private sector was going into debt.But third, it's simply unnecessary. The US government is the issuer of the US dollar. It floats the exchange rate, and has no foreign-denominated debt. Between these 3 conditions, it is impossible for the government to be forced to default on its debt. It is impossible for the government to run out of dollars, and at conditions of less than full employment, it is unnecessary for the government to raise taxes to pay for programs.So what the heck is the purpose????? Proponents of BBA either don't know better, or are purposely trying to stymie government and crash the economy.See what else Real Progressives is up to here: facebook.com/RealProgressiveSee the whole interview here: youtube.com/watch?v=-7StbLkjBQkFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
Every Financial Asset Is Somebodys Liability, Including Money Deficit Owls 2017-02-27 | Professor L. Randall Wray discussing the nature of money with Steve Grumbine of Real Progressives. Wray explains that all financial assets are somebody's liability. One person's IOU is always somebody else's asset, their wealth. This means that financial assets equal financial liabilities for the world as a whole, and on the consolidated "world balance sheet," all these financial claims would cancel out and you'd only be left with real wealth (cars, homes, factory equipment, etc).These IOUs are transferable. If I hold Johnny's IOU, I can sell it to Jimmy, by trading him Johnny's IOU for, say, a sandwich, if Jimmy is willing to accept Johnny's IOU. Some IOUs are widely accepted, while some are not.What determines if an IOU will be accepted? First, what does the IOU promise? Is it something that people want? If the IOU promises gold and people want gold, then this will increase acceptability. If you promise to accept your IOU back in payment, and people know they will need to make payments to you, then this will increase the acceptability of your IOUs. And second, how credible is this promise? If I promise to convert my IOUs into gold on demand but it's widely known that I have no gold, then these IOUs won't be very widely accepted.The things we call "money," (such as currency, bank deposits, and central bank reserves) are no different. They are somebody's IOU, either the government, or your bank, or whatever. And there are promises associated with those IOUs. In the case of government money, the government promises to accept its IOUs back to settle payments to the government, like for taxes. In the case of bank money, the bank promises to accept its IOUs back to settle payments to the bank, and also promises to convert on demand into government money. So we can see here why government money (government IOUs) are widely accepted. Because the government imposes a tax obligation on many of its citizens, and threatens a penalty for non-payment, this means that many citizens will need to make payments to the government. And the government only accepts its own IOUs for these payments. This ensures that government money will be widely accepted.See the whole interview here: youtube.com/watch?v=-7StbLkjBQkSee what else Real Progressives is up to here: facebook.com/RealProgressiveFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwlsAnd follow our sister page, Modern Money Memes:facebook.com/ModernMoneyMemetwitter.com/ModernMoneyMeme
Even Donald Trump Could Tell You: Social Security Cannot Go Broke Deficit Owls 2017-01-23 | Professor Stephanie Kelton (economic adviser to Bernie Sanders and the Senate Budget Comittee) explaining why Social Security cannot go broke. It is not possible. The US government issues its own currency, and Social Security promises are all in that currency. Furthermore, the government owes no debt in foreign currency, and doesn't promise to convert dollars into gold or anything else, meaning there's no limit on how many dollars it can spend. The only constraint is inflation that might be created from overspending, by trying to purchase more than the economy can produce.The US government cannot run out of dollars. Period. This means it can always make Social Security payments. There is no possibility of it being unable to meet those promises. It's just not possible. And the government can never be forced to default on any of its other debt, as even Donald Trump can tell you. And it's not just Donald Trump, but Warren Buffet and Alan Greenspan saying the same thing! But when Greenspan said it, he made a very important point: we can give an unlimited amount of money to anybody, that's no problem, but what matters is that the economy has the capacity to produce the real goods and services that the people receiving the money are going to buy. In other words, we can give all the money we want out, but we had better make sure that we have enough food, enough houses, enough energy, enough cars, enough computers, and whatever else those people will use that money to buy. If there isn't enough, then we'll get inflation.So the solution to the "Social Security Problem" isn't to raise taxes, or lower benefits. That makes no sense. The solution is to invest now to build more factories, repair and expand our infrastructure, increase productivity, and whatever else we need to do to ensure that the workers of the future will be able to produce enough goods and services for the retirees of the future to consume. More about that idea here: youtu.be/QA7DF17fquESee the whole talk here: youtube.com/watch?v=EyBhU19pD3kFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwls
Wont A Credit Downgrade Raise The Governments Interest Rate? Deficit Owls 2017-01-23 | Amar Reganti, former Deputy Director of the Office of Debt Management at the U.S. Department of the Treasury, discussing the results of a downgrade by credit rating agencies on the debt of a government with a sovereign currency. He has a particularly unique perspective because he was actually working at the Treasury Department at the time that the United States was downgraded.The conventional logic goes like this: a borrower is associated with the risk they might not pay back, their credit risk. Creditors will evaluate this risk, and adjust the interest rate they charge borrowers accordingly: if the risk is high, the lender will want to be compensated with a higher interest rate. So if your debt gets too large or a credit agency downgrades your debt, this lowers the evaluation of your creditworthiness, and should result in increased borrowing costs, meaning higher interest rates it must pay to borrow.In fact, not only is this the logic, but you can actually see it happen: when businesses get downgraded, or individuals get their credit score lowered, their costs increase. Heck, it even happened to Greece! And the danger is that as interest rates go up, interest costs go up, further weighing on revenue. Eventually the country might get to the point where it's tax revenue isn't even enough, and it's forced to borrow to cover the cost of interest, and at that point it's the kiss of death: the debt will explode up and the country will be forced to default. Goodbye.Or is it? See, something interesting happened in the US after it got downgraded. And the same thing happened in Japan, and in the UK: its interest rate went DOWN, not up. In fact, even as Japan has an unprecedented run-up in debt, at 245% of GDP as of January 2017, it's interest rates have been trending only downward. What's going on here?In fact, there's an important difference between a household, business or Greece, vs. the US and Japan: the US and Japan issue their own currency, and only have debt in that currency. That means they can never become unable to pay, and to make good on the promise on the debt. Investors know this. If they buy a US Treasury bond, they're not 'lending money to somebody who needs it to spend.' They are swapping their currency, a government issued asset, back to the government in exchange for a different asset, a Treasury bond. A Treasury bond is the safest, most liquid form for US dollars to exist in, and they pay interest! This creates a high demand for them, that won't go away. That being the case, the central bank has all the power over all the interest rates, being the monopoly issuer of the currency. It can set its target rate anywhere it wants, and it can target any rate along the yield curve to be any rate it wants, no matter what market investors say. This is what life is like if you're the monopolist. In fact, even in the absence of the central bank targeting a long-term interest rate, the long-term rates tend to move along with the short-term rate that the central bank does directly target. This is due to arbitrage (the 'expectations hypothesis of the term structure'), which keeps the rates closely linked.See another former Treasury Department insider explain why there will always be demand for US Treasury, here: youtube.com/watch?v=EMEhE-WJFQALearn a little more about Japan's interest rate targeting: http://bilbo.economicoutlook.net/blog/?p=34830Watch the whole talk here: youtube.com/watch?v=EyBhU19pD3kFollow Deficit Owls on Facebook and Twitter:facebook.com/DeficitOwlstwitter.com/DeficitOwls
