Home > Tax and public expenditure > Time to kill the debt bogeyman once and for all

Time to kill the debt bogeyman once and for all

May 3rd, 2017

Here’s a piece I wrote in the Guardian responding to Scott Morrison’s distinction between “good” and “bad” debt. Unfortunately, the comments included plenty of people who are under the impression that, thanks to Modern Monetary Theory, there’s no need for taxes and therefore no need to think about budget balance. That’s wrong, as I explain here, with an endorsement in comments from leading MMT economist, Warren Mosler.

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  1. Jordan from Croatia
    May 3rd, 2017 at 17:31 | #1

    Strange, really strange.
    I read trough all comments and found one person posting twice about government using fiat money without issuing debt to finance it’s deficit spending, not all spending as you claim.
    Calling the one person posting twice as “plenty of people who are under the impression” is really strange. And then caracterising that as “there’s no need for taxes” is even stranger then first claim.
    There was not a single comment as saying “there’s no need for taxes” so where did you Proff, Q. find it as “plenty”????

    Comment from that person was “does not ever need to borrow through private financial markets and pay interest to those markets, to fund their capital expenditure.”
    He is clearly saying that government doesn’t need to BORROW, where did you get “doesn’t need to TAX?????

    This is a strange need to attack MMT with strawmen, but it is an obvious show that MMT is getting through 5 phases of being accepted with considerable speed.

  2. Smith
    May 3rd, 2017 at 17:43 | #2

    The linked article says education is an investment, therefore going into debt to finance education is good debt.

    Well, yes, but not always – government subsidies to elite private schools are an investment in the replication of inherited privilege. I suppose it’s good debt if you are a beneficiary.

  3. Simon Fowler
    May 3rd, 2017 at 17:45 | #3

    My understanding of what MMT proposes is that you shouldn’t worry about the /government budget/ balance, you should worry about the broader sectoral balances. Taxes are generally part of that, but they don’t have to be – what’s relevant is how much economic free space the government needs to do what it wants, and exactly how that free space is made free is a technical detail. I think that’s a reasonable (brief) explanation of the reason MMT proponents often say that taxes aren’t necessary.

    I don’t think it’s reasonable to characterise that as “there’s no need for taxes”, and definitely not that there’s “no need to think about the budget balance” – there needs to be more context (which may well be missing in a comment posted below the line at the Guardian).

    Do you have serious problems with what academic MMT proponents say, or is it just the way armchair proponents argue that earns your ire? I know that there are quite a lot of people making noise about what might be called “pop-MMT”, but that’s hardly unique to MMT – I see a lot of people expounding on the meaning of a number of different economic schools, a lot of them seeming to me to be just as ill-informed as any armchair MMTer.

  4. John Quiggin
    May 3rd, 2017 at 17:46 | #4

    @Jordan from Croatia

    I found quite a few in the first 50 comments, for example lesm, friarbird, colincook, barriemundi, blackabbot

    @Smith

    This is true in general, debt used to finance investment is good only if the investment itself is good.

  5. Jordan from Croatia
    May 3rd, 2017 at 18:03 | #5

    Unless you think that this was a MMT proponent: “I think the solution is that we all just print our own money, governments do and debt is ok for them so if debt is good for households we should be able to print our own money as well!”
    If you are not seing sarcasm of such comment making fun of MMT trough strawmen as this person did, that says that you do not know MMT well enough to recognise sarcastic attacks and see them as proponents, not attackers.

    what MMT says:
    Federal deficit is decided by budget decisions and financed by entering numbers into accounts aka printing money.
    The way to see that is different ammounts of deficit and net new debt issued for a particular fiscal year.

    Deficit and net new debt do not match,
    which they must if deficit was financed by issuing debt.

  6. John Quiggin
    May 3rd, 2017 at 18:28 | #6

    @Jordan from Croatia

    I recognised the sarcasm in that comment and (I’m pretty sure) didn’t list its author above.

    @Simon Fowler

    I guess I write on topics that attract pop MMT more than other kinds of pop.

  7. John Quiggin
    May 3rd, 2017 at 18:28 | #7

    Anyway, we all seem to be in agreement that MMT free money, which is good.

  8. Jordan from Croatia
    May 3rd, 2017 at 18:37 | #8

    Yep, read them all again and especially those you have mention in the response to me and not a single mention of ” there’s no need for taxes” as you claimed. They talk only on no need to borrow to finance deficit, not all spending as you claim. And they talk against comparring houshold to fed gov. My citation is from Lesm which seemed the most suspect of all and closest of what you claimed, but nope.

    My initial comment still stands after detailed second reading.

  9. Jordan from Croatia
    May 3rd, 2017 at 18:47 | #9

    MMT is a description of present monetary system in countries that do not borrow in foreign currency.
    It is not about implementing something new, it is only describing the present as it is now.
    What reading on MMT serves for is to recognise the lies from neoliberal media and politicians and from wealthy and the more important is that enables more imaginative use of government that will serve it’s people better.
    Nothing new in monetary practice MMT asks to implement, only to what purpose should be used and what can be done with government policy without changing any monetary and ficscal laws.

    MMT describes the present fiscal and monetry actions taken by consolidated gov. It shows the lies by politicians and msm just as you unsucsesfully keep trying.
    MMT is much simpler method and more strict in methodology then mainstream economic methodology, complicated and dificult, open to any interpretation rather confuses then informs populace.

  10. BilB
    May 3rd, 2017 at 19:05 | #10

    Smith one of the problems with Turnbull’s labels is that he is the one applying them, as he chooses. Supposed “good debt” funds raised to bail out his destruction of the NBN will be labelled as “good investment” debt when will in fact be the cost of political opportunism and a pitiful waste.

    This approach, only because of the direction from which it is coming, is a political con for the preselling of yet another offensive budget. IMHO.

    You don’t need an aboriginal tracker to follow the clues on this one. Right up front is the big declaration of 18 billbucks for education……………………over ten years…which can in fact mean anything at all, most likely nothing, other than a lot of the fanfare JQ mentions in his item. I’m calling it a con.

  11. Simon Fowler
    May 3rd, 2017 at 19:31 | #11

    I don’t think “free money” is a reasonable description of what MMT is about, unless you want to suggest that mainstream economists like Bernanke, Summers and Krugman are also free money proponents – they’ve all acknowledged the reality of the same money creation processes that MMT proponents talk about. That doesn’t mean the money is free, though – MMT proponents also talk a lot about the impact of spending on the economy. In fact, the explanations for inflation that are posited by MMT proponents seem to me considerably more realistic than the explanations offered by mainstream economists (though as an interested layperson I’m not really qualified to assess them in great detail).

    If the way the real world works /is/ that governments can create as much money as they want then it seems a bit silly to complain about economists (or interested laypeople) saying so, or to describe that reality with loaded language like “free money”. Particularly when everyone seems to be acknowledging that this money creation process has real world impacts.

  12. Nicholas
    May 3rd, 2017 at 22:33 | #12

    Enforcement of tax obligations in the currency of issue is the mechanism by which a currency-issuing government mobilises real goods and services from the non-government sector. The currency-issuing government creates currency and transfers it to the non-government sector, which enables the non-government sector to pay its taxes. The non-government sector creates goods and services that the government needs in order for it to be able to deliver public infrastructure and public services.
    Tax obligations imposed by a currency-issuer are also extremely important for these purposes: managing aggregate demand (in order to avoid recessions and avoid high inflation); influencing distribution of wealth and income; and creating incentives and disincentives for behaviours of households and firms.
    As much as I respect John Quiggin’s immense contributions to policy debates, that article in The Guardian was a missed opportunity to discuss Overt Monetary Financing, that is, a currency-issuer deficit spending without issuing debt instruments. There isn’t any operational need for a currency-issuer to accompany its deficit spending with debt issuance. The process of issuing Commonwealth Government Securities obscures how the monetary operations occur and feeds the public’s confused tendency to imagine that the federal government is financially constrained like a state government, local government, household, or firm.

  13. BilB
    May 3rd, 2017 at 23:13 | #13

    When MMT goes horribly wrong.

    https://www.quora.com/What-factors-contributed-to-the-hyperinflation-of-the-Zimbabwean-Dollar

    When it is done right it works. An example where money printing made sense to me was for the US as a result of its middle eastern wars. The US government paid for huge amounts of product to be manufactured for export, weapons bombs and bullets, all of which were exported but the US government received no payment for those goods. The manufacturing businesses still needed to be paid, so in that case as the anticipated oil gusher did not come in as expected by Bush and Co money was ultimately printed as the US headed into deflation. I don’t understand the quantitative easing mechanism, but the end result was putting money back into the US economic system (I am happy to be wrong about this).

  14. BilB
    May 3rd, 2017 at 23:18 | #14

    I have tried to get my hands on one of these, but haven’t been successful yet.

    https://www.rt.com/business/267244-zimbabwe-currency-compensation-hyperinflation/

    If you ever see a US one of these then you know for sure that Trump is hanging on with brutal determination (bribery) and the global economy is kaput.

  15. Jordan from Croatia
    May 4th, 2017 at 02:55 | #15

    BilB

    Was Zimbabwe under no foreign currency debt?
    Was Zimbabwe floating its exchange rate?

    Both conditions have to apply in order to say thaat was case of MMT going wrong.
    Please do not discard these conditions.

    If not floating exchange and indebted in foreign currency then MMT clearly says that there is a considerable constraint. Debt in foreign currency makes Central Bank unable to use monetary policy like sovereign CB. Independent CB means independent to pursue monetary policy. IF debt in foreign currency then CB has to increase interest rate to atrackt more foreign captal in order to refinance old debts, it raises the rate when it needs to lower it.
    Independent CB doesnt mean independent poiticaly but independent to pursue monetary policy which can only do if it is free of debt in foreign currency like USA, AUS, Canada, Japan, UK
    Those countries with sovereign currency and independent CBs are former empires and they enforce “former” colonies to use empire’s currencies for trade. Neoliberal lunacy changed the real meaning of CB independence to grab more control of CB policies by wealthy.
    Only independent CBs are those of former British Commonwealth, japan and Swiss, rest of the world have dependent monetary policy and it raisies rates in crisis, which is opposite of what they should do, but as a colony has to do what empires order them, otherwise it will become Axis of Evil as Bush called it. Guadafi wanted to have independent Africa through African gold union and that was the real reason for destroying Libya and killing Guadafi. But they will tell you something completely different. See the movie “Libertador” about Simon Bolivar and watch what englishmen does. It shows the power of the english banks.
    Zimbabwe did not use their own currency to buy food from USA, they have to use USA dollar to buy it. USA can buy anything in the word using their money that they print. This is how empires keep control of “former” colonies. Trade only in empires currency.

    Only free trade is between those empires, there is no free trade internationaly since they are not free to use their own currencies, the have to use empire’s currencies.

  16. Jordan from Croatia
    May 4th, 2017 at 03:31 | #16

    BilB
    Quantitative easing doesnt work that way.
    QE puts money into the banks and then as another step, banks are supposed to put money into economy. But this is wrong idea comming from myth that banks lend their reserves. Many CB governors openly said that banks do not lend reserves but still they did QE which increases bank reserves.
    The real reason for QE is to take bad loans from banks and give them money at noted value not at market value. By CB taking bad assets from banks and then letting them expire and loose half of what they paid. But, since that money came from CB printing it they do not have to record the loss from it. QE is just a way to save the banks but neoliberal and CBs dependent on financial sector made up an excuse that QE will go into economy.

    WHile giving money to banks and hoping that some will end up in economy, govrnenrs ordered banks to improve their capital ratio which forced banks to keep interest rates to economy high comparing it to official rate that CB wants.
    QE would work if banks offer official rate to economy which is around 1% but they do not. Before the crisis the spread between official and the rate that economy was getting was about 0.5% -1% now the spread is 4-5 %. Only state and banks enjoy official rate and rates bellow 0% whle econoy still suffer under pre-crisis rates. acctually, rates to the economy are even higher then pre-crisis. This is the reason for monetary policy not working. this is the reason for Secular stagnation and why economy is not pulling out.
    The solution is to create state banks that will refinance old private debts at official rates just as it was done in Great Depression when Fannie Mae and Freddie Mac was created.
    Those, and many other state owned banks were created to get out of high rates by banks. State owned banks offered lending at low or 0% rates to refinance old and give new debts to economy.
    Many projects were financed by such creation of money by state owned banks (Hoover Dam, California Irrigation, Snow Mountain Project…. ) and if project was failing from debt obligations, debts were forgiven and banks closed.
    That is Free Lunch, or Free money as JQ called it. But they think that this is something new that MMT describes. It is nothing new, and MMT is description of how public and private finance works today. It doesn’t need no change in law to apply what was applied through history. But to know what is available for government, you need to know how it works and that is what only MMT describes.

  17. BilB
    May 4th, 2017 at 06:06 | #17

    Jordan from Croatia
    To my thinking the US wasted an opportunity with the use of QE when they did. I would have thought they would print money to make up their loss and use to reduce borrowings and inject measured amount of money directly into their economy.

    I put Zimbabwe up as an example of abuse of the mechanisms of money making and its impact on the internal economy, regardless of whether it fits pure MMT. Clearly Mugabe decoupled Zimbabwe from the global economy crippling its ability to trade with the world in a normal way, but that would not have mattered if Zimbabwe had not crippled its ability to work internally and its GDP to plummet in the process.

  18. Ikonoclast
    May 4th, 2017 at 08:40 | #18

    What is the opposite of “green shoots”? Black shears? Black razors? Some see green shoots of hope in this change of emphasis in the debate. What’s it worth if Scott Morrison brings out the black shears, or maybe the black razors as in “razor gang”, in the upcoming budget?

  19. Greg McKenzie
    May 4th, 2017 at 08:58 | #19

    For those interested, Google “Pitchford Thesis” and “what was the highest official interest rate in Australia in the 1980s?”. Printing money for wars, financial market bailouts and budgetary deficits all comes at a future social cost. Benefits of “good debt” must be weighed against the costs to future generations of borrowers, both government and private. With both public debt and private debt at record levels in Australia, we are living in a glass house economy. And there are plenty of stones in the form of future interest rate rises and bubble bursting credit squeezes, just waiting to be thrown.

  20. Simon Fowler
    May 4th, 2017 at 10:19 | #20

    BilB :
    I put Zimbabwe up as an example of abuse of the mechanisms of money making and its impact on the internal economy, regardless of whether it fits pure MMT. Clearly Mugabe decoupled Zimbabwe from the global economy crippling its ability to trade with the world in a normal way, but that would not have mattered if Zimbabwe had not crippled its ability to work internally and its GDP to plummet in the process.

    MMT is an attempt to describe how economies with monetary sovereignty work. Zimbabwe at the time of its hyperinflation fits in this category, and provides an excellent example of MMT’s description working: Zimbabwe suffered a catastrophic loss of productive capacity, which meant that the spending capacity already in place (the nominal currency level in the economy) was greater than the productive capacity that was available, and likewise demand was still at or near the pre-collapse levels since only a relatively small number of landowners suffered major changes in their lifestyles. That’s exactly what MMT predicts will lead to inflation, and when the response to that inflation is to simply issue more currency to try and compensate for the increasing price levels you’ll get hyperinflation.

    So, is MMT wrong because the Zimbabwean government decided printing money was the solution to inflation? Or is it right because it’s able to successfully explain what happened in Zimbabwe?

    MMT provides a model for how an economy works – what politicians and central bankers (and in fact everyone who participates in that economy) do with that information is up to them.

    Now, MMT proponents do tend to push a range of policy proposals (job guarantees, overt monetary financing, functional finance, minimal or zero bond issuance with inter-bank lending rates controlled by paying interest on excess reserves, “taxing bads not goods”, and so on). Those are all separate from the model that MMT provides for how the economy works, though. In many case they’re things that are made possible/practical by the options opened up through understanding how government finances really work, but in many cases they’re also things that could be pursued if MMT as a descriptive model ends up being wrong.

    None of this is particularly relevant to the original post, but it does help to demonstrate the level of misunderstanding of MMT even in relatively well informed people. It’s no better for mainstream economics, though, which is one reason why I’m calling out Prof. Quiggin on this.

  21. Simon Fowler
    May 4th, 2017 at 10:26 | #21

    Greg McKenzie :
    For those interested, Google “Pitchford Thesis” and “what was the highest official interest rate in Australia in the 1980s?”. Printing money for wars, financial market bailouts and budgetary deficits all comes at a future social cost. Benefits of “good debt” must be weighed against the costs to future generations of borrowers, both government and private. With both public debt and private debt at record levels in Australia, we are living in a glass house economy. And there are plenty of stones in the form of future interest rate rises and bubble bursting credit squeezes, just waiting to be thrown.

    Until you can demonstrate why government debt of around 35-40% of GDP is dangerous (I recommend you look at government debt levels in Japan to see why that idea is laughable), I recommend focusing your concerns on private debt levels. Particularly given wage growth is far too low to support those debt levels for long – we’ve already seen savings rates drop back to near zero after recovering to their long-term rates after the GFC.

    Seriously, worry about the people who /can’t/ just print money to pay down their debt (regardless of whether it’s a good idea for governments to do that).

  22. BilB
    May 4th, 2017 at 10:27 | #22

    Jordan from Croatia,

    How does a negative interest rate work and who are the participants?

  23. BilB
    May 4th, 2017 at 10:54 | #23

    Simon Fowler,

    The Zimbabwe example is an extremity, the other would be zero money creation. The range defines the possibilities giving guidance on how policy should be set, similar to flying a modern jet aircraft where the range is no take off through to extreme climb where the vehicle stalls and crashes.

    I use the war munitions example to look at an obvious justification for printing money to balance an economy as distinct from soldiers wages where the money stays in the system paying for things back home.

    Just looking at it from an outsiders point of view, though, I can see that a comprehensive and altered understanding of money creation is going to be absolutely necessary as we mover further into a world with Destructive Climate Change where extensive assets can be eliminated in hours, and yet an economy must still continue to operate.

    Point of case being cyclone Debbie and the immediate need to rebuild back to working communities. What does MMT say should happen here?

  24. Jordan from Croatia
    May 4th, 2017 at 11:05 | #24

    Negative interest does not work, but idiots hope it will force banks to lend more to the economy.
    Primary dealers (banks) simply have to buy what government sells and at any rate that Treasury offers even tough it is a loss. Then CB buys it from them and dealers make money on it.

  25. Simon Fowler
    May 4th, 2017 at 11:46 | #25

    BilB :
    Point of case being cyclone Debbie and the immediate need to rebuild back to working communities. What does MMT say should happen here?

    I think you’re kind of missing my point here. MMT is an attempt to describe how modern monetary sovereign economies work – i.e. economies where the government has the ability to issue at will, with no constraints, the currency used throughout the economy. It attempts to describe the way that class of economy works in such a way that meaningful predictions can be made, but that requires a lot more information than the core descriptive capabilities of MMT provide – economic actors are, after all, primarily humans, who make decisions based on stupidly complicated reasons which often have nothing rational underlying them at all. If you can make useful predictions about how people in the economy will decide to act then you can use the core ideas of MMT to predict the economic effects of those actions, but MMT itself doesn’t make any attempt to predict the behaviour of people.

    MMT describes the ability of a monetary sovereign government to command resources from its economy, but it doesn’t say anything about what those resources should be or how they should be used. That’s what the political process is there for.

    MMT describes the mechanisms by which private debt is issued, and the way that debt issuance can be used to command resources, but it doesn’t say anything about what those resources should be or how they should be used. Thats up to all the individuals taking out loans, and the banks that are creating the loans.

    MMT describes how the monetary flows driven by the interaction of productive capacity and demand in the economy work, but it doesn’t say anything about what drives changes in productive capacity or patterns of demand. That’s up to behavioural economics, or psychology, or any other field that can provide an insight into why people choose to do the things they do.

    Mainstream economics embeds a whole lot of assumptions about the way that people behave, and why they behave that way, into its attempts to describe the world. A whole lot of those assumptions are objectively bullsh*t – people aren’t rational intertemporal-optimising machines, for example, nor are businesses, or governments, or anyone. All the MMT work that I’ve read has explicitly pulled that sort of thing out of its models, leaving them smaller and more focused, but also leaving room for feeding in information from other fields which /do/ have meaningful things to say about how people behave. People trying to build models of the real world using MMT as the foundation obviously include that stuff, but they’re using MMT as the mechanical model, not the driving forces.

    What we choose to do and why isn’t a question that economics can or should answer. But if economics wants to call itself a science it needs to be able to say useful things about what happens once the decisions are made.

  26. BilB
    May 4th, 2017 at 12:58 | #26

    I do get it, Simon. The discussion suggests that money creation is under or poorly utilised as an economic instrument due to miss-perceptions of what “debt” is about in a national government (sovereign) economic context. MMT is an understanding of that process as applied in various political and economic structures.

    My question was “is an enhanced use of MMT an important capability for governments to cope in rapid reaction with progressive environmental change with the subsequent required economic adjustments”.

    The munitions example refers to goods that have been purchased by the government and have effectively disappeared. I believe that in creating a certain amount of money to compensate for the loss of those goods the economy is brought back into balance without negative impact (even though as I say this I cam see some flaws). However in the case of cyclone Debbi, how far can the government go with disaster relief funded by the printing of money to cover the loss of productivity during the rebuild? Can it only print the lost taxation value or can it go further?

    Can a better understanding of MMT assist governments to cope with rapid structural economic change? In the aviation analogy Debbie equates to the loss of an engine during flight (fiscal year), the pilots must change the way the aircraft is configured in order to complete the flight and land safely. Is MMT an instrument that can be actively and accurately used to assist in the precise dynamic control of the economy?

  27. Jordan from Croatia
    May 4th, 2017 at 15:08 | #27

    “how far can the government go with disaster relief funded by the printing of money to cover the loss of productivity during the rebuild?”
    Productivity lost is replaced with rebuild. If you ask if you can import as much as it is needed to replace lost production, the answer is yes but only for those that are using their own currency for trade. Those are members of former British Commonwealth, Japan and Swiss. EU if allowed to print. What it would be considered a reserve currency is not only for US dollar but for those former empires that trade only in their own currency, that do not have to borrow from foreign banks to import but from their own banks. Every other country is fighting to sell production to those 6 countries to get their people employed and raise GDPs. They dont know how else to employ their own people.

    Answer to 2nd question is that governments know what they should do but pretend that they are constrained by debt and deficits.
    3) yes. By using fiscal policy more then monetary policy. Monetary policy comes with a lag of about a year while fiscal affects the economy as soon as spending starts.

  28. Andrew
    May 4th, 2017 at 15:55 | #28

    From my observation over the past few years, most of the Guardian readership tends to support higher marginal tax rates for the upper income brackets independently of any economic theory whatsoever. (Upper income brackets meaning for anyone earning more than themselves)

  29. Simon Fowler
    May 5th, 2017 at 09:39 | #29

    BilB :
    My question was “is an enhanced use of MMT an important capability for governments to cope in rapid reaction with progressive environmental change with the subsequent required economic adjustments”.

    Sorry for going off on a long rant – I’m used to people missing the point, not looking for more elaboration.

    With regard to your question about replacing infrastructure, and the extent to which the government can put money into it, the question is always the broader economic context. If the economy has a lot of slack (on top of the slack created by the destruction produced by the natural disaster) then the government can command a lot, if the economy is already near full engagement then there’s not much space for the government to command additional resources for reconstruction. There’s no magic formula, it’s just a question of how much economic space there is for government expenditure. If necessary the government can /make/ space (this is probably the most important use of taxes), but that’s still essentially the same question – how much economic space does the government have, and how can we make sure there’s enough space for the government to do what we want it to do.

    That gives a clue to the answer to your second question – how can an understanding of MMT help us deal with rapid change. The first question is what do we want the government to do – once that’s been answered, the next question is how can it be done, and finally how do we make sure that the government has access to the resources it needs. The first part of that is straight politics; the second part is generally the technical part; and the third part is where an understanding of MMT comes in. If rapid change is needed and the political will is there the government can always do it, one way or another – if necessary, they can go on a war footing and essentially command all the resources available in the economy to achieve their ends. That’s a very big hammer, and the political will to go that far is very difficult to find, but it’s the far end of a spectrum, not something qualitatively different from any other application of government power. MMT just makes the spectrum of potential government power clear.

    The question of whether MMT can contribute to dynamic control of the economy is a separate matter. Governments aren’t exactly nimble entities – this is why they tend to fail pretty badly at driving the whole economy all the time (this is part of the problem with communism). Ideally you want to set up government-supported systems that allow the rest of the economy to self-organise into dynamically stable systems. That’s hard, obviously, but there are some proposals put forward by MMT proponents that can help – the job guarantee is one example. But again, that’s not really anything inherent to MMT.

    All of this, though, is fundamentally orthogonal to the core issue, which is that /politics/ underlies all of this. And we /want/ it to – rule by technocrat, regardless of whether they’re MMT oriented or neo-liberals to the core, is never a good thing. MMT can help governments achieve their aims, but it’s not magic fairy dust that can make governments do the right thing (whatever that is).

  30. John Doyle
    May 5th, 2017 at 15:48 | #30

    Just subscribing!

  31. Ernestine Gross
    May 5th, 2017 at 20:36 | #31

    @BilB

    “I don’t understand the quantitative easing mechanism, but the end result was putting money back into the US economic system.”

    I am not sure there is a unique mechanism, which characterises ‘quantitative easing’. The finer points seem to me to depend on the particular institutional set-up of ‘the economy’. Quantitative easing since the GFC amounted to a monetary authority buying debt securities (even some equity I understand) that was issued by the private financial sector but denominated in official currency units (eg US$). In exchange for the debt securities, the sellers obtained other financial securities – cheques written by the monetary authority, either directly or via financial institutions who carried out ‘money transfers’ – cheques or electronic. In this sense, you are quite right in saying ‘money was being put back into the economy’. So, what is ‘money’? Junk bonds – at values lower than their face value one would hope – were exchanged for official currency units – to keep financial institutions from going bust. Which raises the question: What is ‘the economy’? People who lost a lot of their superannuation ‘money’ (value) didn’t get the official currency units, etc. etc.

  32. Jordan from Croatia
    May 6th, 2017 at 03:10 | #32

    Ernestine
    Money going to banks is not same as money going into economy. Money can stay inside banks just as it was the case with QE. It just filled up bank reserves and it stays there making interest that CB is paying banks interest on excess reserves.

    MMT says loans are new money, reserves are created when those loans are deposited back into the banks. Reserves are not loaned, so banks do not need reserves to be able to loan new credits. But, CBs went with that logic to excuse their giving money to bankss, paying face value to bad assets.
    CB took bad assets and with it became the biggest bad bank as when they split banks into good and bad banks. CB carries bad assets now.

  33. Ernestine Gross
    May 6th, 2017 at 08:58 | #33

    @Jordan from Croatia

    My comment does not belong to the MMT discussion and I don’t wish to enter MMT discussions.

  34. Jordan from Croatia
    May 6th, 2017 at 11:15 | #34

    Yet, anytime you mention banks and money you enter MMT domain. Since mainstream economics have no knowlege of banks and money (don’t even allow discussion if it) the best you can say is “hope” as in “i hope they did not pay face value”, hopefully QE will push more lending out, negative rates will hopefully force banks to do more lending…
    That is mainstream talk on banks

    You do not wish to enter MMT discussion, yet you enter it all the time but on the level of a layperson.
    And also talking about economics is in MMT domein since it talks about money and mainstream would like not to talk about money and how it is created. Mainstream economics is mostly about barter and refuses to acknowledge that todays economics is about money-debt-barter economy.
    You wont be able to stop knowledge about money and banks enter the public discussion.

  35. Ernestine Gross
    May 6th, 2017 at 15:27 | #35

    By a suitable definition of ‘mainstream economics’ you can include or exclude any body of literature to substantiate your claim regarding MMT.

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