LateMechanic
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User ID: 1841
MMT is propably not a popular position here.
That is definitely the case, but I would be surprised if anyone could do the t-accounts for various government & banking accounting operations and actually put the liabilities & assets on the correct sides, etc. Even most economists mess it up completely. It's just not something most people learn or care about. My guess was definitely about US officials and how their actions may be explained by their private knowledge, rather than an estimation about our forum members' beliefs.
The rest is the same thing in different words. And as for that.
Identities are a basic check to make sure you're not getting something totally wrong. If you think the government deficit is a bad thing that should be reduced, you have to explain why you think that of the non-government surplus as well. It is quite literally the same thing. As Kelton said in that presentation, people goof up on this all the time. The WSJ in the late clinton years proudly proclaiming in one column "isn't this wonderful? This is the longest sustained budget surplus since 1929!" while the next column over is hand-wringing "this is very worrying, the private sector savings are plummeting!".
Why is inflation correcting it?
When collectively the private sector has more monetary savings than we want, we will value money less and increasingly try to spend it away - the hot potato effect. Prices will get bid up high enough from this economic activity (falling value of a dollar) until we have the correct/desired amount of savings again. Or before that, the increased economic activity will cause the excess monetary savings to get shed off in increased tax payments (monetary destruction, IOUs returning to their issuer).
So taxes being set at rates instead of flat amounts is therefore one of our main automatic stabilizer policies (the other being safety net spending): the government deficit automatically shrinks & grows depending on the state of the economy. Demand-pull inflation is the final relief valve after that, re-valuing money downward until we have the amount we want.
LateMechanic
1mo ago
The point of me saying this was that in that situation you should put more effort on justification.
Yep fair enough, my initial 2nd paragraph was kind of declaring things outside the point of the rest of it. That was trying to punch up what people might 'know' which I think are incontrovertible, without going into subjective policy implications.
None of this describes an actual problem with inflation. It says that inflation will automatically regulate away any excess borrowings. Why then not set taxes to 0, and just let the inflation run its course?
Having some amount of taxes is what gives the currency an initial anchor value. Those taxes being levied broadly and reoccurring every year is what makes the money universally accepted and used even in the private economy. The currency is an IOU where the only thing 'owed' upon redemption is tax relief. If you levy no taxes, then inflation definitely will regulate the value automatically to the desired savings amount of 0 (give or take some inertia).
Is there any reason this is unique to the government? Or is my deficit also literally the same thing as rest-of-the-economy surplus? Because if it is, then it seems noone else should have objections to me borrowing indefinitely, either - it just makes you better of!
The only thing unique to government is the ability to levy taxes (backed up by force). That's what allows them to indefinitely print up IOUs that promise to pay nothing but an abstract amount of value in a unit of measurement they make up, and people will still line up to earn those IOUs (working in the army or wherever).
The generalized logic is: "you will always value your creditor's own debt". Because you can cancel out the debts with each other. The government can decree that it's a universal creditor to everyone (everyone owes taxes, abstract amounts of value payable in nothing). Thus enabling it to actually simultaneously be a universal debtor to everyone (issuing IOUs far exceeding the tax liabilities, if people are willing to save some for a rainy day).
You can write any number of IOUs that say "I owe the bearer of this note 1 apple", and use that new money to pay for things. Maybe only people in your neighborhood will accept it (also helps if they know you have an apple tree in your yard, and that there aren't too many outstanding notes to enable a run on your apples). If you write "I owe the bearer of this note $1", then some people (particularly banks) may accept it as valuable if they trust your creditworthiness. Your deficit is indeed definitely everyone else's surplus, if splitting the economy into those 2 sectors is useful to any analysis. So we (in the non-Lykurg sector of the economy) do benefit. The only problem is you run out of creditworthiness before we get very stimulated.
Why would they not want more? You demand that I explain why we would ever want non-government surplus to be less, but now you just assert that it will be the case.
Well, would you be happy holding millions/billions in checking/saving/bond accounts, or would you be tempted at some point to start buying stocks, yachts, and islands instead? It seems that most people tend to have savings targets to hit, after which they feel more free to spend any excess income. And their preferred asset allocation of savings maxes out at some desired amount of monetary savings.
But indeed, the government deficit could certainly be eleventy zillion dollars, if it were to end up in someone's account that has an infinite savings desire who wouldn't touch it. In the MV=PQ identity, that would be money increasing but velocity falling off a cliff, causing no effect on output or price level.
And I didn't say that there's no reason to want to shrink the government deficit, just that it does take an explanation. I could say that I do want to shrink the non-government surplus in hypothetical situations, if we're having obnoxious levels of inflation, maybe caused by too much government spending being indexed against the price level (causing a positive feedback loop that prevents automatic stabilization).
Finally, we indeed have basically never had much demand-pull inflation in the modern era of democracies with proper central banks using fiat currency (since the early 20th century at least). The bouts of inflation are usually better explained as cost-push, often from energy price shocks. The central bankers take credit for being wizards and steering the economies well, but it's probably those fiscal automatic stabilizers doing the work.
LateMechanic
2mo ago
I just watched The Birth of a Nation (1915). Despite having a shredded attention span for movies typically, I found it pretty compelling and surprisingly watched it in just a few sittings (same thing I found with the Napoleon silent epic from the 1920s which was even longer). Just great expressive acting, scored well, with a story that flowed at a solid pace (and from a perspective that I can imagine inhabiting, but hadn't seen before). And I can guess how especially impressive some of it was for the time. Though the actors playing mulatto characters were maybe hamming it up too much as the villains, and seemed like they thought they were in a different movie (or maybe the director really wanted to sell that angle).
Given our forum members here, does anyone know of any heterodox witchy takes about the KKK? Are most people fairly accurate in seeing them as shallow dumb racist terrorists, lashing out while hiding their identities in cowardice? Or is that more like history being written by winners, where there was actually more to engage with, some higher theory of mind, like what this movie is trying to portray (revenge, fighting back, or maybe even beyond that)? Back in the day I had the basic high school AP US history, but apparently everything between the civil war and the great depression didn't make a lasting impression, because I find myself really not knowing anything about reconstruction, 'radical republicans', etc. In general I find that time period pretty interesting & appealing, with Monet impressionism, Dostoevsky & Arthur Conan Doyle books, and post-civil-war-set Westerns being most interesting. Just have no idea about the US South vs North around then I guess.
Or failing that, does anyone have any movie recommendations in any similar vein? I used to think of silent movies being mostly slapstick comedies which weren't even that funny, but these two epics I mentioned were great. Or related to this movie in other ways, I tried watching Gone With the Wind and Triumph of the Will, but got bored of both after 10-20 minutes (will give them another shot at some point). The 2012 spielberg Lincoln movie was great too, for DDL acting, and it seems like the Tommy Lee Jones character was rehabilitating the similar character in Birth.
LateMechanic
1yr ago
I think too many people in power have learned from MMT how money, banking, and government finance actually works, so it would probably take a few generations for people to forget those again for debt-hysteria to strongly return. In addition to the plain logic, all the evidence is that strong fiscal policy is the answer to extreme economic crises, rather than a target for blame.
Even the eurozone seems to have learned that their anti-fiscal-policy stances were a mistake and caused the first big crisis to flatline growth for the last 15 years. So the Maastricht 3% deficit limit is finally being scrutinized and softened to allow for better counter-cyclical fiscal policy. And in the US we've gone from Obama being confused and thinking he needed to fly to China to make sure they'll still 'lend' us money, to now the massive covid stimulus packages without a peep about becoming Greece or bankrupting our grandchildren.
Now the conversation is more correctly about inflation instead of solvency. And while regular people do hate inflation, even way more than is warranted, I'd guess that's too nuanced and subjective for much support of a constitutional amendment around debt/deficit.
LateMechanic
1mo ago
Ill note that you still havent explained why too much inflation is bad, or how we would know what "too much" is.
I assume you're not asking for the various downsides of inflation in general and why people find it annoying when it's above some small amount like 1-2%? My original statement was that people should have the properly oriented mindset, where the problem of 'too much government debt' is along the lines of 'too much of a good thing'. The 'good thing' here is the money in the private sector, not inflation, if that was the confusion. This is all in contrast to most peoples' gut notion that "deficit" and "debt" sound negative and bad and worth minimizing on their own.
I agree that the taxes give value to the IOUs, but I dont think the made up unit gives you all that much long-term
You don't think the US making up their own 'dollar' unit of measurement is too important? You must be on some kind of galactic time scale here for what long term means. This is surely one of the most important things about being a sovereign nation, creating and issuing your own currency.
Unless you can somehow inflate above expectations indefinitely, in the long term you need to tax back what you borrowed plus interest in real terms.
Again, maybe I'm not thinking long term enough. But in the US, we went into millions, then billions, now trillions. Should we find the tens of trillions a special number, such that we wouldn't expect to see quadrillions? When and why would they ever need to 'tax back' this amount? The IOUs just roll over indefinitely.
There is no reason to borrow unless your position as the government gives you investment opportunities above market returns, youd just pay interest for no good reason.
Yeah once you recognize that all money is just transferable credit, you will notice that there is basically no economic difference between central bank reserves and treasury securities. So rather than one being 'money' and the other being 'borrowing', they are actually not 'borrowing' at all. They are just creating money in different forms. This fact has dawned on people like Larry Summers a decade after central bank reserves started paying interest just like treasury securities.
As for paying interest, it's purely a policy choice to pay anything other than 0% on any of these IOUs. It's a government subsidy to savers: they will give you more money for having money. There are various macroeconomic effects for any chosen rate. Currently the policymakers in charge think choosing to pay a higher interest rate is on balance more constrictive than stimulative, and think that low rates are on balance more stimulative.
LateMechanic
1mo ago
Im asking for some kind of real economic cost; "Its annoying when the prices are different than I remember" doesnt count, no.
You could look it up, it's not my argument. It's good enough for me that most people hate it, so let's avoid it. It's fun when nickels are worth picking up off the ground and can get you a coke.
If you dont pay enough interest, people will stop lending you money.
When you have your own currency and central bank, people don't 'lend' you your own money at all. You can print up IOUs and tell people they pay 0% or 150%, up to you if you want to subsidize savings.
Well, you said that the difference between me and the state is that the state can tax. If it doesnt actually need to do that, then whats the difference?
I said the government levies 'some' taxes every year, reoccurring indefinitely, broadly on everyone. That provides a perpetual anchor value for the government's debt, understood universally, even though the amount outstanding can continue to rise (if people want to keep accumulating it for the future, for a rainy day, to pass down to their kids, whatever).
That doesn't imply anything about somehow taxing it all back and paying it all off or whatever, at some unspecified jubilee judgement day where we have to unwind everything.
LateMechanic
1mo ago
MMT is mainly about describing how fiscal policy and money itself works, and it apparently has been essentially the same throughout human history. The word 'modern' was a joke from a Keynes quote about "the past 4000 years, at least". Mesopotamian temple accounts, European tally-sticks, various stamped coins, etc. Always money being transferable credit, and dominated by credit from the authority of the day. It's how you would bootstrap a monetary economy into existence, whether you're talking about a hippie commune, a Lost desert island situation, or a new nation, without relying on any circular reasoning "lets call this seashell money: I value it, because someone else will value it, because someone else...". Using the authority's power of taxation (and power to punish/expel those who don't pay) to give value to money is an imposition, but it appears to be the least barbaric method for organizing society we've come up with so far.
Monetary policy as the business of setting interest rates, isn't of that much concern to me. I think they've landed on basically sane goals of desiring slight inflation over time, and a policy regime of simply paying interest on reserves to set the base interest rate (much better than the pre-2008 system of open market operations). I would like to see them just set the interest rate at 0-1% and leave it there forever, as I don't think there's good evidence that it controls inflation or the economy like they wish it did, and I think interest payments are maybe some of the worst government spending.
But have you sit down for a second and asked yourself if that's a good thing that it works like that or not?
I was basically a libertarian before I learned MMT and became a normie, although I never really had that core furious uncomfortability that someone else's decisions can affect 'my money', which seems to really animate some people in these questions you're raising.
The whole current system especially in the US is downstream of hundreds of years of business interests, ideological libertarians, and others clashing over precisely the kind of political questions you listed. The core economic logic is actually extremely simple, but there are a million self-imposed constraints, strange terminology, and extra steps between it all (leftover from the gold-standard era mainly, but it's been through a lot).
And most importantly, what happens to all this the day that people stop buying US debt no questions asked?
It's almost purely a charade that they pretend the market has a role in buying US debt. 'Almost', because they currently do like to take the temperature of market predictions on longer-term securities, and let those rates up the yield curve fluctuate with market sentiment. It's a self-imposed constraint that the treasury and central bank are separated, a self-imposed constraint that the treasury can't go into infinite overdraft on their account, a self-imposed constraint that they can't directly swap liabilities with each other, etc. After WW2 when they re-imposed that last constraint, the Fed chair Eccles told congress exactly that the market plays no real role and that it was a charade, but they re-imposed the pretend restriction anyway for the optics.
The current system of maneuvering around the laws in the US is that the central bank contracts commercial banks as 'primary dealers' who have an obligation to make sure every treasury bond issuance goes off perfectly without a hitch at the chosen policy rate. No bond vigilantes get a say in the process.
LateMechanic
1mo ago
when weighed against "prosperity beyond what anyone can imagine" they dont weigh especially strongly. Could you at least link it? MMT has lots of cranks that will be dismissed as not representative.
OK so you were asking "why inflation is bad" from an MMT perspective? I don't know that there is any unique take, it's not part of it. MMT is a description of how money, banking, and government finance actually works.
If you wanted a pitch about how inflation 'isn't really bad', then sorry, that's not part of it. I added my own spin about how inflation is obviously a dynamic self-correcting mechanism for too much savings, and that the only way you get accidental persistent or accelerating inflation rather than it being a relief valve is when too much spending is indexed to the price level (maybe some part of the problem they had in the '60s).
Mosler's "prosperity beyond what anyone can imagine" is referring to perpetual full employment in a productive capitalist system. That was in 2012 where they were looking at the massive "output gap" of where GDP was going before the recession and how far it got knocked off trend by heavy unemployment -- just a complete waste of human potential.
I also have 'some' income outside taking on debt. I can commit to spending part of it on buying back my own IOUs/debt service in the future. Indeed, my nominal income increases with inflation and economic growth, so this is in many ways like a relative tax. Also assume I live forever.
The tax isn't just an income flow. It's forcing everyone into a debt relationship with you, where if they don't pay, you will put them in jail using force. In the past, authorities may have used fees, fines, tithes, sanctions, whatever. If in your hypothetical, you could live forever, and you could force people into paying some amount of your own IOUs back to you or else you will credibly use some level of violence against them, then certainly they will find out what they have to do to get enough of your IOUs, and maybe even some extra if they want to save some or trade them with others.
Now can I blow up my debt to infinity? Propably not; propably there is some mechanism tieing the debt amount to the size of the tax base/income, but what?
It's just the amount that people are willing to have as savings. The government's debt is the non-government's net money supply ('net', because the private sector can also expand the money supply with their own debt & credit, but that all nets to 0 as a whole).
If you incentivize savings, like with pension funds or whatever, maybe your country will have a higher aggregate savings desire, and your government debt will have to be larger in order to maintain full employment. If you instead have a culture and policy where people live comfortable retirements without requiring any personal savings somehow, then maybe there would be extremely low government debt. If you're Japan, and the population has a very low participation in the stock market after the '90s, then the government debt & deficit are likely going to be huge to satisfy the desire to save money. New money being pumped in will quickly fall out of circulation and end up inert in someone's retirement savings account.
The government doesn't need to care about the size or whether it's growing or falling. That's all value-free, neither good nor bad. It's not like the desire is to see how large the debt can grow. Private savings are a 'leakage' from the economy, like net imports. The government has to step in to make up for that if you want to stop the paradox of thrift and keep the productive economy running at full effectiveness.
Then unlimited real growth of debt would mean unlimited real growth of GDP, or an unlimited willingness of people to sit on cash and never spend it. Neither is realistic.
Yep. That's why once you understand how it works, the basic outlook changes from thinking about "sound finance" (thinking there's a budget constraint that has to be balanced either short term or over some longer cycle, and thinking that monetary policy of tweaking the interest rate and composition of savings is the main policy tool) to "functional finance" (seeing unemployment as evidence of too small of a deficit, and demand-pull inflation as evidence of too large of a deficit, where fiscal policy of taxing and spending is the main policy tool and monetary policy not mattering much).
Well this was the next in the line of huge-budget remakes of their mega classics on the level of these, which had actually been insanely successful for disney (including Aladdin's 1 billion which I'm surprised you describe as not working):
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(2014) Maleficent - $750M, budget $180M
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(2016) The Jungle Book - $970M, budget $175M
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(2017) Beauty and the Beast - $1.26B, budget $160M
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(2019) Dumbo - $350M, budget $170M
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(2019) Aladdin - $1.05B, budget $183M
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(2019) The Lion King - $1.66B, budget $260M
- (2023) The Little Mermaid - ~$400-550M (expected end result), budget $250M
There are also some smaller ones, and a maleficent sequel, but The Little Mermaid was expected to be on the Aladdin/Lion King/BatB level.
So it was definitely expected to be doing far better, and not at all the case that 'nobody wants' these. One argument is that peoples' appetite for these remakes has finally dried up, and that this movie's box office is paying for the lion king's sins of being weird looking. And that this was the first of these without major star power. But the negative/international feedback does seem to heavily center on the race-swap ('she doesn't look like ariel from my childhood') and on the creepy realistic animal friends.
LateMechanic
2yr ago
And on the other side, there's all sorts of evidence of other countries & currencies which also set 0% interest rates, that didn't experience any of the same kind of supposed wealth effects / asset bubble frenzy. 'Cheap money' is an attractive concept for building narrative explanations, but there just isn't such a slam dunk case for interest rate policy impact.
LateMechanic
1mo ago
"It says here in this history book that luckily, the good guys have won every single time. What are the odds?”
Not sure you're following the point, that was saying that we have a goofy system precisely because different people have been trading off who wins & loses all the time. Especially in the 19th century the winners didn't exactly know what they were doing (constant boom & bust cycles with many severe depressions).
"Primary dealers" of monopoly money can surely not fail in delivering it to the US government, but how exactly does that translate into food rations for GI?
The government prints up some IOUs called treasury securities, and swaps them for some other government IOUs called central bank reserves, in a primary dealer auction completely unencumbered by "people choosing to buy debt". Then they use those IOUs (widely called 'money') to spend and/or give to people out in the economy, who are willing to trade goods & services for those IOUs. These government IOUs are valuable because they're the only way to settle your taxes that the government declared that you owe.
If that sounded like gibberish to you, well I already said most people don't understand the monetary system and never learned about it. If you think there's "a" world reserve currency conferring special status to a single country, that does explain where you're at, but the basic logic I just laid out also applies to other countries that issue their own currency.
LateMechanic
4mo ago
In a way, this realization is liberating. It puts you at peace. You understand that the problem will never be solved until a fiscal crisis occurs.
And the next step, for even more complete inner peace that lets you sleep like a baby at night: realizing that the government's deficit is the private sector's surplus, which most people find desirable and wouldn't want to cut. That's why we run government deficits for centuries, because the private sector likes accumulating net savings over time.
I think we're still in mistake theory territory with some true believers like Musk who thinks government debt is "our" collective debt, which would somehow be an existential problem soon. But unless things really ramp up dramatically with DOGE with congress's backing, it's currently still thankfully mostly beating up the ideological opponents with the current small cuts.
LateMechanic
1yr ago
This is rather MMTers poking some fun at other supposed macro experts who don't actually have a correct clear grasp on how money or government funding works. He kept tripping over his words because his intuition was leading him astray, so "government prints money and then lends it" kept coming out. The correct, clear, simple answer is that government prints money in the form of bonds every day, and swaps them with central bank reserves where appropriate (like swapping between $100 bills, $1 bills, and quarters where appropriate, perhaps when trying to ride the bus or go to the arcade). The only clash is that people have pre-existing non-sensical stricter definitions of the word "money", so MMT generally prefers to sidestep a language intuition issue and just refer more broadly to what matters, financial assets.
It's already been nearly a decade since mainstream economists stopped trying to say MMT is wrong, and switched to "we knew that already", so I guarantee you MMTers aren't saying something as obviously wrong as "we can print as much money as we want without worrying about inflation". And it's MMT who has pushed better & better verbal explanations to laypeople of all those interlocking balance sheets in IGI's linked NYFed diagram.
LateMechanic
1mo ago
conventional theory is that borrowing is less inflationary than money printing. Do you disagree?
Definitely, primarily because the separation is just incoherent.
In the conventional view, you call central bank reserve account balances "money" which is evidence of "printing", while you call treasury t-bills "debt" which are evidence of "borrowing". But they are both are just government liabilities which promise to pay nothing in redemption other than other government liabilities, and which pay the policy rate of interest. To make it funnier, these are literally both types of accounts that the central bank runs on their books, because the Fed does the banking on behalf of the Treasury. You can call them checking & savings accounts at the government bank, although they pay the same interest, and you can freely swap between these accounts (you're never 'stuck' holding them). To call only one of these accounts "money" takes a special kind of incoherence.
Physical paper/coin money cash is just a bearer receipt version of the electronic reserves. That's the only government money that doesn't pay interest now, as a tiny fraction of the money supply, held for some types of convenience.
The MMT people often try to be more precise and avoid the word 'money' because it can lead to confusion sometimes, but I just plow ahead and risk it. The clear definition of money from what we use now and even throughout history is "transferable credit". So we can just talk about money as IOUs. Someone issued a financial liability, which someone else gets to hold as their financial asset. A bank balance is your valuable asset because it's the bank's debt. A reserve account balance is the bank's valuable asset because it's the central bank's debt. A $5 bill is your asset because it's the central bank's liability. Always credit-debt relationships, the issuer owing the holder.
So I'm perfectly happy to call the outstanding reserve balances part of the "government debt", just like I call treasury bonds/bills/securities "money". These are all both money and debt.
So issuing/printing new reserves or issuing/printing new t-bills, which are nearly perfect equivalents, no, they would not have different inflationary impacts. The size of the government deficit is the size of the amount of money being printed, and it always has been.
Many mainstream economists like Summers & Krugman got to this a bit late, in the 2010's, when they reconsidered that 0% government debt instruments were essentially 'money'. So they started reconsidering what they thought they knew about 'monetizing the government debt' and QE, etc. I'm not sure if they ever caught up to the fact that in 2008, central banks switched to paying interest on reserves directly, making 'money' look just like securities even when we're not in a 0% interest environment.
So far, youve shown that just printing the deficit gets you the same effect as cutting expenditures to balance the budget, with some inflation along the way.
But in the previous model, there is no ongoing deficit in the equilibrium youre inflating towards.
I'm sorry I couldn't really parse what you were saying in these 2 paragraphs. That balancing the budget was the same as running a deficit, or somehow it had the same outcome in a particular way?
And in what way is the equilibrium of your strategy better than just spending enough for full employment, and raising taxes to balance the budget?
Well if anyone is ever saving money, then by identity someone else must be dis-saving an equivalent amount (running down prior savings, or just issuing debt). Because it's all zero sum. In aggregate, what we find is that people like to accumulate monetary savings over time (even with populations that aren't growing I think). So unless your hypothetical has some way to stop that, that saving is a leakage in aggregate demand which will not let you get to full employment without the government being in deficit to supply the desired savings. A government balanced budget means they are draining out exactly as much money as they're injecting in to the economy.
LateMechanic
1mo ago
Yet issuing more Treasuries and then wasting the proceeds is not sustainable.
But what are the 'proceeds' in your formulation? They issue a government liability that pays the policy rate, swap it for a different government liability that pays the policy rate (central bank reserves), and then spend it. There is no difference between reserves and treasuries, so calling one 'money' and calling the other 'debt that requires backing and an ability to repay' is only serving to confuse your thinking.
It's akin to printing up a new $5 bill, then exchanging it for quarters because that's what the arcade takes. No more or less money in any form. They can print as many central bank reserves or treasury securities as they want, so 'repayment' is a non issue. Inflation is the only relevant concern.
LateMechanic
1mo ago
What will inevitably happen is that some lefty will use this bullshit to do what they always do and spend with abandon until collapse.
That seems to be the driving fear, although we've never seen it happen in a productive democracy. In the real world, regular people seem to hate inflation so much that we almost always err on the other side: too much unemployment from taxes being too high.
It will not be like greece, who was bailed out by the nordic german taxpayer (while being decried as evil austerites), more like venezuela.
It would definitely be weird if the US ended up looking like a country that gave up their own currency or a country that relied on a single export while borrowing in a foreign currency they didn't control.
LateMechanic
1yr ago
MMT just gives the descriptive reality & logic of how things work now and throughout history, including how the base interest rate is simply a policy tool to subsidize savings (which can be set at 0% any time we desire to not pay that subsidy). Argentina is currently serving as a good example of why giving savers free money, in proportion to how much money they already have (increasing the interest rate), is probably not the tool you're looking for if you want to combat inflation (shocked pikachu there). As for the USD inflation, it appears that most currencies around the world experienced about the same cost-push inflation coming out of covid, while having fairly disparate levels of counter-cyclical fiscal injections and unemployment levels, so it's not as obvious as it may seem.
The Greece point is that the conversation was simply incoherent just 10-15 years ago, but has moved significantly toward productive correct debates about the preferred size of government and inflation constraints, rather than a fear of large numbers and negative-sounding words debt & deficit. So that's my prediction that the world is moving farther away from arbitrary limit rules on those, rather than looking to embrace the wisdom of Germany in 2009 or 1992.
LateMechanic
1yr ago
Just noting, something in the last day or so broke that collapse/uncollapse functionality on this waterfox classic browser (both the +/- signs and the vertical bars)
LateMechanic
1mo ago
What if people refuse to use your currency to trade goods and services? What if they tell you to fuck off when you ask them to pay you your own fun bucks?
This entire scenario is specifically about what happens when your power to enforce the privilege of exchanging debt for ressources ends.
Money is debt. So that would be inflation, which was definitely covered from the start. That is absolutely the relevant constraint on government deficit spending.
As far as the exchange rate goes: in the very worst case scenario of your exchange rate suffering, you can always at least import as much as you export. That's true whether you even have your own currency or not. But if you have a currency that foreigners are willing to save in (a world 'reserve currency', which basically all currencies are to different degrees), that just allows you the luxury of importing even more than you export (not necessary, but can be nice, although then your exporter businesses might start bitching about your country's 'trade deficit', so it's not all roses).
What happens when US treasuries are no longer viewed as the most risk free investment vehicle in the world and are replaced by something else and demand craters?
As I tried explaining procedurally above, it doesn't matter a single iota whether there's any market demand for treasuries. That's the charade part of it. The government effectively is just printing money as they deficit spend, and they always have been. They print the money, they set how much interest money pays (if any), and we have to get the government's money regardless of anything, in order to pay taxes.
If the king wants something done, he levies a tax on the subjects. Then he prints up some tally sticks, and pays them out to people to do the thing. Then they pay their tax, and he burns the tally sticks. Same with colonial american paper money: levy a tax, print up some stacks, get the work done, then shred the money as it gets paid back in taxes.
LateMechanic
1mo ago
Im not entirely on board with treating a simple dollar bill as an IOU. [...] is not a financial instrument
It's a bit strange to think about, without being redeemable for gold or anything, but that is what it is. Cash notes are financial liabilities of the central bank on their balance sheet: https://www.federalreserve.gov/monetarypolicy/bst_frliabilities.htm
The UK pound paper notes even still literally say they are promissory IOUs on them, with the queen or king announcing "I promise to pay the bearer on demand the sum of five pounds". You can't redeem that value in the form of anything other than another one, but yeah it's still an IOU which exists simultaneously on the issuer's balance sheet as a liability and on the holder's balance sheet as an asset. You're holding paper evidence of the government's debt relationship to you.
Other question: If the government borrowed in a foreign currency or gold rather than dollars, would that be inflationary?
If by borrowing in a foreign currency you mean they create an IOU promising to pay (for example) a billion yen in the future, and swapped that with some bank like the IMF for actual yen notes or credit which they then spend: I guess it would be potentially inflationary to that other currency. What adds inflationary pressure is any actual spending. I can't think of what borrowing in gold would mean.
I also notice that you never say whether somethings is in nominal or real terms, whats up with that?
Well everything is just nominal in reality and in accounting. Anyone can always inflation-adjust or gdp-adjust any particular numbers when they feel it's relevant to some particular analysis, like doing comparisons over time or across countries, etc.
First, I dont think this leads to full employment necessarily.
Yeah I mean just increasing the deficit on any random spending or tax cuts will probably juice the economy up to a certain point like 1-3% unemployment, but it would take something more targeted to try to even go beyond that, somehow minimizing transitory/frictional unemployment, without generating inflation. Can depend on how strict you want to be about the term full employment.
Second, even if savings increase over the long term, there will be fluctuations. If a lot of people suddenly want to spend money that youve already spent for them, what happens?
Definitely, it fluctuates even daily. By the nature of having decent "automatic stabilizer" fiscal policies, people suddenly choosing to spend down their savings would result in tax payments going up, safety net spending going down, and thus automatically shrinking the government deficit (maybe even driving it into surplus).
Last, people want savings, but why would they want dollar denominated savings over non-monetary assets? If people just buy index instead of sitting on money, does that already do what you want to do?
Yeah personally I have almost no appetite for monetary savings, I dump it all into non-bond index funds. I'm not sure what you mean about what I want, but yeah the analysis would be that incentivizing saving in other assets like stocks & real estate surely ends up meaning the government won't end up running as large of a deficit (no need to counter savings leakages). Again that's mostly value-free, so I don't call it good or bad.
Some people have complaints about asset price inflation, where it's not that the value of money is falling compared to goods & services, but where we're all plowing endlessly into the stock market like a clown car, bidding it up constantly. But I'm not sure about that.
Yep I get it, and I'm resigned to using different browsers for a few sites that break over time. Just seems crazy that simple things can be incompatible, but I don't know my way around javascript or github to spot how after working forever, now onclick "collapse_comment" reference could be not defined for me starting ~2 days ago. edit: I think a version update will fix it on my end, so all good
LateMechanic
2yr ago
I couldn't avoid searching 'richard stallman dancing' after reading that, and wasn't disappointed.
LateMechanic
1mo ago
So you're just going to repeat back MMT to me as if I haven't read Tcherneva and never heard of chartalism?
On the other side of the dunning-kruger scale, this is loudly announcing 'I looked up the wikipedia page'. And I'm not just repeating MMT back to you. I answered your precise first question by showing you how the actual government finance operations work in the US, with a link to an official testimony people find a bit shocking and interesting if they know anything about what's being discussed, and you thought that sounded like monopoly money that 'nobody gives a shit about'. You can't really be helped if you don't know the first thing about any of this.
Come on, at least engage with the idea of a debt crisis.
all I see from MMT proponents is a total faith in the impossibility of default or hyperinflation.
Involuntary default in your own currency that you issue? Definitely impossible. Inflation? I already started with that covered as the real constraint.
What if I start paying your military men in the new harder currency to loot your country?
Getting your state looted by foreign creditors is a real thing that really happens to people.
Ok, we're nearly up to countries can go to war with each other. Can you try to tie this back in to the fiscal responsibility of US republicans & democrats? Do you have any prediction about the timeline of the US becoming Russia?
The fact that they historically descend from IOUs and there are some conventions left over from that time does not tell us "what it is".
Here's a chicago fed piece that tries to describe it one way, if you like this "But currency is a liability to the central bank that issues it—a promise to stand behind the currency’s value in the future.".
It's just easiest for all the accounting and understanding, to see it as a bearer physical receipt version of the general electronic account credit (rather than the other way around, seeing the electronic reserve balances as promises to pay the physical version). Just all as types of credit from the central bank, which no longer promise redemption into anything, other than abstract value that is accepted by the government for relief from taxes/fees/fines/tariffs/etc.
I agree it's possible that you could do the accounting in other ways, and in fact I think maybe coinage in the US is in a weird spot like that, technically (like they are a liability of the treasury instead of the fed, or even that the treasury doesn't recognize them as a balance sheet liability maybe).
Again, what actual reality stops the fed from listing all yuan as its liabilities?
I'm not really sure what that would mean. Without it actually being a real liability, you could just say it is and that their balance sheet is in a massive capital loss in a fake way?
Technically, what actually stops that in the real world is that what the Fed can do is precisely limited by what congress has allowed in the Federal Reserve Act. But yeah congress amends that plenty throughout history.
Someone gives me 100 gold, and I commit to giving him back 104 gold in a year.
OK yeah I guess that's a gold bond or practically commodity-futures trading. If writing that "IOU 104 gold at x date" note enables any extra normal spending that you wouldn't have otherwise done, that spending would have some inflationary pressure on prices of things you buy. Because again it's the spending which is the relevant thing.
I asked about this because before you suggested employment as an indicator for the right deficit. Do you have any suggestion for something that directly tells me when the appetite for monetary saving is satiated?
It's something you observe after the fact. I think in the original transcript post I made at the top of this chain, mosler called it 'you count the heads of the people in the unemployment line', and you also see what is happening with the price level week by week, month by month, seeing if it starts ticking up.
The mainstream econ version of this, at least 20+ years ago, was called NAIRU: the non-accelerating inflation rate of unemployment. The level of unemployment below which any extra pushing just gives inflation. But they were treating it in a very strange way, trying to assume and make predictions about it ahead of time "maybe the nairu is now 5 or 6 instead of 7, can we allow unemployment to keep getting lower before we jump in and cool things off?". That posture is only explained if you think you're going to accidentally tip into a spiral which is hard to escape from (which was never borne out).
There's multiple ways to count unemployment, but the basic headline unemployment rate can definitely get down to 2-3% with no inflation, it seems from maybe the last 50-100 years. It's a bit hard to say because policymakers have usually been so cautious that we barely have any experience with demand-pull inflation (usually there's some type of cost-push supply side explanation for inflation). Probably the best evidence would be re-examining the '60s and what mainstream keynesians found trying to push for full employment.
Im very curious what an economics looks like where you avoid these indefinite future end arguments generally, rather than just in this one context.
I suppose it just looks more like just looking at the real world. As they say, the long run never really gets here, we are always in a series of short runs. The actual concrete accounting, logic, and plumbing seems much more useful to nail down and understand first, before starting to build more & more elaborate models on various assumptions. I bet it would probably be a fun job to make DSGE models and papers about theoretical risk-adjustments if you can find someone to pay for them, coming up with new tricks and techniques and assumptions. But I'm not too impressed with the real-world understandings & predictions of most equilibrium thinking, whether in econ or finance. I liked this Keynes quote, compared to Barro-style ricardian equivalence type stuff:
In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.
I've said this before, but I'm pretty sure a lot of members of congress have learned at least some MMT stuff about banking & government finance accounting. They pretty much all still use the deficit, debt, and fear of large numbers as rhetorical weapons against their opponents when out of power. But we seem to see fewer people than ever signing up for the mistaken sucker play of being in power and actually crashing the economy with austerity. Maybe more senators than house members understand the reality; surely more democrats than republicans have been incentivized; and definitely more congressional aides and rank&file treasury/fed people know how the financial plumbing works compared to elected & appointed officials (but in the US in particular, these types seem to effectively be able to get the word out to stop politicians from wrecking things usually). This time around, Trump even potentially had Elon as a perfect fall guy to take any blame, if Trump actually wanted to cut the deficit (luckily he didn't).
To be economically literate, one would have to know that saying the government deficit should be cut is identical to saying the non-government surplus should be cut. Or that the government's debt is not "our" debt, it's our asset: the government is just a balance sheet entity we made up, which we use to emit IOUs that we (the actual people) get to hold & use. It's much more akin to a scorekeeper, tracking the points everyone has. The national debt is essentially the net money supply, and that money is being created by running a deficit (constantly for hundreds of years, with no reason to stop if the people keep wanting to accumulate monetary savings). Government deficit & debt are good things, and the only problem is along the lines of 'too much of a good thing' (inflation, which is the self-correction mechanism).
I think MMT was especially catching on amongst politicians around like 2018-2019. The inflation of 2022 probably put it on the backburner for awhile. But even back in 2012, here they are talking about how a load of congress members understand things but just can't say anything publicly: https://youtube.com/watch?v=ba8XdDqZ-Jg&t=1h4m25s
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