My understanding is mmt fully recognises the fed creates a liability when they by bonds.
Not in the MMT stuff I have read. For example, here is what the MMT god, Warren Mosler, writes in his pamphlet "SEVEN DEADLY INNOCENT FRAUDS OF ECONOMIC POLICY" which you have recommended people here to read:
Quote:
Imagine you are expecting your $2,000 Social Security payment to hit your bank account, which already has $3,000 in it. If you are watching your account on the computer screen, you can see how government spends without having anything to spend. Presto! Suddenly your account statement that read $3,000 now reads $5,000. What did the government do to give you that money? It simply changed the number in your bank account from 3,000 to 5,000.
I say the last statement is false and undeniably misleading. Changing the number in the bank account was not all that was done. Changing the number in "your bank account" was one of two things the government did. The government simultaneous gave itself a liability for that payment. This second action is totally ignored in Mosler's and other MMT sales documents.
The requirement for the second government action, adding a record of a liability allied with requiring the government to have positive accounts, requires governments to obtain private sector money to fund its accounts before spending.
Quote:
And I'm sorry, deficit spending adds dollars to the private sector. For you to argue otherwise you need to put forward how the USA has increased debt by $16 trillion dollars since 1971. If this money was already in the private sector in 1971, where was it hiding?
This is nonsense and I suspect you know it. Money in the private sector grows through private sector lending and is not dependent on government deficit spending. Not all governments engage in deficit spending. Australia didn't under Howard yet the money supply boomed from which the government was able to extract taxes to support its spending. Governments borrow from the growing private sector created money supply. It wasn't necessary for the $16t US gov debt to be available in 1971. It has been taken from the private sector in the 40 odd years since whilst the private sector expanded money supply.
Sssshhhhh. ... b b ' s utopian theory on monetary policy relies on money always being available as long as we keep taking on new debt to reduce bad debt .. Its a simple idea that no government ( or potential homeowner ) fully understands yet and requires net zero accountability for any debt , ever.
For example, any central bank could buy a nice fat chunk of its government's debt, heap the certificates in a pile, and set fire to it. That part of the debt will simply disappear.
In all jurisdictions today the CB would be left with the liability (equal to the cost of the bond purchases) for the dollars it used for the purchase. The CB's liabilities are the government's liabilities.
Quote:
Or you could switch the debt into zero-coupon bonds with a maturity of eternity, and leave them in a drawer for aliens to discover when the human race is long gone. With the government debt (or at least a large chunk of it) gone, the government could then embark on a new borrowing and spending binge to kick-start economic growth.
Converting bonds to perpetual with zero coupon is identical to default. The government would certainly not be in a position to borrow again. No one would lend.
Edit add: As a general point, the moment any country's Treasury or CB fails to record a corresponding liability against any spending, that government will immediately become an international pariah and will never again be able to borrow from anyone anywhere.
I know! That's how I feel after reading some of your posts though.
I'm still trying to figure out why B_B thinks a country with a strong export led economy is actually going the wrong direction.
And for that matter why making the houses we already have more expensive is a necessary prerequisite for, and will precipitate, increased demand for new builds.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
here is what the MMT god, Warren Mosler, writes in his pamphlet "SEVEN DEADLY INNOCENT FRAUDS OF ECONOMIC POLICY" which you have recommended people here to read:
"Imagine you are expecting your $2,000 Social Security payment to hit your bank account, which already has $3,000 in it. If you are watching your account on the computer screen, you can see how government spends without having anything to spend. Presto! Suddenly your account statement that read $3,000 now reads $5,000. What did the government do to give you that money? It simply changed the number in your bank account from 3,000 to 5,000."
I say the last statement is false and undeniably misleading. Changing the number in the bank account was not all that was done. Changing the number in "your bank account" was one of two things the government did. The government simultaneous gave itself a liability for that payment. This second action is totally ignored in Mosler's and other MMT sales documents.
The requirement for the second government action, adding a record of a liability allied with requiring the government to have positive accounts, requires governments to obtain private sector money to fund its accounts before spending.
To be fair to b_b - in previous discussions I don't remember him telling us that QE causes debt to be written off.
PM - when I worked for the WA Water Authority - most people seemed to be very conscientious and hard working. But the guy who did the quality assurance pretty much seemed to spend all his time selling amway products. Nobody really seemed to know what his real job was.
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
I'm still trying to figure out why B_B thinks a country with a strong export led economy is actually going the wrong direction.
And for that matter why making the houses we already have more expensive is a necessary prerequisite for, and will precipitate, increased demand for new builds.
What he is saying is that because they sell more than they buy they are extending credit to other countries.
If you take the case of the Chinese money invested in US Treasuries, that is their trade surplus. It's earning bugger all interest and the USA has been driving down the value of their investment. So a country who sells more to you than they buy in return, is lending you cheap money at present, and that money can be manipulated by you. It's a risk for the trading partner.
When you hear commentators worried that China might stop lending the USA money, that means they don't understand that would also mean that China would stop selling goods to the USA - which won't happen unless the greenback devalued to zip.
Of course that doesn't mean that we can just sit back, produce nothing, and then expect the world to supply us with the goods and services that we want. Pretty soon they would get the picture and stop selling anything to us and our currencey would be devalued to zip - a good example is Zimbabwe.
My interpretation is that a trade imbalance is inevitable, two countries can't match imports/exports exactly dollar for dollar so one will buy a little more than they sell, and it's the one that buys a little more than it sells that gets the almost free credit.
Personally I would rather trade be balanced within limits and I wouldn't like to see us fall into a deep trade deficit. Wars have been fought over less.
To be fair to b_b - in previous discussions I don't remember him telling us that QE causes debt to be written off.
Perhaps but MMT has a whole circular mind mess going on where
1.debt held by the debt issuer is not a real debt - which is true if your issued money has no liability for you - and you only issue debt to soak up an excess of your own money for monetary policy purposes.
2. They obviously want you to believe that the government spends money into existance even though that is blatantly false, and do not want you to understand that the money issued is the governments liability, so they can get you to believe that debt only needs to be issued for monetary policy purposes.
Is B_B ever going to produce a coherent explanation as to why MMT suckers disiples into their peculiar belief system which the insiders know is based on a lie??
As an aside the Mormons do not tell junior converts or missionaries that the head of the Church is alive and well currently living on another planet!
And it is interesting that Mosler is currently living on what appears to be another planet, in the form of the Virgin Islands
The impression can be easily got, that the insiders know MMT is nuts but it suits their agenda.
2. They obviously want you to believe that the government spends money into existance even though that is blatantly false, and do not want you to understand that the money issued is the governments liability, so they can get you to believe that debt only needs to be issued for monetary policy purposes.
The Australian and US govts spent money into existence like drunken sailors in the 1960s (US) and early 70s (Australia). Issuing a bond at the same time is sterilisation and is the normal practice these days.
Just because governments, by and large, don't just spend money into existence doesn't mean they could not in a fiat money system. (Except that it is also now not legal in most places, hence the whole debt ceiling thing.)
As you say, when money is issued, sterilised or not, it is a government liability one way or the other.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
The Australian and US govts spent money into existence like drunken sailors in the 1960s (US) and early 70s (Australia). Issuing a bond at the same time is sterilisation and is the normal practice these days.
Just because governments, by and large, don't just spend money into existence doesn't mean they could not in a fiat money system. (Except that it is also now not legal in most places, hence the whole debt ceiling thing.)
As you say, when money is issued, sterilised or not, it is a government liability one way or the other.
The US has not issued debt free money since the civil war.
Australian Property Forum is an economics and finance forum dedicated to discussion of Australian and global real estate markets and macroeconomics, including house prices, housing affordability, and the likelihood of a property crash. Is there an Australian housing bubble? Will house prices crash, boom or stagnate? Is the Australian property market a pyramid scheme or Ponzi scheme? Can house prices really rise forever? These are the questions we address on Australian Property Forum, the premier real estate site for property bears, bulls, investors, and speculators. Members may also discuss matters related to finance, modern monetary theory (MMT), debt deflation, cryptocurrencies like Bitcoin Ethereum and Ripple, property investing, landlords, tenants, debt consolidation, reverse home equity loans, the housing shortage, negative gearing, capital gains tax, land tax and macro prudential regulation.
Forum Rules:
The main forum may be used to discuss property, politics, economics and finance, precious metals, crypto currency, debt management, generational divides, climate change, sustainability, alternative energy, environmental topics, human rights or social justice issues, and other topics on a case by case basis. Topics unsuitable for the main forum may be discussed in the lounge. You agree you won't use this forum to post material that is illegal, private, defamatory, pornographic, excessively abusive or profane, threatening, or invasive of another forum member's privacy. Don't post NSFW content. Racist or ethnic slurs and homophobic comments aren't tolerated. Accusing forum members of serious crimes is not permitted. Accusations, attacks, abuse or threats, litigious or otherwise, directed against the forum or forum administrators aren't tolerated and will result in immediate suspension of your account for a number of days depending on the severity of the attack. No spamming or advertising in the main forum. Spamming includes repeating the same message over and over again within a short period of time. Don't post ALL CAPS thread titles. The Advertising and Promotion Subforum may be used to promote your Australian property related business or service. Active members of the forum who contribute regularly to main forum discussions may also include a link to their product or service in their signature block. Members are limited to one actively posting account each. A secondary account may be used solely for the purpose of maintaining a blog as long as that account no longer posts in threads. Any member who believes another member has violated these rules may report the offending post using the report button.
Australian Property Forum complies with ASIC Regulatory Guide 162 regarding Internet Discussion Sites. Australian Property Forum is not a provider of financial advice. Australian Property Forum does not in any way endorse the views and opinions of its members, nor does it vouch for for the accuracy or authenticity of their posts. It is not permitted for any Australian Property Forum member to post in the role of a licensed financial advisor or to post as the representative of a financial advisor. It is not permitted for Australian Property Forum members to ask for or offer specific buy, sell or hold recommendations on particular stocks, as a response to a request of this nature may be considered the provision of financial advice.
Views expressed on this forum are not representative of the forum owners. The forum owners are not liable or responsible for comments posted. Information posted does not constitute financial or legal advice. The forum owners accept no liability for information posted, nor for consequences of actions taken on the basis of that information. By visiting or using this forum, members and guests agree to be bound by the Zetaboards Terms of Use.
This site may contain copyright material (i.e. attributed snippets from online news reports), the use of which has not always been specifically authorized by the copyright owner. Such content is posted to advance understanding of environmental, political, human rights, economic, democratic, scientific, and social justice issues. This constitutes 'fair use' of such copyright material as provided for in section 107 of US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed for research and educational purposes only. If you wish to use this material for purposes that go beyond 'fair use', you must obtain permission from the copyright owner. Such material is credited to the true owner or licensee. We will remove from the forum any such material upon the request of the owners of the copyright of said material, as we claim no credit for such material.
Privacy Policy: Australian Property Forum uses third party advertising companies to serve ads when you visit our site. These third party advertising companies may collect and use information about your visits to Australian Property Forum as well as other web sites in order to provide advertisements about goods and services of interest to you. If you would like more information about this practice and to know your choices about not having this information used by these companies, click here: Google Advertising Privacy FAQ
Australian Property Forum is hosted by Zetaboards. Please refer also to the Zetaboards Privacy Policy