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Announcing the First International Conference on Modern Monetary Theory 

Published by Anonymous (not verified) on Sat, 20/05/2017 - 8:02am in

Announcing the First International Conference on Modern Monetary Theory 

Economics for a New Progressive Era University of Missouri-Kansas City September 21–24, 2017 Conference site: mmtconference.org With Support From Robert Skidelsky and Morton Sosland UMKC Economics Club Journal of Post Keynesian Economics Featured Speakers Include Warren Mosler, Robert Skidelsky, Jamie Galbraith, … Continue reading →

Announcing the First International Conference on Modern Monetary Theory 


MINSKY AND MODERN MONEY THEORY: Was Minsky a “forefather”?

Published by Anonymous (not verified) on Sat, 25/02/2017 - 1:03pm in

MINSKY AND MODERN MONEY THEORY: Was Minsky a “forefather”?

By L. Randall Wray A few weeks ago, a video of a lecture that Hyman Minsky gave at Westminster College on Oct 30, 1991 was made available. Although the Levy Institute has some audio of Minsky, this is the only video … Continue reading →

MINSKY AND MODERN MONEY THEORY: Was Minsky a “forefather”?


L. Randall Wray on MMT and Positive Money

Published by Anonymous (not verified) on Fri, 17/02/2017 - 5:19am in

L. Randall Wray on MMT and Positive Money

Published by Anonymous (not verified) on Fri, 17/02/2017 - 5:19am in

Wednesday, 15 February 2017 - 5:22pm

Published by Matthew Davidson on Wed, 15/02/2017 - 5:34pm in

I'm ranting altogether too much over local "journalism", and this comment introduces nothing new to what I've posted many times before, but since the Advocate won't publish it:

Again I have to wonder why drivel produced by the seething hive mind of News Corp is being syndicated by my local newspaper. This opinion comes from somebody who appears to be innumerate (eight taxpayers out of ten doesn't necessarily - or even very likely - equal eight dollars out of every ten) economically illiterate, and empirically wrong.

Tax dollars do not fund welfare, or any other function of the federal government. Currency issuing governments create money when they spend and destroy money when they tax. "Will there be enough money?" is a nonsensical question when applied to the federal government. As Warren Mosler puts it, the government neither has nor does not have money. If you work for a living, it is in your interest that the government provides money for those who otherwise wouldn't have any, because they spend it - and quickly. Income support for the unemployed becomes income for the employed pretty much instantly. Cutting back on welfare payments means cutting back on business revenues.

And the claim that the "problem" of welfare is increasing in scale is just wrong. Last year's Household, Income, and Labour Dynamics in Australia (HILDA) report shows dependence on welfare payments by people of working age declining pretty consistently since the turn of the century. This opinion piece is pure class war propaganda. None of us can conceivably benefit in any way from pushing people into destitution in the moralistic belief that they must somehow deserve it.

Who will play the Harlequin?

Published by Anonymous (not verified) on Tue, 10/01/2017 - 9:32am in

Who will play the Harlequin?

By J.D. ALT In a recent essay (“A Strategic Thought”) I suggested that right now is an opportune moment for some brave progressive leader to step out and explain what modern fiat money is, why we’ve been using, in fact, … Continue reading →

Who will play the Harlequin?


Xmas Cheer: The Debt Is Not Our Biggest Problem

Published by Anonymous (not verified) on Sun, 01/01/2017 - 2:01pm in

Why do so many pundits and politicians, including the future director of the Office of Management and Budget, beat the debt drum so loudly and so often? It’s one of the most effective, and most abused, wedge issues in American politics.

by Kerry Pechter

The nomination of Mick Mulvaney—deficit hawk, three-term Republican congressman from South Carolina and founding member of the House “Freedom Caucus”—to the cabinet-level directorship of the Office of Management and Budget is not good news for the financial system.

Mulvaney has said (and perhaps even believes) that one of the “greatest dangers” we face as Americans is the annual budget deficit and the $20 trillion national debt. This notion is an effective political weapon, but it’s dangerously untrue. If it were true, the country would have failed long ago.

Debunking this canard should be a priority for anybody who cares about retirement security. As long as we believe in the debt bogeyman, we can’t productively solve the Social Security and Medicare funding problems, defend the tax expenditure for retirement savings, or even create a non-deflationary annual federal budget. Everything will look unaffordable.

Hamilton, the Broadway star

If you don’t believe me, believe Alexander Hamilton. In 1790, the new nation was awash in government IOUs but had little cash or coinage for daily commerce. Hamilton, the impetuous future Broadway subject, resolved the crisis with a simple argument. He reminded his fellow founders that debts are also assets, and that the most secure assets are those that yield a guaranteed income stream from a sovereign government with the power to tax.

At the time, according to Hamilton’s “First Report on the Public Credit,” the U.S. debt in 1790 stood at $54.1 million and change. In that document, the first Treasury Secretary laid out his plan—over the protests of deficit hawks—to restore the debt’s face value, secure the new nation’s credit rating, and put new money into circulation through interest payments on the debt, with revenue from taxes on imports.

The plan worked. With its par value established, U.S. debt became—and still is—the basis of the nation’s money supply. “In countries in which the national debt is properly funded, and an object of established confidence, it answers most of the purposes of money,” Hamilton wrote. “Transfers of stock or public debt are there equivalent to payments in specie; or, in other words, stock, in the principal transactions of business, passes current as specie.”

Not a burden on our backs

Since then, during times of doubt, others have re-explained all this. In 1984, many people were panicking that the federal budget deficit had reached $185 billion. That July, economic historian Robert Heilbroner, author of The Worldly Philosophers, explained in a New Yorker essay that their fear was based on a misconception.

“The public’s concerns about the debt and the deficit arises from our tendency to picture both in terms of a household’s finances,” Heilbroner wrote. “We see the government as a very large family and we all feel that the direction in which these deficits are driving us is one of household bankruptcy on a globe-shaking scale.”

That’s not so, he explained. The government is more like a bank, which lends by creating brand new liabilities. (You can also think of it as the cashier at a casino, who has an infinite number of chips at her disposal.) “As part of its function in the economy, the government usually runs deficits—not like a household experiencing a pinch but as a kind of national banking operation that adds to the flow of income that government siphons into households and businesses,” he wrote.

Robert Heilbroner

“The debt is not a vast burden borne on the backs of our citizenry but a varied portfolio of Treasury and other federal obligations, most of them held by American households and institutions, which consider them the safest and surest of their investments.”

‘Heterdox’ economic view

Over the past 30 years, however, as the national debt has become a political football, this common-sense explanation of it has been suppressed. You hardly ever hear it articulated. It is kept alive mainly by “heterodox economists” like Stephanie Kelton and L. Randall Wray.

In the 2015 edition of his book, Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems, Wray explained the flaw in the idea that the deficit, the debt or the interest on the debt will eventually overwhelm us. It’s the kind of straight-line forecasting, he wrote, that ignores self-limiting factors or feedback mechanisms.

“If we are dealing with sovereign budget deficits we must first understand WHAT is not sustainable, and what is,” Wray wrote. “That requires that we need to do sensible exercises. The one that the deficit hysterians propose is not sensible.” He uses the analogy of Morgan Spurlock, the maker of the 2004 documentary Supersize Me, to illustrate his point.

In the movie, Spurlock wanted to discover the effects of consuming 5,000 calories worth of food at McDonald’s every day. Wray pointed out that, if you ignored certain facts about human metabolism, the 200-lb Spurlock would inevitably weigh 565 pounds after a year, 36,700 pounds after 100 years and 36.7 million pounds after 100,000 years. Of course, that can’t happen.

Randall Wray

“The trick used by deficit warriors is similar but with the inputs and outputs reversed,” according to Wray. “Rather than caloric inputs, we have GDP growth as the input; rather than burning calories, we pay interest; and rather than weight gain as the output we have budget deficits accumulating to government debt outstanding.

“To rig the little model to ensure it is not sustainable, all we have to do is to set the interest rate higher than the growth rate – just as we had Morgan’s caloric input at 5,000 calories and his burn rate at only 2,000 – and this will ensure that the debt ratio grows unsustainably (just as we ensured that Morgan’s waistline grew without limit).”

Fooling the people

Like any other threat, the debt’s scariness factor depends on how you frame it. The 2016 budget deficit was $587 billion, which sounds terrible. But that was just 3.3% of Gross Domestic Product. The U.S. debt reached $19.9 trillion in 2016, which also sounds terrible. But that is the amount accumulated since 1790. Our annual GDP is almost $18 trillion.

To enlarge the frame, we should include the whole “financial position” of the United States. According to Wikipedia, it “includes assets of at least $269.6 trillion and debts of $145.8 trillion. The current net worth of the U.S. in the first quarter of 2014 was an estimated $123.8 trillion.” In that context, neither the deficit nor the debt seem like terrible threats.

If you’re bent on making the math look scary, you can easily do it. As Wray noted above, “If the interest rate [i.e., costs] is above the growth rate [i.e., revenues], we get a rising debt ratio. If we carry this through eternity, that ratio gets big. Really big. OK, that sounds bad. And it is. Remember, that is a big part of the reason that the global financial crisis (GFC) hit: an over-indebted private sector whose income did not grow fast enough to keep up with interest payments.”

But the government doesn’t face the same constraints as the private sector (which is why it could bail out the private sector in 2008-2010). Once you recognize that U.S. assets are huge, that U.S. debts are also private wealth, and that the debt needs to be serviced but never zeroed out, then today’s debt shrinks into the manageable problem that it is and not a source of panic. (Paying down the national debt—in effect, deleveraging the government—would be disastrously deflationary; that’s a topic for another article.)

So why do so many pundits and politicians, including the future director of the Office of Management and Budget, beat the debt drum so loudly and so often? The answer is obvious. It provides an evergreen reason to delegitimize any and every type of government spending, regulation and taxation. It’s one of the most effective, and most abused, wedge issues in American politics.

Kerry Pechter is the founder and editor of the Retirement Income Journal. Reprinted with permission.

Xmas Cheer: The Debt Is Not Our Biggest Problem

Published by Anonymous (not verified) on Sun, 01/01/2017 - 2:01pm in

Why do so many pundits and politicians, including the future director of the Office of Management and Budget, beat the debt drum so loudly and so often? It’s one of the most effective, and most abused, wedge issues in American politics.

by Kerry Pechter

The nomination of Mick Mulvaney—deficit hawk, three-term Republican congressman from South Carolina and founding member of the House “Freedom Caucus”—to the cabinet-level directorship of the Office of Management and Budget is not good news for the financial system.

Mulvaney has said (and perhaps even believes) that one of the “greatest dangers” we face as Americans is the annual budget deficit and the $20 trillion national debt. This notion is an effective political weapon, but it’s dangerously untrue. If it were true, the country would have failed long ago.

Debunking this canard should be a priority for anybody who cares about retirement security. As long as we believe in the debt bogeyman, we can’t productively solve the Social Security and Medicare funding problems, defend the tax expenditure for retirement savings, or even create a non-deflationary annual federal budget. Everything will look unaffordable.

Hamilton, the Broadway star

If you don’t believe me, believe Alexander Hamilton. In 1790, the new nation was awash in government IOUs but had little cash or coinage for daily commerce. Hamilton, the impetuous future Broadway subject, resolved the crisis with a simple argument. He reminded his fellow founders that debts are also assets, and that the most secure assets are those that yield a guaranteed income stream from a sovereign government with the power to tax.

At the time, according to Hamilton’s “First Report on the Public Credit,” the U.S. debt in 1790 stood at $54.1 million and change. In that document, the first Treasury Secretary laid out his plan—over the protests of deficit hawks—to restore the debt’s face value, secure the new nation’s credit rating, and put new money into circulation through interest payments on the debt, with revenue from taxes on imports.

The plan worked. With its par value established, U.S. debt became—and still is—the basis of the nation’s money supply. “In countries in which the national debt is properly funded, and an object of established confidence, it answers most of the purposes of money,” Hamilton wrote. “Transfers of stock or public debt are there equivalent to payments in specie; or, in other words, stock, in the principal transactions of business, passes current as specie.”

Not a burden on our backs

Since then, during times of doubt, others have re-explained all this. In 1984, many people were panicking that the federal budget deficit had reached $185 billion. That July, economic historian Robert Heilbroner, author of The Worldly Philosophers, explained in a New Yorker essay that their fear was based on a misconception.

“The public’s concerns about the debt and the deficit arises from our tendency to picture both in terms of a household’s finances,” Heilbroner wrote. “We see the government as a very large family and we all feel that the direction in which these deficits are driving us is one of household bankruptcy on a globe-shaking scale.”

That’s not so, he explained. The government is more like a bank, which lends by creating brand new liabilities. (You can also think of it as the cashier at a casino, who has an infinite number of chips at her disposal.) “As part of its function in the economy, the government usually runs deficits—not like a household experiencing a pinch but as a kind of national banking operation that adds to the flow of income that government siphons into households and businesses,” he wrote.

Robert Heilbroner

“The debt is not a vast burden borne on the backs of our citizenry but a varied portfolio of Treasury and other federal obligations, most of them held by American households and institutions, which consider them the safest and surest of their investments.”

‘Heterdox’ economic view

Over the past 30 years, however, as the national debt has become a political football, this common-sense explanation of it has been suppressed. You hardly ever hear it articulated. It is kept alive mainly by “heterodox economists” like Stephanie Kelton and L. Randall Wray.

In the 2015 edition of his book, Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems, Wray explained the flaw in the idea that the deficit, the debt or the interest on the debt will eventually overwhelm us. It’s the kind of straight-line forecasting, he wrote, that ignores self-limiting factors or feedback mechanisms.

“If we are dealing with sovereign budget deficits we must first understand WHAT is not sustainable, and what is,” Wray wrote. “That requires that we need to do sensible exercises. The one that the deficit hysterians propose is not sensible.” He uses the analogy of Morgan Spurlock, the maker of the 2004 documentary Supersize Me, to illustrate his point.

In the movie, Spurlock wanted to discover the effects of consuming 5,000 calories worth of food at McDonald’s every day. Wray pointed out that, if you ignored certain facts about human metabolism, the 200-lb Spurlock would inevitably weigh 565 pounds after a year, 36,700 pounds after 100 years and 36.7 million pounds after 100,000 years. Of course, that can’t happen.

Randall Wray

“The trick used by deficit warriors is similar but with the inputs and outputs reversed,” according to Wray. “Rather than caloric inputs, we have GDP growth as the input; rather than burning calories, we pay interest; and rather than weight gain as the output we have budget deficits accumulating to government debt outstanding.

“To rig the little model to ensure it is not sustainable, all we have to do is to set the interest rate higher than the growth rate – just as we had Morgan’s caloric input at 5,000 calories and his burn rate at only 2,000 – and this will ensure that the debt ratio grows unsustainably (just as we ensured that Morgan’s waistline grew without limit).”

Fooling the people

Like any other threat, the debt’s scariness factor depends on how you frame it. The 2016 budget deficit was $587 billion, which sounds terrible. But that was just 3.3% of Gross Domestic Product. The U.S. debt reached $19.9 trillion in 2016, which also sounds terrible. But that is the amount accumulated since 1790. Our annual GDP is almost $18 trillion.

To enlarge the frame, we should include the whole “financial position” of the United States. According to Wikipedia, it “includes assets of at least $269.6 trillion and debts of $145.8 trillion. The current net worth of the U.S. in the first quarter of 2014 was an estimated $123.8 trillion.” In that context, neither the deficit nor the debt seem like terrible threats.

If you’re bent on making the math look scary, you can easily do it. As Wray noted above, “If the interest rate [i.e., costs] is above the growth rate [i.e., revenues], we get a rising debt ratio. If we carry this through eternity, that ratio gets big. Really big. OK, that sounds bad. And it is. Remember, that is a big part of the reason that the global financial crisis (GFC) hit: an over-indebted private sector whose income did not grow fast enough to keep up with interest payments.”

But the government doesn’t face the same constraints as the private sector (which is why it could bail out the private sector in 2008-2010). Once you recognize that U.S. assets are huge, that U.S. debts are also private wealth, and that the debt needs to be serviced but never zeroed out, then today’s debt shrinks into the manageable problem that it is and not a source of panic. (Paying down the national debt—in effect, deleveraging the government—would be disastrously deflationary; that’s a topic for another article.)

So why do so many pundits and politicians, including the future director of the Office of Management and Budget, beat the debt drum so loudly and so often? The answer is obvious. It provides an evergreen reason to delegitimize any and every type of government spending, regulation and taxation. It’s one of the most effective, and most abused, wedge issues in American politics.

Kerry Pechter is the founder and editor of the Retirement Income Journal. Reprinted with permission.

Answers to a Few Questions from Real Progressive’s Viewers

Published by Anonymous (not verified) on Wed, 28/12/2016 - 3:06am in

Tags 

MMT

Q: “Wouldn’t a decrease in CEO salaries help job creation and could also decrease the debt THEN?” What we need to do is ignore CEO salaries and focus on the macro level. Here, we understand that the market, business, and CEOs do not fund the US economy – the US Government does. Because the US[...]

The post Answers to a Few Questions from Real Progressive’s Viewers appeared first on Ellis Winningham.

The Joy of Economic Irresponsibility: or how I learned to stop worrying and love the public debt

Published by Matthew Davidson on Thu, 19/05/2016 - 2:50pm in

If there's one thing I've learned in the last year that I think is so important it's worth shouting from the rooftops, it's that simultaneously studying economics and the psychology of stress while also being personally stressed about money is a very, very bad idea.

If there are two important things I've learned in the last year, I'd say that the more generally applicable one to the citizen in the street is that a government which issues it's own money can never run out of it.

Such a government can of course pretend, or at least behave like, it can run out of money. In fact, many have done so for the last thirty years or so, and the results have been disastrous. You don't have to take my word for it. Here are some graphs, mostly from the RBA Chart Pack, except where otherwise indicated. Here's the Australian government fiscal balance, misleadingly labelled "budget balance" as per the conventional misunderstanding of reality.

Things took a dip from 2007/8, but deficits are improving, and we were in surplus for most of the preceeding decade. And that's good, isn't it? Surpluses mean we have more money, don't they?

Generally, yes. A "budget surplus" for a business or household means more money at hand to spend later. However, for an economy with a sovereign-currency-issuing government, public fiscal surpluses mean we have less money.

How is this possible? To understand this, you have to understand that accountancy—specifically double-entry bookkeeping and balance sheets—is the foundation of economics; at least economics of a realistic kind. All money is credit money. You make money—literally—by being in debt to somebody, and by denominating this debt in the country's transferrable unit of account. Spending is the simultaneous creation of a debt on the buyer's side of the ledger, and a corresponding credit on the seller's side. However, if you happen to hold enough credits that have already been generated as the flipside of a debt in your favour, you can use these credits to immediately cancel the debt of the current transaction. One way most of us do this on a daily basis is by using cash. Cash is a transferrable token of public sector debt and private sector credit.

Three percent of the immediately-spendable money in the private sector is in the form of cash. The other 97% is just numbers stored on computers in the commercial banking sector. Most of this is money that originated as commercial bank loans, and will disappear from the bank's balance sheets as those loans are repaid (though of course in the meantime more loans will have been made). However, a significant amount of money originates as loans the government makes to itself (technically the central bank lends to the treasury), eventually ending up in the private sector as cash, or (through a mindbending process I will mercifully omit from this account) as commercial bank deposits. A currency-issuing government can always lend more money to itself in order to spend, and never has to pay it back. It follows that such a government does not need to tax in order to spend, and only ever taxes for other reasons. Economics textbooks, and economic commentators, routinely get this utterly and comprehensively wrong. Consider this textbook description of economic "automatic stabilisers":

"During recessions, tax revenues fall and welfare payments increase thereby creating a budget deficit. In times of economic boom, tax revenues rise and welfare payments fall creating a budget surplus."

Budget deficits are not an eventual consequence of government spending; the spending and the creation of a debt are the same operation. Tax revenues merely redeem a part of the already-accrued debt; the money issued by public spending  is a public IOU that effectively disappears when private parties use it settle their tax debt owed to the public. Tax revenues therefore cannot be used to fund public spending; in order to spend, new public debt must be issued. The automatic stabilisers are real (assuming a somewhat sensible tax system), but the important part of their function is on the private side: injecting new money to stimulate demand when needed, or putting the brakes on dangerous speculative activity in a boom. The government's fiscal position from one year to the next is an inconsequential side-effect.

Taxation is the elimination of money, and hence of the demand for goods, services, and assets that drives the private sector economy. Don't believe me? Lets take a wider focus on the fiscal balance numbers above:


[Source]

Generally, and especially prior to the neoliberal period, public fiscal surpluses are the exception, not the rule. And for a good reason; it's generally not a good idea to drain demand out of the economy. So what happens when you toss good sense aside, and insist on surpluses for their own sake? Here's what happened to public sector debt:

I'm presuming (the ABS Chart Pack doesn't specify) that this is debt owed to private sector banks in the form of loans and government securities. I should stress that, as with taxation, these operations are not required to finance spending, and are only ever done for other reasons (such as hitting interest rate targets). Also, because they don't issue currency themselves (though this is possible, and has worked elsewhere), lower levels of government do have to rely in part on revenue-raising to fund spending, though grants from the federal government also play a big part in determining their fiscal position.

Still—phew!—we got that scary public sector debt under control until the GFC, and we can do it again! But hang on, if that's taking money out of the private sector, where does the private sector get the money to sustain demand? Here's the private sector debt over the same period:

Note that this is one and a half times GDP, compared to the one third of GDP outstanding to the public sector, at the height of its alleged fiscal irresponsibility. When government self-imposes limits on its ability to spend, private sector credit creation takes up the slack. Who do you want controlling how much money is created, who gets it, and what it gets spent on? A mix of the commercial finance sector and a (somewhat) democratically-accountable government? Or just the bankers?

Most of private-sector money creation is commercial bank loans, and as economist Michael Hudson notes, in the US, UK, and Australia, 70 percent of bank loans are mortgages. That's a hell of a lot of money (what's 70 percent of one and a half times GDP?) dependant for its existence on the soundness of pricing for a single class of asset. If real estate prices suddenly crash, and mortgagees start to default on their loans, poof! The corresponding credits on the other side of the ledger are gone too, and the real estate sector takes the whole economy down with it. You can't argue with balance sheets.

Still, I expect we'll be fine as long as we stay the fiscal responsibility course, and don't let the government "spend more than it earns". Real estate prices only ever go up, don't they? And it's not like bankers would ever be led by their own short-term interests to make a huge amount of risky loans and inflate an enormous real estate price bubble…

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