Updated: 7 Deadly Innocent Frauds

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Seven Deadly Frauds of Economic Policy (June 17, PDF Link)

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449 Responses to Updated: 7 Deadly Innocent Frauds

  1. Pingback: More Austerity Advice From the Very Rich: Buffett On Deficits! - New Economic Perspectives

  2. Pingback: MMT Has a Long Way to Go

  3. Hello! I know this is somewhat off topic but I was wondering if you knew where I could get a captcha plugin for my comment form?
    I’m using the same blog platform as yours and I’m having problems finding one?
    Thanks a lot!

    Reply

  4. Doug Smith says:

    Well I went and researched more about economics and now I think I understand why deficit spending doesn’t necessarily increase inflation. I’m thinking it is due to the equation of exchange:

    MV = Py

    Just because we increase M (money supply) it doesn’t mean we naturally increase P (price of goods/services). Increasing M can increase y (production of goods/services).

    Reply

    WARREN MOSLER Reply:

    not to mention economies of scale as output increases

    Reply

    Tom Hickey Reply:

    @Doug Smith,

    Yes, firms expand and contract production (supply) relative to changes in effective demand. As long as supply increases to accomodate rising demand due to more funding, there is no tendency to inflation although it doesn’t mean that prices won’t change — just that the price level will not rise continuously, getting so far ahead of real wages as to result in wage pressure. The usual dynamic is asset price rise due to looser credit and more leverage, then goods prices rise, and then wages. Then the monetary authority raises interest rates to contract the economy and increase the buffer stock of unemployed to reduce wage pressure. The key is really wages.

    Reply

  5. Doug Smith says:

    After some thought I realized that not all deficit spending leads to inflation. I believe though that much of it does. While I agree social security is not in danger as you say, wouldn’t less people paying it and more collecting it lead to inflation?

    Reply

    WARREN MOSLER Reply:

    Yes, if spending by seniors got ‘too high’ and started driving up prices.
    there’s additional discussion of this in ‘the 7dif’ on this website

    Reply

  6. Doug Smith says:

    I read your book and you make some good points. However, I feel like you are downplaying the indirect effect of government spending and taxation.

    As you state taxation is to offset inflation. Obviously the bigger the deficit the more inflation. The government isn’t literally printing money but by handing more out and taxing less they are increasing supply and causing inflation.

    This has caused an increase in the cost of living. The more they spend and don’t tax to offset inflation the higher the cost of living. It seems to me if you have the tax holiday you suggest it will just cause more inflation. Am I missing something?

    Reply

    WARREN MOSLER Reply:

    correct in general. taxation creates goods and services/unemployment offered for sale in exchange for the currency, and gov spending buys the stuff its taxation caused to be offered for sale.

    however, as monopolist/price setter, ‘price’ is a function of prices paid by gov when it spends/collateral demanded when it lends
    as described in the 7dif. maybe go back and re read that part?

    Reply

  7. Jeff says:

    Fatal flaw? I’m having trouble getting past your assertion that “The US government is the issuer of the US dollar.” The currency we use has printed on it “Federal Reserve Note” not “U.S. Treasury Note.”

    My understanding is that the Federal Reserve is a private corporation, not an agency of the U.S. government. So, just as the states don’t issue their own currency, and Greece doesn’t issue euros, neither does the U.S. control it’s currency. The Federal Reserve does.

    Am I misinformed here or has this detail been overlooked?

    Reply

    WARREN MOSLER Reply:

    The Fed is for all practical purposes an agent of Congress. The people are appointed by the president and confirmed by congress, all profits go to the tsy, etc. just like any other federal agency.

    what are called private shareholders, functionally, are nothing more than bondholders who get a fixed 6% return on relatively small investments with no say whatsoever in an fed matters. i’m a fed shareholder though my bank and i assure you they’ve never consulted with us on anything…

    Reply

    Tom Hickey Reply:

    @Jeff,

    Jeff, all the FRN in my wallet have “The United States of America” emblazoned much larger than Federal Reserve Note, and they are all signed by a US secretary of the Treasury rather than the Fed chair.

    This is part of the conspiracy going on since 1913 to defraud the US public about the true situation, that the Federal Reserve is really a private bank masquerading as the US Government in cahoots with the government? Really?

    Reply

  8. John O'Connell says:

    Warren,

    What do you think of the idea of an “MMT Amendment” to the US Constitution?

    “Congress shall make no law restricting the issuance of debt by the United States.

    The President shall cause US Treasury debt to be issued or redeemed as necessary to facilitate control of the interest rate, but without regard to the level of spending or taxation.

    In order to promote the general welfare, the President shall, from time to time, and at his sole discretion, authorize the disbursement of funds to the governments of the several States, in proportion to their populations as determined in the most recent census. The Congress shall place no restrictions on the use of such funds by the States.

    Any portions of existing laws that contradict portions of this amendment are nullified, but other portions of such laws shall remain in effect until acted upon by the Congress.

    This amendment shall remain in force only so long as the United States is monetarily sovereign.”

    I don’t think it is a necessary condition for MMT-inspired policies to be pursued, although it would streamline the process. Mostly I think that to the extent that it got publicity, it would generate opportunities for wider public discussion of the 7 DIF.

    Reply

    WARREN MOSLER Reply:

    i would think you need the wider public discussion first before congress introduces an amendment
    ;)

    Reply

  9. Zulika - GPF says:

    I think there are many other factors a lot of governments aren’t talking about. e.g. that the dollar and mostly all other currencies are FIAT and no longer run on the gold standard – this creates a very bad space to be in if you’re the government that has sold off gold iou’s and people start claiming them.

    Reply

    WARREN MOSLER Reply:

    don’t forget to read the 7 deadly innocent frauds on this website

    Reply

  10. Andrea says:

    We want italian version!

    Reply

    WARREN MOSLER Reply:

    google translate?

    Reply

  11. cleisthenes says:

    Most of the 7 made sense, but #5 about the trade deficit not causing unemployment was a complete travesty. What is so hard to understand about that? When the economy is outsourced, there is less economic activity here and more overseas. Money flows overseas. Businesses that were once here, employing people, do not employ people here. Do you want a long list of businesses that have gone under because of free trade and the trade deficit? It happened in most every state. I just read of an instance where be singling a factory from Wisconsin to China. The data is all there. Look at the graphs. When you look at the graphs it will show you that high trade deficits lead to high unemployment, leading to high budget deficits and recessions. True in the 70s and 80s and true today. How can anyone misread the data so badly as to not see that high trade deficits do not lead to high unemployment? This occurs almost by the definition of a high trade deficit.

    Reply

    Hugo Heden Reply:

    @cleisthenes,

    Yeah, that’s the conventional view you’re expressing there. But as Warren notes (with my emphasis):

    I’ve heard it all, and it’s all total nonsense. We are
    benefiting IMMENSELY from the trade deficit. The rest of
    the world has been sending us hundreds of billions of dollars
    worth of real goods and services in excess of what we send to
    them. They get to produce and export, and we get to import
    and consume. Is this an unsustainable imbalance that we need
    to fix? Why would we want to end it? As long as they want to
    send us goods and services without demanding any goods and
    services in return, why should we not be able to take them?

    There is no reason, apart from a complete misunderstanding of
    our monetary system by our leaders that has turned a massive
    real benefit into a nightmare of domestic unemployment.

    Recall from the previous innocent frauds, the U.S. can
    ALWAYS support domestic output and sustain domestic full
    employment with fiscal policy (tax cuts and/or govt. spending),
    even when China, or any other nation, decides to send us real
    goods and services that displace our industries previously
    doing that work.
    All we have to do is keep American spending
    power high enough to be able to buy BOTH what foreigners
    want to sell us AND all the goods and services that we can
    produce ourselves at full employment levels. Yes, jobs may be
    lost in one or more industries. But with the right fiscal policy,
    there will always be sufficient domestic spending power to be
    able to employ those willing and able to work, producing other
    goods and services for our private and public consumption.
    In
    fact, up until recently, unemployment remained relatively low
    even as our trade deficit went ever higher.

    Reply

    Hugo Heden Reply:

    @Hugo Heden, (well I managed to format that pretty ugly, but it’s on page 61)

    Reply

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