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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

Guest on Reuters Insider

Posted by Sada Mosler on March 18th, 2011

>   
>   (email exchange)
>   
>   Hi Warren – No, its not live. It’s going to be taped in two separate segments, and probably put
>   up on the platform on Monday. FYI, its not cable TV, but internet. We also do live shows, infact
>   most of them are live. We did a live FOMC show this week on Tuesday which included former
>   Fed governor Mark Olsen and and Bill Ford from the Atlanta Fed. We wanted to have you
>   appear on that occasion but the timing didn’t work.
>   

Link will be posted when available.

226 Responses to “Guest on Reuters Insider”

  1. Mr. E Says:

    FYI – I’ve been seeing the words “QE is just an asset swap” pop up in the strangest places. You’re definitely getting traction.

    Reply

  2. Dan F Says:

    Can’t wait to hear the interview.

    Reply

  3. Mario Says:

    awesome ;) I’m sure you’ll provide a link when available

    Reply

  4. googleheim Says:

    Hi

    I am reporting back for a MMT point :

    http://www.npr.org/blogs/money/2011/03/17/134631472/q-a-the-economics-of-disaster

    Googleheim struck down

    How do I manage my MMT hearts ?

    Regards
    Googleheim

    Reply

  5. rvm Says:

    Great!

    MMT is in attack mode – Prof. Mitchell just posted a brilliant article in “The Nation”!

    Reply

  6. MamMoTh Says:

    Good luck! I would have loved seeing you with those 2 Fed guys, pity it didn’t happen.

    Reply

  7. LetsGetItDone Says:

    Bill Mitchell’s article in the Nation is here:

    http://www.thenation.com/article/159288/beyond-austerity?page=0,1

    Reply

    Mr. E Reply:

    Bill Mitchell is such a bad writer. Brilliant at expounding MMT, but a poor writer. Too long, no graphs or charts. 2300+ words.

    I dont’ even bother going to his site anymore, even though it must be filled with great ideas.

    The articles take to long to read – and I read really fast.

    Reply

    LetsGetItDone Reply:

    Good writing comes in many forms. I think Bill’s writing is very, very strong on the clarity and sincerity dimensions and also very strong in analytical power. For those looking to be educated that’s preferable to many other economists I read. Bill’s not cute like Paul Krugman, or eloquent as Randy Wray and Jamie Galbraith are, or quite as simply expressed as Warren or Stephanie Kelton, but I think he’s a steamroller. When he’s taking a position on in one of his articles, there’s nothing left of it at the end. I think this article is an admirable summary of many of the main points of MMT as they apply to the issue of austerity. It may have been long, but it touched every base, at leasdt in outline.

    Reply

    Mr. E Reply:

    “I think Bill’s writing is very, very strong on the clarity and sincerity dimensions and also very strong in analytical power. ”

    I agree on this.

    ” but I think he’s a steamroller. When he’s taking a position on in one of his articles, there’s nothing left of it at the end.”

    Also true.

    But many times I wish he would just make his points in fewer words, or have fewer points in one article.

    And I think he could do this pretty easily – he is clearly mega-talented. How many other people can push out 3,000 cogent words on anything, much less a few times a week while doing another job? His production is nothing short of astonishing.

    Can you imagine the same steamroller effect on just one point? It would be great. I like Prof. Mitchell a ton – he is one of the good guys and we need someone who can just pound, pound, pound.

    Senexx Reply:

    I agree and disagree Mr. E/TC.

    I agree with you on the two main points of Joe’s/Letsgetitdone that you respond to.

    I disagree with you on the charts. I’m not a fan of the colours he uses on the charts and most of the time he just expounds “as you can see x happened”. I can’t see it because you didn’t explain how the chart worked properly to me. I think there is an overindulgence on charts and graphs.

    I understand MMT economic words. I don’t understand economic charts. I’m just a learner but hell a supply curve isn’t even a curve – it’s a straight line (two I guess technically). And that’s orthodox economics.

    We’ve got someone that can just pound, pound, pound – that is Mike Norman. I’ve seen Warren and Bill interviewed and they’re so hesitant about everything they say. I’ve come to realise this is them changing jargon to layman terms but it comes across really bad in video, as if they don’t know what they’re talking about.

    We do need steamrollers but not stop start ones. The one thing I’ve learnt from watching Mike Norman is lead the conversation, don’t wait for the question but be considerate.

    Reply

    WARREN MOSLER Reply:

    Agreed,

    I like Mike!

    MamMoTh Reply:

    I also think Bill’s posts take too long to read, which is a problem if you want to read them all since he writes them on a daily basis. Some of them are great though.
    I just wish they were much shorter and to the point. In the case of his blog I think the problem is that he abuses of cut and paste.
    I didn’t like the Nation’s article, it’s not even clear to me who was his target and what did he try to convey.
    I’m glad Warren’s comments are short enough to make up to the time spent reading Bill’s blog.

    Reply

    anon Reply:

    MMT never quite gets around to admitting it relies on the central bank as being the currency issuer of last resort. Ironic that it overlooks that operational reality. The government itself is no more a direct currency issuer than a household with an in place line of credit.

    Bill’s actually changed his writing a bit on this over the past year, but alas, without attribution.

    Reply

    Ramanan Reply:

    Such is the view of Post Keynesians Anon – they keep the balance sheets separate.

    Reply

    WARREN MOSLER Reply:

    :)

    Reply

  8. Rodger Malcolm Mitchell Says:

    Bill’s article is good, the latest in a long, long, excruciatingly long line of good articles, all saying the same things. We all have written these good articles. Hell, I wrote the book FREE MONEY in 1997, and before that, the book, THE ULTIMATE AMERICA, which said the same things. I’ve been saying exactly the same thing for nearly 20 years. And where has this gotten us?

    Bill will keep writing. Warren will keep writing. Randy will keep writing. I’ll keep writing (as long as my advanced age allows.) So?

    I’ve not noticed one inch of progress all this good writing has accomplished. Where is the Monetary Sovereignty analog to the debt-hawks’ Committee for a Responsible Federal Budget or the Concord Coalition? Where is one — just one — politician whom we’ve convinced? Where is the newspaper editorial board who understands?

    We’re talking to each other, and patting each other on the back for the brilliance of our ideas, though these ideas haven’t changed significantly over the years, nor have they changed many minds.

    Once, I believed the truth would out. I was wrong. We don’t need any more brilliant articles, containing the usual brilliant (well-worn) ideas. We need a brilliant way to change influential minds. Are there any young, energetic marketing guys out there?

    Rodger Malcolm Mitchell

    Reply

    Mr. E Reply:

    Hi Roger,

    I don’t think this writing has been in vain. I appreciate the hard work you’ve put into it. There has been more mention of MMT in the last 2 years than ever before. Heck, I was in a perfect place to hear about it and never heard a peep until about 4 years ago. If there was ever a place where someone might hear about strange monetary theory, it is the floor of the CME. At some point, everything weird gets around the floor, and I even knew about the III Ten Year episode for a long time.

    Progress seems slow, but just look at the number of comments on Warrens blog. Warren has been on CNBC, and Naked Capitalism accepts MMT in its entirety – and Yves is big time. Same with Edward Harrison – accepts MMT as a functional reality even if he does not fully embrace the buffer stock theories. These people are thought leaders.

    I just saw the other day some random economist say “QE II is just an asset swap.” I wish I had the link.

    MMT and “free” money is going mainstream very rapidly. In fact, I expect to have to start railing aginst the dangers of hyperinflation at some point in the next decade! You need to figure that no economic theory survives contact with mass acceptance, the bastardization of MMT will be “we can spend all we want without consequence.” even though we spend a huge amount of time saying just the opposite.

    But please don’t lose heart. You’ve done a world of good!

    Reply

    Danf Reply:

    From your site:

    57,613 readers in the past 90 days

    I don’t think that is patting each other on the back.

    Reply

    Rodger Malcolm Mitchell Reply:

    I wonder how many of those 57,000 readers now understand the basics of Monetary Sovereignty. And, I wonder what fraction of those are influential belief shapers. And I wonder what fraction of those influential belief shapers who understand Monetary Sovereignty, are speaking out.

    I’m still waiting for the first politician or the first newspaper editor to disseminate the facts.

    Rodger Malcolm Mitchell

    Reply

    Craig Reply:

    MMT explains how things work but how do you sell it? do you try to distill it down to sell it to the middle class? do you try to sell it to the ownership class? they are concerned with different issues. ownership class is concerned with public debt, long-term sustainability, and systemic risk. the middle class is concerned with deindustrialization, outsourcing, and unemployment. A non-MMT worldview has deep entrenched interests behind it. The financial elite benefit greatly from finanicalization.

    What MMT has going for it is that people are looking for answers? There is a general concern that our economic system has become dysfunctional because accumulating wealth has been decouple from producing value – value in terms of physical goods and services. Underlying these factors is the general notion that the American elite are undermining the interests of the general public.

    MMT is an awesome story because it helps explains things operationally but the challenge is how do you tell it?

    Danf Reply:

    I went to buy your book and it is out of stock and I assume out of print. A paperback that normally sells for under 20 bucks is now $100 used. My want to look into that.

    Dan F

    WARREN MOSLER Reply:

    we just sent amazon a few more.

    anarchistas Reply:

    Craig,

    “ownership class”, “middle class” – wrong marketing targets. Look at youth and unemployed – spend a lot of time on-line, have a live interest, are sensitive to absurdity. Talk with them, involve them.

    At least simple internet link exchange network can be implemented easy.


    Rodger Malcolm,

    why not to devote a sticky post for further MMT purposes-and-means seeking discussion @ your blog? The same for W.M.

  9. Joe Says:

    give’em hell, Warren

    Reply

    Senexx Reply:

    Looking forward to it.

    Reply

  10. jrbarch Says:

    Dear RMM @ Mar18th 6:13 pm

    Twenty years is twenty years, but there is only NOW!

    Time is just a river from which you can draw experience; both bitter and sweet! The future always dependent upon what is said today.

    Bill has beautifully crafted yet another ‘Foundation Stone’ from the quarry of his working life, and I bet you and others could also turn out many more. The alternative of walking away from the work, you wouldn’t be happy with either!

    I think that MMT will continue to build to a substantial edifice – given its logical integrity and potential for human and ecological good. In that regard, Purpose Plan and good teamwork forever carry a promise of more global results – easier than one man carrying the burden all on his own. If this happens, events can surprise!

    And I think you are right about young and energetic minds taking up the task. My generation (49′er) are mostly asleep – happy to leave the steering wheel in the hands of people who treat them like clay dolls.

    One of the things I chuckle about most when I read Bill’s blog is his acerbic wit and vigour, and generosity of spirit – and how he makes the crows light up in the forest!

    Dance lightly on their heads, and makes sure you are always having fun doing so is my little guideline.

    What about steering a trust fund to take out a one page ad in a national broadsheet and challenge the ideology?

    I wonder what kind of world these young and energetic minds want? I think many of them really care. There’s a lot of energy there ….

    Cheers …
    jrbarch

    Reply

  11. anon Says:

    thanks R. re your post Keynesian point

    its a point you’ve made before and an important one because it relates to the issue of clarity

    MMT depends on a VERY, VERY, VERY, VERY simple idea:

    governments can spend by crediting bank accounts in unlimited fashion PROVIDED their central banks are instructed to credit bank reserves in corresponding fashion

    I’ll bet you NOBODY in mainstream gets this point; I’ve certainly never seen it considered as such

    what this reflects is NOT the ignorance of mainstream, but the FAILURE of MMT to communicate its key points effectively

    it could do so by dropping all this roundaboutness and oliqueness in its approach and adopting a UNIFORM across the board MMT PROPOSAL to combine treasury and central bank balance sheets operationally, strategically, institutionally, and every other way

    then mainstream might actually engage MMT

    as it is, the obliqueness of the entire approach is a lost cause that mainstream can’t be bothered with

    and if MMT doesn’t engage mainstream, it goes nowhere

    Reply

    Rodger Malcolm Mitchell Reply:

    “. . .governments can spend by crediting bank accounts in unlimited fashion. . . “ Should read, “Monetarily Sovereign governments . . .”

    That is the confusion: A Monetarily Sovereign government vs all other entities. We always must stress the difference between Monetary Sovereignty and monetary non-sovereignty. That single difference is the foundation of all modern economics.

    Reply

    WARREN MOSLER Reply:

    i like to say currency issuer vs currency user

    Reply

    ESM Reply:

    I disagree Anon. I think everybody knows that the government has the power to create currency ex nihilo. When you point that out to them as the reason that the government can’t go bankrupt and doesn’t need to borrow, they’ll say “of course, but we’ll have hyper-inflation and currency debasement.”

    I think the most important idea in MMT, which unfortunately can’t be proved from accounting identities, is that government bonds are basically the same as cash in terms of their effect on aggregate demand (and therefore the value of the currency).

    Almost everybody in the mainstream thinks that if the government “monetized” the debt (and I fully understand the issues MMT-ers have with that word), we would have a debased currency, or at least unacceptably high inflation.

    Experiments in quantitative easing have given us some empirical evidence that MMT has it right, but I doubt it’s enough to convince very many people. Perhaps if QE was made 10x larger, that would help.

    Reply

    Scott Fullwiler Reply:

    I agree.

    When I wrote “interest rates and fiscal sustainability” 5 years ago (actually 6 years ago I presented it), it quickly became clear that the 2 core ideas are (1) money vs. bonds doesn’t matter, and (2) interest on the national debt is a policy variable.

    If you can get those 2 across, everything changes. “crediting bank accounts” is a surprise mostly to the layperson; most economists know it at some level even if they’ve blocked it out. Even the mainstream models have it. But the core problems with fiscal policy in the mainstream model are (1) and (2) above; those are the ones to go after full bore.

    Reply

    MamMoTh Reply:

    QE only proved that those holding bonds didn’t need the money they got from selling the bonds to spend on goods and services in the US. What did they need it for is anyone’s guess.

    Reply

    anon Reply:

    agree monetary sovereignty is a key point; didn’t mean to suggest it should be overlooked

    but i don’t think mainstream is familiar with the idea of not issuing bonds, which is technically different than “monetizing” debt

    Reply

  12. beowulf Says:

    MMT depends on a VERY, VERY, VERY, VERY simple idea:

    governments can spend by crediting bank accounts in unlimited fashion PROVIDED their central banks are instructed to credit bank reserves in corresponding fashion

    See Tim Canova’s article about how the Fed under Marrimer Eccles cooperated with Tsy to fund World War II spending boom with low interest rates and low inflation. In 1944, the last full year of the war, short term Treasuries were capped at 0.375%, unemployment was 1.2% (!), GDP grew by 28% (!!), and inflation (CPI-U) was a galloping, err, 2.3%.
    )The Federal Reserve We Need
    It’s the Fed we once had — when a more democratically accountable bank was enlisted to patriotically finance America’s war debt.
    http://prospect.org/cs/articles?article=the_federal_reserve_we_need

    Reply

    Tom Hickey Reply:

    The key here is that according to the US Constitution, Article 1, section 8, the US is monetarily sovereign and the currency monopolist, as I understand reports of subsequent court precedent. As the sovereign, the US can decide as it wishes with respect to how it handles its monetary affairs.

    Current policy is just that; it is not precedent. Policy shifts all the time. Policy can and should be shaped iaw the need of the times and advancement of knowledge. There is no difficulty in creating a suitable arrangement between the Treasury and cb functions of government once the operational reality is grasped.

    There are a variety of ways to do this. Let the debate begin concerning the advantages and disadvantages of options. It seems from what I have read that most MMT professionals prefer consolidating the Treasury and central bank functions, doing away with bond issuance requirements, and setting the overnight rate to zero. Then it is a straightforward matter of Treasury carrying out the wishes of Congress and the president iaw appropriations and tax policy.

    Is there an MTT policy position paper that shows how and why the current arrangement is unsatisfactory, considers alternative options in terms of advantages and disadvantages, and outlines a policy proposal for consideration?

    Reply

    Mario Reply:

    Is there an MTT policy position paper that shows how and why the current arrangement is unsatisfactory, considers alternative options in terms of advantages and disadvantages, and outlines a policy proposal for consideration?

    I don’t know but even there was one, I vote that you do another one anyway! You’re very articulate and can quickly cover many bases succinctly and in language that is accessible to most people.

    I peruse Bill’s blog as often as I can, b/c there is really is great work in his stuff (much of it over my head), and I recall him stating not too long ago that his basic theory is the longer the research paper is, then the more nonsensical and a waste of time it is. haha!! He believes that the more charts and graphs one puts in only clutter and confuse the points and so he shies away from them.

    I think it’s a good point…usually liars talk the most! Regardless if you did a working paper on this very topic Tom…I don’t think it would need to be laborious at all. 15 pages max…maybe shoot more for 7 or so?

    Reply

    Tom Hickey Reply:

    I am not an economist and don’t have the necessary background in the field. This is one for the economists among us.

    WARREN MOSLER Reply:

    the 7 deadly innocent frauds?

    Tom Hickey Reply:

    Warren, I was thinking of something more along the lines of the brief policy position statements that Jamie Galbraith has summited recently, e.g., to the Catfood Commission.

    ESM Reply:

    “In 1944, the last full year of the war, short term Treasuries were capped at 0.375%, unemployment was 1.2% (!), GDP grew by 28% (!!), and inflation (CPI-U) was a galloping, err, 2.3%.”

    And life for everybody (in particular, 12MM men under arms) was absolutely miserable. The only reason they tolerated it is because they thought they would die if they didn’t.

    As you can guess, I’m not a big fan of using 1944 as an example.

    Reply

  13. Mario Says:

    a friend of mine sent me this forbes article that was put out just the other day. It’s all MMT but without the term.

    Seems to me this stuff is getting out there bit by bit for sure.

    http://www.forbes.com/2011/03/18/deficit-cut-danger-budget-jobs-leadership-managing-employment.html

    Reply

    Tom Hickey Reply:

    Great find, Mario. I am blown away to see this in Forbes. It’s a great explanation of MMT basics. The worm is turning.

    Sign this guy on. He has a knack for marketing intangibles.

    He is a Post Keynesian. Here is his CV.

    http://www.econ.tcu.edu/harvey.htm

    Reply

  14. Ed Rombach Says:

    Here is one of three Reuters Insider segments recorded with Warren on Friday addressin the deficit and debt ceiling. Two more featuring discussion on QE-2 and JPY intervention are in the pipeline.

    http://insider.thomsonreuters.com/link.html?cn=share&ctype=group_channel&chid=3&cid=201773&shareToken=Mzo2N2NmYzA3YS0wZTgxLTRmN2ItYWFiZC1iNGJhMjQzMmI4NDI%3D&start=0&end=531&cn=uid13761

    And here is a segment also recorded Friday based on the discussion on this blog about selling CDS on Japanese sovereign CDS.

    http://insider.thomsonreuters.com/link.html?cn=share&ctype=group_channel&chid=3&cid=201783&shareToken=MzphNmQzNTZiMC0wMGRhLTRjMWItOGZhYy1jZTQxMDgzOWNjYTE%3D&start=0&end=154&cn=uid13761

    Reply

    Peter D Reply:

    Ed, great segment on the CDS, you were very good and covered all the points!
    Warren also came across as the smart, poised guru. Well done! I wish though that there were a bit more of “preemptive strikes” against the usual objections to MMT such as “printing money debases the currency”, “rates go up”, etc.

    Reply

    WARREN MOSLER Reply:

    thanks, Ed, and good to see you!

    Reply

    Ed Rombach Reply:

    Likewise. Incidentally, the two segments…”Deficit Cuts Could Lead to a Depression” and “The Fed Has It All Wrong” were among the most popular videos on the platform yesterday, so let’s do it again sometime. BTW, here is the “Japan Avoids Currency Manipulator Status” segment. Feel free to distribute.

    http://insider.thomsonreuters.com/link.html?cn=share&ctype=group_channel&chid=3&cid=202021&shareToken=MzpjNWYwOWM4NS03Yzk3LTRhY2EtYjhlYS0zYTU5NjhiYmFkZmI%3D&start=0&end=290&cn=uid13761

    Reply

    WARREN MOSLER Reply:

    good to hear it and thanks again!!!

  15. Ramanan Says:

    Anon,

    “governments can spend by crediting bank accounts in unlimited fashion PROVIDED their central banks are instructed to credit bank reserves in corresponding fashion”

    Yep instead of saying “it just credits bank accounts”

    Reply

    Tom Hickey Reply:

    I don’t know the mechanics for all countries, but when the US government spends it is the consequence of an appropriation bill that has passed through the legislative process. At that point the agencies involved swing into action to carry out the directives.

    If it is a DoD expenditure, DoD negotiates the contract and then sends Treasury the bill. Treasury in coordination with the Fed credits the appropriate accounts, with the Fed providing the reserves for clearance. This is all done by marking up spreadsheets.

    Treasury and the Fed do not act on their own. They are government agencies carrying out directives from the decision-makers, which are then implemented by the executive. Marking up digital spreadsheets is how the Treasury and Fed function nowadays.

    The Fed is also given blanket powers regarding monetary policy, which it carries out by changing numbers in spreadsheets.

    The US federal government is not dependent on the whim or approval of the Fed to spend. In fact, if there is a question concerning the rules, the Fed just invokes its emergency powers.

    Reply

    anon Reply:

    the current rules require the government to maintain a deposit account with the Fed, with no overdraft

    for it to be different, the system must be changed

    then and only then could the fed’s balance sheet be absorbed by treasury

    that is the essence of it- absorbing the balance sheet means no deposit account and no bonds required

    MMT is timidly oblique about this fact

    why not be clear and bold and get the logical position out there in full for everybody to see?

    which is operational consolidation of the two balance sheets

    Reply

    Tom Hickey Reply:

    Anon, I think that the MMT pros are pretty well agreed that a primary objective would be involve de jure acknowledgement of the operational realities of a nonconvertible floating rate system, instead of perpetuating myths, and maintaining holdovers from the previous system, or otherwise imposing political restraints on the system in the name of things like fiscal discipline.

    There are various arrangements that might reflect this. One is the consolidation of treasury and cb functions in a single agency, no bonds, setting the overnight rate to zero, operating in the basis of the sectoral balance macro approach, replacing monetary policy dominance with fiscal policy dominance iaw the principles of functional finance, establishing ELR in addition to LLR, etc.

    It would be helpful if this were all pulled together in a policy proposal that MMT pros and allies could sign.

    ESM Reply:

    Nothing has to change. The Treasury can print as many T-bills as it needs by the bootstrap method. If Congress authorizes $10T of spending for the remainder of fiscal 2011, this can easily be accomodated without the Fed being asked to do anything different.

    Day 1: Treasury issues $100B of 1-day T-bills and spends $100B later the same day (which replenishes reserves held by banks at the Fed).
    Day 2: Treasury issues $200B of 1-day T-bills while simulataneously redeeming the maturing $100B 1-day T-bills, and spends $100B later the same day.
    .
    .
    .
    Day N: Treasury issues Nx$100B of 1-day T-bills while simulteaneously redeeming the maturing (N-1)x$100B of 1-day T-bills, and spends $100B later the same day.
    .
    .
    .
    Day 100: Treasury issues $10T of 1-day T-bills while simultaneously redeeming the maturing $9.9T of 1-day T-bills, and spends $100B later the same day.

    Reserves held at the Fed remain unchanged, outstanding T-bills have increased by $10T, and the Treasury has spent a total of $10T.

    Yes, the Treasury had to issue “bonds”, but the Fed didn’t need to be cajoled to do anything special.

    WARREN MOSLER Reply:

    and don’t forget t bonds are functionally just savings accounts at the fed
    they call them securities accounts.

    Scott Fullwiler Reply:

    Exactly right, ESM, as I noted below.

    MamMoTh Reply:

    What would be the benefit of getting rid of bond issuance?
    Is it the psychological effect that eliminating the debt obsession would have?
    And what is the advocated alternative to issuing bonds?
    Paying interest on reserves or let the interest rate fall to 0 which means one less instrument to control the economy?

    anon Reply:

    exactly wrong on the bills

    nobody is forced to buy bills any more than 30 year bonds

    Scott Fullwiler Reply:

    Anon . . irrelevant.

    anon Reply:

    great argument

    beowulf Reply:

    It would make life easier if Congress just deleted subsection b of the US Notes statute. That would eliminate the debt ceiling without using the words “eliminate” “debt” or “ceiling”(US Notes don’t count against it). Until that fine day, Tsy can always issue jumbo platinum coins. :o)

    31 USC 5115 (“United States currency notes”).
    (a) The Secretary of the Treasury may issue United States currency notes. The notes—
    (1) are payable to bearer; and
    (2) shall be in a form and in denominations of at least one dollar that the Secretary prescribes.

    (b) The amount of United States currency notes outstanding and in circulation—
    (1) may not be more than $300,000,000; and
    (2) may not be held or used for a reserve.

    beowulf Reply:

    OK OK, to allays fear of an interest rate hike, in the same one page monetary reform bill (after deleting sect b of US Notes statute), cap rate of interest paid by Tsy on future debt and by Fed on future IOR payments to no more than the short term interest rate as of date of last Declaration of War by Congress. Just learned today that was June 5, 1942, against Romania. As it happens, Fed capped short term rates at 0.375% on April 30, 1942, where it stayed until 1951.

    Of course, current IOR/FFR rates are even lower, but even at the higher cap rate, it would cut projected debt service by more than $4.5 trillion over the next decade.

    Ramanan Reply:

    True, the Fed and the Treasury can set the yield curve if they want to, but in general they do not do so. Not clear if it can be achieved without overdrafts.

    Some developing nations have high interest rates. This is not due to local investors bidding low or taking the Treasury for a toss but purely due to the decision of the central bank. Its not a simple as declaring rates should be low.

    As far as inflation galloping is concerned, well it galloped at 2.3% but later went to 19.67% in 1947. Not that I am arguing “X causes inflation” but wartime economics is different from peacetime economics.

    beowulf Reply:

    The war ended in 1945, it was abruptly end of price controls in 1946 (instead of phasing them out slowly as Truman wished) as well as labor unrest that soon after to the Taft-Hartley bills ban on secondary strikes that caused inflationary spike in 1947. Inflation was cut to 8.1% by 1948 and was actually a negative number in 1949 (-1.2% and was on its away to another deflationary year in 1950 before the Korean War started that summer (for the year 1.3% CPI increase). All of this was under the 0.375% cap.

    The Tsy-Fed Accord blew this up in March 1951, the biggest consequence (besides a tremendous hike in net interest costs from WWII’s sub-1.0% avg rate, which drove Congressman Wright Patman up the wall) of this change is that politicians soon forgot that instead of trying to control the size (or “price”) of the budget deficit and letting economic markets determine interest rates; it’d be better for the govt to control interest rates and let economic markets determine size of budget deficit.

    WARREN MOSLER Reply:

    i’ve been pretty clear on the ‘self imposed constraints’ for a very long time?

    Ramanan Reply:

    Tom,

    If you keep talking like that, Anon’s comments/observations become even more illustrious!

    There is some “sneaking in”

    Anon has certainly taken a lot of pains to illustrate a few things and has worked to some extent. For example I do not see the “crowd-in” argument these days.

    Reply

    Tom Hickey Reply:

    sneaking in?

    anon Reply:

    right R.

    Reply

    Tom Hickey Reply:

    It seems to me that Scott has dealt with a lot of this already.

    Modern Monetary Theory – A Primer on the Operational Realities ofthe Monetary System

    Where do you see this either erroneous or insufficient?

    Reply

    Scott Fullwiler Reply:

    Thanks, Tom.

    ESM has it right. If you’re given the choice of an overdraft at 5% and issuing debt at roughly 5%, do you really care if the overdraft option is then withdrawn? That’s the real world, and that’s MMT.

    anon Reply:

    overdraft is driven by the spender

    debt must be purchased

    Scott Fullwiler Reply:

    What matters is what price bills will be purchased at, not “that” it must be purchased. For that, we have a very good idea since there is an arbitrage opportunity (that folks like Warren are all too happy to take advantage of) if the price of the bills falls too far below the price implied by the Fed’s target.

    anon Reply:

    you’re arguing there can never be a failed auction

    if that’s your view, MMT has nothing to do with it

    Scott Fullwiler Reply:

    “if that’s your view, MMT has nothing to do with it”

    And where do you think MMT comes from?

    Your overwhelming desire to find the “flaw” in MMT just leads you to say things that are more and more ridiculous.

    WARREN MOSLER Reply:

    the cb is functionally part of the govt

    Reply

  16. Ramanan Says:

    “Nothing has to change.”

    I thought “no-bonds” require a change :-)

    I know the “punch”! But the punch is lost if described this way!

    For example, the US Treasury has a cash management operation and makes forecasts on revenue and expenditures and plans for issuing Treasury Securities. It then lends the funds borrowed short term.

    Reply

    anon Reply:

    right

    Reply

    Scott Fullwiler Reply:

    so what?

    Reply

    anon Reply:

    so he’s right

    ESM Reply:

    Sorry, I’m confused. You and Anon had made a claim that it was necessary to change current law in order for the federal government to spend without constraint (specifically, to order the Fed to purchase government bonds). I showed how it could be done under current law. It is not “no-bonds” from a legal point of view, although from an economic point of view it is pretty darn close. Is there a problem with my example?

    Reply

    Tom Hickey Reply:

    Technically, “T-bills only” can be considered no bonds. There is no coupon rate with T-bills. T-bills are discounted from par instead. As I recall, Warren is OK with “T-bills only.”

    Reply

    ESM Reply:

    Well, ok, but somehow I don’t think that’s what Ramanan was driving at.

    WARREN MOSLER Reply:

    yes, if i were put in charge tomorrow i’d immediately order the tsy to issue nothing longer than 3 month bills.

    that would be the least disruptive way to get from here to there and require no legislation or law alterations

    Ramanan Reply:

    ESM,

    Are you saying that the cash management operation of the Treasury is irrelevant ?

    “Recent Innovations In Treasury Cash Management” by Kenneth Garbade
    http://www.newyorkfed.org/research/current_issues/ci10-11.html

    PS: The Treasury doesn’t spend the way your example suggests. The Treasury keeps a buffer

    Reply

    ESM Reply:

    I don’t see how this undermines my argument. In fact, I think it reinforces it. My point essentially was that the same $100B of reserves held by private institutions can be used to facilitate the issuance of $10T of debt instruments by the Treasury. That is, the Treasury can transfer $10T of NFA to the private sector (in exchange for goods and services, or perhaps in exchange for nothing) without the Fed doing anything different than it is doing now.

    Fundamentally, the Treasury can print NFA in the form of bills and bonds just as the Fed can print reserves.

    Reply

    Ramanan Reply:

    Really not sure what you are aiming at. A spending of $10T is very hypothetical considering that the US government spends around $3.5T per year.

    My comments have nothing to do with net accumulation of financial assets of the private sector as a result of deficit spending. In fact, any sector going into deficit spending creates a surplus for the rest of the world.

    The above has nothing to do with reserve accounting really. The fact that it cannot do it forever (i.e, a nongovernment sector running deficits) is a slightly different matter.

    So coming back to your example, I am not sure why you are so sure that the Treasury will be able to sell all the 1-day T-bills. This is not about the ability of the US government but simply due to the fact that Pension funds won’t be interested. So the US Treasury may require an overdraft to sell the bills not absorbed by the private sector. Note this is not about the question of the ability of the US to pay back. Its just that investors may not prefer the bills.

    Now to the point on cash management: I am not sure why this is assumed away in all these discussions. The US government does not have a draft at the Fed and as a result needs to be prepared to face cases where its forecasts of revenue and expenditure go wrong.

    In the present institutional arrangement, the US government has no lender of the last resort. So people inside the Treasury try to forecast revenue and expenditure and accordingly issue securities. Now since these things can go wrong, there may be situations in which large amounts of debt needs to be issued on a single day with no guarantee that the Treasury may not require overdrafts. For example, firms have lines of credits with banks and frequently use the overdrafts if their cash management forecasts go wrong.

    I myself do not require an explanation of whether the US Treasury will default and issues such as that. However if someone asks you this question, you cannot come up with an explanation which sneaks in an assumption.

    ESM Reply:

    “So coming back to your example, I am not sure why you are so sure that the Treasury will be able to sell all the 1-day T-bills. This is not about the ability of the US government but simply due to the fact that Pension funds won’t be interested. So the US Treasury may require an overdraft to sell the bills not absorbed by the private sector. Note this is not about the question of the ability of the US to pay back. Its just that investors may not prefer the bills.”

    My fundamental point is that it doesn’t matter if investors want the T-bills or not. The banks will. It’s an arbitrage. The pension fund simply has an IOU from its bank, it doesn’t have direct access to a reserve account at the Fed. The pension fund may tell its bank, e.g. JP Morgan, “Sorry, don’t want any T-bills today. I’ll stay in cash thank you very much.” Well, JP Morgan will think “Great. I’ll pay my client zero and invest in the T-bills myself and earn an arbitrage profit.”

    A dollar either stays at the Fed as reserves, or it goes into a T-bill. There is no other place for it to go.

    WARREN MOSLER Reply:

    if the tsy held only unannounced auctions after the close of business, including weekends, there would be lots more failed auctions

    anon Reply:

    so the argument seems to be that it is operationally impossible to have a failed treasury bond or bill auction because of pricing arbitrage

    that may be acceptable as an argument, but its got absolutely nothing to do with “MMT”

    and I’m fine with that as long as MMT recognizes its ideas have no bearing on this argument

    vjk Reply:


    “Great. I’ll pay my client zero and invest in the T-bills myself and earn an arbitrage profit.”

    Not sure if there would be much arbitrage profit to reap.

    Firstly, there are no one-day T-bills in existence.

    Secondly, I believe (although did not check lately) that banks get more on holding cash aka reserves, thanks to the Feds generosity, than on holding even three month T-Bills.

    ESM Reply:

    “Not sure if there would be much arbitrage profit to reap.”

    You bid at a level which you consider profitable. If you don’t buy the bills, it means the rest of the banks bid higher.

    “Firstly, there are no one-day T-bills in existence.”

    Ever heard of a cash management bill? The reason why you don’t see 1-day T-bills is for the same reason you never see a baby pigeon. They mature before you get a chance to see them.

    WARREN MOSLER Reply:

    interesting how 3 mo bills often trade at lower yields than fed funds

    Ramanan Reply:

    “Ever heard of a cash management bill? ”

    costs of Cash management bills are high!

    As the name implies it is used for cash management purposes.

    The US Treasury is doing a game of liability management.

    It brings many comments into a direction.

    It makes no sense to finance deficits using cash management bills as it increases interest costs for the Treasury. It also shows that financing deficits with short-term bills only is a pitfall in liability management and hence governments use the whole yield curve.

    For example if interest rates need to be raised, interest costs go up quite a lot because the whole debt has to be financed at this high rate. Its a rollover risk.

    One the other hand if the Treasury has a draft at the central bank, cash management bill yields can be kept low because anything not purchased is being financed by the overdraft.

    No overdraft is not the same as having an overdraft and I believe your aim was to prove that it doesn’t matter.

    WARREN MOSLER Reply:

    last time i asked someone at tsy why they were trying to extend duration he said they didn’t want to be downgraded by the ratings agencies

    ESM Reply:

    “costs of Cash management bills are high!”

    What, a few basis pts higher in yield?

    In any case, it’s not even true. These are auction results for the most recent day that a cash management bill was issued (a 49-day one), where the 4th and 5th columns show the discount yield and real yield, respectively.

    4-WEEK 03-03-2011 03-31-2011 0.135 0.137 99.989500 9127952J9
    49-DAY 03-03-2011 04-21-2011 0.125 0.127 99.982986 9127952M2
    13-WEEK 03-03-2011 06-02-2011 0.145 0.147 99.963347 912795W64

    On top of that, I would argue that if non-generic bills really do cost the Treasury more (and, really, who cares?), it is because the on-the-run bills have more liquidity (in both the cash and repo markets). If the Treasury started a program of issuing 1-day or 3-day or 1-week bills, I would bet a lot of money that they would trade at lower yields than 4-week bills (assuming of course there is no chance of a Fed interest rate cut).

    ESM Reply:

    “For example if interest rates need to be raised, interest costs go up quite a lot because the whole debt has to be financed at this high rate. Its a rollover risk.”

    By the way, if the government wants to raise the short-term interest rate, interest costs shoot way up in a combined Fed/Treasury no-bonds model. It’s exactly the same. If you don’t understand why, just ask!

    WARREN MOSLER Reply:

    true. been making that point for a while

    Ramanan Reply:

    ” CM bills allow Treasury to obtain cash outside of its regular borrowing schedule in varying amounts and maturities, but Treasury pays a premium for doing so”

    http://www.gao.gov/new.items/d06269.pdf

    The ones you are quoting are simple T-bills. The US Treasury doesn’t need cash management bills these days because the amount in the TGA and TSFA are high (though these numbers are reducing because of the debt ceiling limit approaching)

    http://www.treasurydirect.gov/indiv/products/prod_tbills_glance.htm

    Ramanan Reply:

    “If you don’t understand why, just ask!”

    Ha!

    Issuing debt short term is a pitfall in liability management and nobody does that.

    If interest rates need to be raised, and if all debt is short term, it increases the interest payments because interest has to be paid on the whole debt. On the other hand, if the government manages to issue debt across a term-structure, it needs to pay higher interest only on the new issuances and the ones maturing during the time the rates are high.

    Page 20 here http://www.imf.org/external/np/mae/pdebt/2000/eng/guide.pdf if you do not mind the neoliberal undertone!

    “By the way, if the government wants to raise the short-term interest rate, interest costs shoot way up in a combined Fed/Treasury no-bonds model”

    Not a fan of no-bonds model anyways. At any rate, your assumption is that (assuming overdrafts are provided), the Treasury keeps paying exactly the interest paid on reserves. Its not even clear if all the debt is absorbed, and if banks bid at the rate equal to the target.

    beowulf Reply:

    So cap the interest rate (central banking the Merriner Eccles way). See my “one page monetary reform bill” upthread. :o)

    ESM Reply:

    ‘” CM bills allow Treasury to obtain cash outside of its regular borrowing schedule in varying amounts and maturities, but Treasury pays a premium for doing so”’

    Well, you are quoting something that is 5 years old. My main point is that any premium the Treasury pays is due to having an irregular schedule for issuance. There is nothing special about a 4-week bill or a 13-week bill that makes it trade at a low yield other than that the market has grown accustomed to them.

    “The ones you are quoting are simple T-bills.”

    The 49-day one is a cash management bill, at least according to the Treasury Direct website.

    ESM Reply:

    “Not a fan of no-bonds model anyways. At any rate, your assumption is that (assuming overdrafts are provided), the Treasury keeps paying exactly the interest paid on reserves. Its not even clear if all the debt is absorbed, and if banks bid at the rate equal to the target.”

    In a no-bonds model, there are trillions of dollars in reserves rather than trillions of dollars of bonds. If the Fed wants to raise overnight interest rates from 0 to X, it needs to pay X on every single dollar of those reserves (at least those not needed by banks to meet regulatory requirements). Otherwise, overnight interest rates will still be 0.

    MamMoTh Reply:

    And what is the advantage of having the overnight interest rate fall to 0, or paying interest on reserves over issuing bonds?

    ESM Reply:

    I’m sort of agnostic on a zero-interest rate policy, and I’m generally against a no-bonds policy, but the main argument for going to no-bonds and zero interest is that people (i.e. savers) should not be rewarded for sitting on their wealth.

    It’s certainly possible that people work harder, consume more, and are more productive in a zero interest rate environment, ceteris paribus.

    WARREN MOSLER Reply:

    right, put those would be rentiers to work

    Tom Hickey Reply:

    ESM, it seems to me that the way to go is to set forth an operational description of the present monetary system and the options it affords and let the debate begin over the course to take politically.

    I tend to favor no bonds in that interest is a subsidy from the operational point of view since bonds issuance is not necessary. I also favor setting the interest rate to zero and letting the market set rates instead of a small group of interested technocrats, which smacks of a command economy to me.

    But I am open to counter-arguments.

    Ramanan Reply:

    “In a no-bonds model, there are trillions of dollars in reserves rather than trillions of dollars of bonds. If the Fed wants to raise overnight interest rates from 0 to X, it needs to pay X on every single dollar of those reserves (at least those not needed by banks to meet regulatory requirements). Otherwise, overnight interest rates will still be 0″

    Thanks, as if I didn’t know.

    WARREN MOSLER Reply:

    right, deficit spending adds nfa first in the form of reserve balances which can then be shifted to cash and tsy secs

    Ramanan Reply:

    “My fundamental point is that it doesn’t matter if investors want the T-bills or not. The banks will. It’s an arbitrage”

    Not sure what the arbitrage is.

    Lets take an example where the financial system is in a normal state as in not with the high amount of reserves created by the Federal Reserve. So before the crisis, banks held about $100B in reserves.

    Let us say that the US Treasury wishes to issue $100B of T-bills. Will banks buy them ? Unlikely.

    To buy them would require banks to go into an overdraft position at the Federal Reserve at least for a time till the Treasury spends, so really not sure if banks want to pay those charges *volitionally* for an “arbitrage”.

    Reply

    ESM Reply:

    “Not sure what the arbitrage is.”

    The banks will bid the T-bills slightly higher than their indifference point. If they’re earning 0.50% on reserves (or an overdraft costs them 0.5% — same thing), then they will bid 0.60% or 0.75% for the T-bills.

    The beautiful thing about a Dutch auction is that you get to buy at your desired price, unless of course everybody else has bid higher, in which case, you don’t buy anything at all and are no worse off than not bidding.

    And if banks hold only $100B reserves in total, it probably makes sense for the Treasury to auction a smaller net amount of bills, perhaps $25B or $50B. It doesn’t matter though. The bootstrap method works just fine for smaller amounts of money per iteration, although perhaps more slowly because more iterations would be required. The Treasury could issue $1 of T-bills, transfer $1 to the banks in spending or whatever, then issue another $1 of T-bills and transfer, etc. Theoretically, it could be done every second, or even microsecond I guess.

    Ramanan Reply:

    “Well, you are quoting something that is 5 years old. My main point is that any premium the Treasury pays is due to having an irregular schedule for issuance.”

    Well the GAO article was making a generic statement so doesn’t matter if its 5 years old.

    We were talking of Cash Management Bills which mature in a few days.

    Reply

    vjk Reply:

    Ramanan:

    “For example, the US Treasury has a cash management operation and makes forecasts on revenue and expenditures and plans for issuing Treasury Securities. It then lends the funds borrowed short term

    Groundhog day :) ? How are your piano lessons going ?

    Seriously, not sure how can one disagree with your and Anon’s pretty straightforward arguments vis-à-vis bond issuance operational reality. An interesting phenomenon, that disagreement, psychologically speaking.

    Reply

    anon Reply:

    yes, very interesting psychologically

    Reply

    Ramanan Reply:

    Piano lessons going fine vjk – am an Elton John fan.

    Btw, talking of operational reality – and I think Anon doesn’t agree with my stand there but anyway – here is something on the external sector.

    (my comments)
    http://bilbo.economicoutlook.net/blog/?p=13787&cpage=1#comment-15432

    Its about “official convertibility” – Article VIII, Section 4 of the Articles of Agreement of the IMF

    A bit of a heated debate, but I really wished to make a point.

    Let me know your thoughts.

    Reply

    Tom Hickey Reply:

    Bill’s reply

    http://bilbo.economicoutlook.net/blog/?p=13787&cpage=1#comment-15461

    Mario Reply:

    wow that’s some wild stuff over there.

    I must say Ramanan that your thought process is definitely rigorous, researched, and commendable to be sure.

    Based upon my limited (very) knowledge of these matters it does appear that Bill is right on this one and that the IMF really is puny compared to nation’s sovereignty. I think he’s also correct in the implications of a trade deficit unwinding…however it does seem like if that were to happen it would be as “easy-going” as Bill or Warren seem to make out…I think it would be pretty intense and disruptive and considering how little a government jobs program is being hashed over in congress, it would probably take a while for us to stabilize from such a thing.

    Regardless, great points, great enthusiasm, I’m all for it.

    Thanks for clarifying this stuff ever further.

    By the time we’re all done with these issues, we’ll have mapped out the possibilities for whoever is to come after us and hopefully stumble upon these writings! That’s cool.

  17. jrbarch Says:

    I appreciate the core formulae given above and understand the thrust of MMT. However, I see three different core identities:

    1 – The ‘skin of the earth’ and its resources
    2 – Human beings
    3 – Human values

    (1) Obviously, what has to change is human values. The monetary system is just a ‘plug-in’ and has no value. But I agree that the potential of a fiat money system should be thoroughly understood. And I reflect on how long it took human beings to work out where the rain came from ….

    e.g. American academics + space program = rocks from the Moon

    What is at work here are human values that opine the space program to be of far greater value than for example, achieving peace on this earth (where everybody simply agrees not to fight with each other anymore); or ending hunger, poverty and disease – human life given no value.

    It wasn’t so long ago, the Brits arrived on the shores of this fair ‘wide brown land’ (Aus.) and opined the indigenous people here to be ‘cattle’. They are still a suffering, broken people.

    So called ‘Intelligence’ is ruled by values – it’s not the other way around: therefore all of the core formulas, as useful and as accurate as they are – are neutered without values.

    (2) The only people that understand MMT on this planet hang out on the various blogs. With ‘knowledge comes responsibility’ – nearly every adult would agree. There is nobody else to get its ‘truth’ out there, if that is what you would like to do.

    Would dearly love to see both a Purpose for MMT clarified to the whole MMT community (as loose as this community is) and a Plan emerge from out of the substantial body of knowledge available (if the purpose does include getting the understanding out there) – something dynamic, to be implemented and measurable.

    I think concepts are useless without values, values are useless without planned action; and planned action of the scope required probably needs some helping hands – a teeny little bit of organisation and teamwork (not overdone or underdone)!

    Could this site be given a ‘Preview’ option for the commentary?

    Cheers …
    jrbarch

    Reply

    Craig Reply:

    “change human values” is noble cause quite but a long endeavor. i think a more effective approach to sell MMT is to appeal to “self interest”. When Illiniois was admitted into the union as a a free state poor white farmers were less concerned with slavery from a moral standpoint as they were with competing with slave labor.

    the middle class is concerned with deindustrialization, outsourcing, and unemployment. ownership class is concerned with public debt, long-term sustainability, and the systemic risk associated with financialization.

    MMT is a model that explain how things work operationally. Once the ownership class understands our current problem (demand is the problem not deficits) the solutions become rather apparent. back off on earned income taxes and add more public spending. where? well since I asked IMHO i propose :-) 1. healthcare – no. healthcare spending is high enough. healthcare needs structural changes like warren talks about. 2. education – no. 2. education spending per capita is high enough. education needs structural changes too – watch the new documentary “waiting for superman”. 3. infrastructure – in general yes but i’m not sure obama’s high speed rail out here in texas makes much sense. 4. R&D and technology development – yes, yes, and yes. let the government invest in deep technology development for military and spin-off commercial applications. private sector is good at short term investment. next-generation technology comes from the public sector. socialize R&D costs until a commercial application can be found and let business privatize the profits.

    Reply

    Tom Hickey Reply:

    jbarch, economics is amoral to the degree it purports to be a positive science, i.e., a generalized description of the world. Values enter at the level of political economy, that is, the application of economics to policy. That is a political matter.

    MMT describes monetary operations and conditions, and their effects on the economy. This suggests various policy options and their outcomes. Policy choices are political.

    MMT shows how demand is key to maintaining full employment along with full employment for optimal capacity utilization. It turns out that operating the economy efficiently results in effectiveness if full employment and price stability are policy goals. This is why people from both ends of the political spectrum can agree on it.

    Reply

    Tom Hickey Reply:

    Should be “MMT shows how demand is key to maintaining full employment along with price stability for optimal capacity utilization.

    Reply

    beowulf Reply:

    In The Economics of Control, Abba Lerner stated that the three public policy objectives that economic policy should support are providing full employment, diminishing inequality of income and wealth (in the sense of raising the floor rather than lowering the ceiling) and antitrust policies to reduce the economic waste due to monopolies.
    http://203.200.22.249:8080/jspui/bitstream/123456789/1052/1/The_Economics_of_control.pdf

  18. jrbarch Says:

    My perception is that morality and immorality (values) in a human being, are both the presence and absence of an innate quality (energy) that needs to be felt to be known, understood and accepted (good), not defined, that colours ideologies like politics, religion and economics. We choose. We paint. Rationality is but one aspect of our being, and if rationality were King, the world would be rational. Is that not correct Tom?

    Reply

    Craig Reply:

    “Values enter at the level of political economy”

    Well, to play devil’s advocate everything about capitalism is political. Explains why classical economists never spoke of “economics” but always of “political economy.” Property rights, the foundation of capitalism is based upon a political arrangements that serve the common good by reducing the risk of confiscation. The corporation, another political arrangement, that reduces the risk of personal business failure. Why pool together capital for a business if you remain liable for those debt personally? Money, more politics and the primary focus of MMT, reduces the risk of private market failure. Why? Currency issuers pose no operational constraints or credit risk.

    Like our postmodern brotherin’s say, everything is political. Moving off the gold standard? Okay, fiat currency’s allow the free flow of capital. Now we can support communist regimes though product purchase. I guess the point is, capitalism and everything about it is political. Regardless, i am still a fan of MMT because IMHO it explains how things work.

    Reply

    Tom Hickey Reply:

    Market-based systems are inherently normative in that “free market” is an oxymoron. Markets need rules and policing to prevent cheating, or they would not function.

    Capitalism is based on the presumption that private property is an inherent right. That is normative through and through.

    Reply

    Tom Hickey Reply:

    We know from cognitive science that is not possible to draw a line between the rational and non-rational, positive and normative, because our brains don’t work that way. While such distinctions have been shown not to hold empirically, they are still useful if not pushed to far.

    Economics and other social science involving human behavior and choice are not sciences like the natural science is for this reason. But even in quantum physics, it is impossible to isolate subjectivity and objectivity from each other (the supposed ideal of science), because measurement involves subjective intrusion. This doesn’t mean that scientists should not be neutral observers, mindful of subjectivity entering their work unawares. There are always hidden assumptions. The task is to minimize them through technical means.

    There is automatically a huge normative issue implicit in monetary economics because whoever controls the money controls the economy and the fate of the nation. As a description of what happens operationally, MMT attempts to be a neutral observer. But from the policy perspective, MMT’ers may also argue that fiscal policy is inherently more democratic in a liberal democracy than an independent central bank that is populated by unelected and unaccountable technocrats, many of whom are “interested men” in Paine’s sense, that is, not to be trusted.

    Reply

  19. anon Says:

    attempting to leave behind the usual weighty, indignant, priestly responses of “ridiculous”, “irrelevant”, and “so what”:

    the US Treasury is a currency user under existing institutional arrangements

    does anybody here actually dispute that?

    (that’s the formal implication of the Treasury having a constrained deposit account at the Fed)

    so why not tackle it head on by formally proposing operational and policy consolidation of Treasury and Fed balance sheets?

    otherwise I think you’ll continue to talk mostly among yourselves, without penetrating and engaging mainstream

    (surely your objective is actually to become mainstream, or do you prefer the current niche?)

    Reply

    ESM Reply:

    “the US Treasury is a currency user under existing institutional arrangements”

    In theory, perhaps. In practice, absolutely not. As long as bond traders don’t believe that Treasuries have credit risk, and believe me, they don’t, the government can “print” all the Treasuries it wants, without technically having the ability to “print” cash.

    This means to me that the US Treasury is not a currency user under current institutional arrangements. It’s possible that the faith in Treasury debt originats from the latent power of the government to change current institutional arrangments along with a constitutional prohibition against default. Even so, an actual change is not required.

    Reply

    beowulf Reply:

    This is true. Now if only Congress was not so intent of kneecapping the US economy. Honestly, I don’t think a hostile foreign intelligence service could every hope to do as much damage to interests and strength of the United States as actions like this:
    In a letter sent Friday to the White House, the 64 senators urge Obama “to support a broad approach to solving our current budget problems” along the lines of recommendations issued last year by a presidentially appointed commission. That plan calls for sharp cuts in government spending, elimination or reduction of dozens of popular tax breaks and an overhaul of Social Security that would include raising the retirement age to 69 for today’s toddlers.
    http://www.washingtonpost.com/business/economy/more-than-60-senators-call-on-obama-to-join-deficit-reduction-talks/2011/03/18/AB7V2tp_story.html

    Reply

    anon Reply:

    your statement is reasonable, but it doesn’t matter what you or I think as to what is reasonable

    the point which I pointed out earlier is that not everybody in mainstream believes this – how could they and have the kinds of questions that persist about “affordability” etc?

    the other aspect that I pointed out earlier is that your statement while reasonable is unaffected by any “unique” MMT view of things; MMT has no influence whatsoever on the validity of your statement – it is purely a judgement call about markets and risk

    whereas the unambiguous alternative of denying any possibility of borrowing failure or auction failure by forgoing bonds altogether is more related to MMT I think

    Reply

    ESM Reply:

    MMT sort of explains the operational reality that dollars go around in a circle. When a US resident buys something from China, the dollars just get shifted from one reserve account at the Fed to another one (and maybe it’s actually the same one). That’s important for understanding why T-bill auctions will always clear. The reserves to buy the T-bills are already at the Fed in bank-owned reserve accounts.

    As I explained in a reply to Ramanan just now, it doesn’t matter who the ultimate beneficial owner of the dollars is or what he wants to invest in, the legal “street name” owner is a bank which will make rational arbitrage decisions.

    MMT explains this, and I think it’s a point that most people don’t get. Bond traders understand this intuitively, even if they can’t explain it coherently. And only bond traders matter when it comes to clearing a Treasury auction.

    anon Reply:

    “The reserves to buy the T-bills are already at the Fed in bank-owned reserve accounts.”

    no they aren’t

    we’ve been through this before; Ramanan is probably the expert on it; there was some paper by Stephanie K. about TTL accounts that contradicted this assertion

    you’re getting into the exact area of why treasury is in fact a currency user

    anon Reply:

    the China thing is different

    I agree MMT is very, very useful there

    but that’s not at all the same as the (domestic) interface between treasury and the Fed

    anon Reply:

    “It’s possible that the faith in Treasury debt originats from the latent power of the government to change current institutional arrangments along with a constitutional prohibition against default. Even so, an actual change is not required.”

    that’s an example of what I referred to as “obliqueness” earlier

    also, treasuries aren’t currency

    again, these are not MMT dependent observations/judgements in any case

    and why doesn’t mainstream “believe you” in terms of treasury bond credit risk?

    if they did, there wouldn’t be any issue for MMT to argue at all, but apparently there is

    Reply

    Tom Hickey Reply:

    and why doesn’t mainstream “believe you” in terms of treasury bond credit risk?

    Are you saying that credit risk is actually priced in? Or that “some people” are saying there is credit risk?

    Reply

    anon Reply:

    the affordability thing is fundamentally about credit risk perceptions

    its also apparent in credit default swaps on US treasury debt

    whoever is misinterpreting this affordability or pricing CDS obviously doesn’t follow this blog religiously

    and there is a tendency on this blog also to overestimate the collective intelligence of the bond trading community

    MMT is biased in its interpretation of treasury debt – there’s a lot more pledging of houses as collateral than there is treasury debt as collateral – hence the importance of the distinction between currency and treasury debt; the MMT blurring of same is a bias toward a particular interpretation that is internally inconsistent

    Reply

    WARREN MOSLER Reply:

    consolidation is entirely appropriate

    Reply

  20. Scott Fullwiler Says:

    “The reserves to buy the T-bills are already at the Fed in bank-owned reserve accounts.”

    “no they aren’t”

    They absolutely are. If they aren’t then the Fed does a repo to provide them prior to auction settlement. This is well known and I’ve cited primary sources in previous research whether Ramanan (the “expert”) knows this or not.

    Reply

    Scott Fullwiler Reply:

    should have said, the necessary addition to reserve balances is provided the same day of the auction. exact timing may or may not match up with auction during the day, but then there’s an overdraft that is settled by the end of the day (at virtually no cost), so same difference in terms of economic significance.

    this ticky-tack critique is just ridiculous. so, now apparently it relies on a failed auction in tbills? and not just that, but several failed auctions, since even a few don’t necessarily move the tbill rate significantly–even in the failed auctions in the past with tbonds (as the tsy was figuring out how to run the auctions when they first started) didn’t have an economically significant effect on the rate. again, ridiculous.

    Reply

  21. anon Says:

    “should have said, the necessary addition to reserve balances is provided”

    the usual type of correction made my point in spades

    the point being part a) that the Fed provides system reserve balances to enable funds rate targeting that is effective, essentially by the end of the day

    the point being part b) that the Fed couldn’t really give a damn as to the components of any treasury flow “disruption” on a given day – it looks at all expected flows and adjusts system reserves accordingly

    this overarching view of flows by the Fed reinforces point part c), which is that the Fed is very separate from treasury in the process of adjusting system reserves in response to such flows – it is reacting to treasury’s impact on system reserves in total as a result of net system activity through treasury’s deposit account at the Fed

    treasury is a currency user

    the Fed is a currency issuer

    the Fed as issuer will issue new reserves or redeem existing reserves in accordance with its system setting objectives, taking into account ALL treasury flows on any given day that may affect system reserves in total as well as all private sector flows that may dislocate the distribution of the prevailing level of system reserves

    the Kelton article had something to do with treasury’s own ability to contribute constructively to the Fed’s operational objective by minimizing system net reserve disruption by using TTL accounts rather than its account at the Fed for all transactions

    either way, both TTL accounts and the treasury Fed account are accounts of a currency user – not a currency issuer

    the Fed issues the currency – which is bank reserves used for settlement and interest rate control; and actual notes issued to the public

    treasury liabilities are not currency

    P.S. Ramanan is at least an expert in not responding with “ridiculous” as a primary form of engagement in discussion

    any particular reason why you keep regularly correcting yourself in discussion?

    Reply

    Tom Hickey Reply:

    the Fed issues the currency – which is bank reserves used for settlement and interest rate control; and actual notes issued to the public
    treasury liabilities are not currency

    Both are agencies of the USG. “Currency issuer” and “currency user” do not accurately apply, at least not in anywhere near the same sense as government is the currency issuer and nongovernment is the currency user. The Fed in no sense controls the Treasury, even though it is “politically independent.”

    In the present setup, the Treasury is securities issuer and the Fed is currency issuer. They are tandem operations that are closely coordinated.

    Positing the possibility of market failure is simply positing the failure of the US government to coordinate its operations, which is remote.

    Reply

    WARREN MOSLER Reply:

    both issue govt liabilities

    Reply

    Scott Fullwiler Reply:

    “any particular reason why you keep regularly correcting yourself in discussion?”

    Just trying to be as precise as possible. God forbid I forget to dot an “i” somewhere when you’re the one reading it.

    Reply

    anon Reply:

    in that case, I’m honoured

    Reply

    Scott Fullwiler Reply:

    :)

  22. Ramanan Says:

    this overarching view of flows by the Fed reinforces point part c), which is that the Fed is very separate from treasury in the process of adjusting system reserves in response to such flows – it is reacting to treasury’s impact on system reserves in total as a result of net system activity through treasury’s deposit account at the Fed

    Very well said.

    Plus to add to the discussion, there are no repos – atleast not in the scale of the auction size. The proceeds hit the TGA and then transferred back to the TTL. Its true that these are coordinated but in the sense you mentioned above, but its not a proof that their balance sheets have to be necessarily combined.

    Reply

    Ramanan Reply:

    Should add – during periods of high tax inflows, the TTL is not able to absorb due to shortage of collateral for keeping public funds (as pointed out by vjk) so during those times, more repos are done.

    Reply

    anon Reply:

    “Plus to add to the discussion, there are no repos – atleast not in the scale of the auction size. The proceeds hit the TGA and then transferred back to the TTL.”

    an important point

    again highlighting the operational nature of treasury as a “currency user” – there is no magical, inextricably linked reserve fusion of treasury and Fed operations just because of the auction settlement process – the Fed works around the treasury AND the treasury works around the Fed, in terms of cash management – and cash management as you have pointed out many times is a critical treasury function – and cash management defines it as an operational currency user

    Reply

    Neil Wilson Reply:

    To be a currency user cheques have to bounce at some point. When does that happen?

    Reply

    anon Reply:

    the actual operational rules define currency user:

    - positive balance maintained at the Fed
    - no overdraft

    your definition is arbitrary, based on the assumed treatment of a situation when the rules are broken

    but the intended meaning of the rules themselves is to define the operational role of treasury as currency user

    the rules define the role of currency user, not the treatment of rules broken

    as I mentioned before, Bill Mitchell has actually become quite precise on this point, over the past year – since “Marshall’s longest” – he qualifies this point more so now, which is a good thing – but better just to standardize the no bonds proposal

    Neil Wilson Reply:

    The reality defines the situation. Currency users get to the point where they can’t pay the bills.

    I ask again – at what point do the bills stop getting paid? If that never happens, then you have an entity that can ‘de facto’ spend before it earns.

    And that is a currency issuer.

    Matt Franko Reply:

    Neil,

    Don’t you know that we can’t break “The Rules”?

    Do you not value the concept of ‘Legal Precedent’?

    ;) Resp,

    Ramanan Reply:

    The way this is presented here is by saying that the Treasury and the Fed have created a complicated system to make sure that cheques do not bounce. That complicated system is cash management. Cheques do not bounce because the persons doing cash management do their jobs seriously.

    Of course the Fed won’t take the extreme step of bouncing the cheques but that doesn’t give the privilege to the Treasury on being careless about cash management.

    Its difficult for cheques to bounce because the Treasury has foreign reserves and other securities such as MBS which it can sell anytime in case its forecasts of revenue and expenditure go drastically wrong.

    anon Reply:

    “Currency users get to the point where they can’t pay the bills.”

    you’re just constructing an ever more layered definition to fit to your conclusion

    I can make up my own definition as polar opposite and say I’m a currency issuer because I can write cheques on a line of credit – it’s my action that’s created the money

    but a currency user is an entity with a constrained deposit account with a bank – even MMT admits to self imposed constraints

    sounds like you just want to contradict that and say self imposed constraints aren’t constraints at all

    and all I’m saying is make the whole thing a lot clearer than that obliqueness and obfuscation by using a standard banking based definition of currency user, and then rolling the central bank into treasury to make treasury a currency issuer – a bank basically

    that’s what MMT is really about – turning the fiscal function into a bank

    anon Reply:

    good comment Ramanan

    the intention of the current system is very straightforward

    and it conflicts with MMT’s desires

    SO CHANGE THE SYSTEM!

    propose it!

    stop being so indirect about it all!

    anon Reply:

    i.e. stop the wussiness now, MMT

    Neil Wilson Reply:

    “Cheques do not bounce because the persons doing cash management do their jobs seriously.”

    Cheques do not bounce because the amount of taxes that come in plus the reserve accounts which get swapped for bonds will always equal spending.

    Neil Wilson Reply:

    “but a currency user is an entity with a constrained deposit account with a bank”

    If I have a ‘constrained account’ and nobody ever stops cashing my cheques, then by defacto I have an unconstrained account – whatever it says on a piece of paper somewhere.

    The constraint is when bills stop getting paid – which they won’t due to the nature of the money circulation.

    anon Reply:

    “Cheques do not bounce because the persons doing cash management do their jobs seriously.”

    again, that’s exactly right

    that’s what makes the issue of government cheques bouncing a straw man in the context of this discussion – they don’t bounce inevitably because the treasury function follows its prescribed rules as a currency user that never surfaces the issue of testing whether or not they can bounce- that’s the whole point here – not that they won’t bounce if treasury happens to f*** up on its cash forecasting function

    anon Reply:

    “but its not a proof that their balance sheets have to be necessarily combined”

    not sure of your meaning there

    I haven’t said they need to be combined

    I just don’t see the point of MMT unless they are combined – for clarity, i.e.:

    a) elimination of central bank independence as a policy objective

    and

    b) elimination of any market perception that the combined entity would rely on borrowing – in fact the option could be totally left open as to borrow or to issue reserves – and that option would always exist as a matter of normal operations

    otherwise, the argument that auctions can never fail just because of pricing arbitrage, while not an unreasonable argument, has absolutely no dependence on understanding monetary operations or MMT – so what’s the point? You have those who say auctions can never fail and those who say the government is bankrupt – why not just make it obvious what the facts are via operational consolidation – with the ongoing availability of simply crediting bank accounts without borrowing as a normal course option?

    instead of all this other roundaboutness

    Reply

    Ramanan Reply:

    “I haven’t said they need to be combined”

    Yeah didn’t mean to say you said it.

    Reply

    anon Reply:

    I actually suspected not, just wanted to be clear

    :)

    ESM Reply:

    Sorry to intrude on your and Anon’s mutual admiration society meeting, but you guys are picking nits. Fine, I’ll concede that the Treasury is a currency user rather than a currency issuer, but I never claimed it wasn’t. I claimed it didn’t matter.

    The Treasury is a bill, note, and bond issuer, and my example showed that the Treasury can issue any number of bills it wants if given enough time to do so operationally. I have said explicitly that the Treasury can print bills like the Fed can print cash.

    Now, when you can issue as many T-bills as you want, which of course means you can acquire any amount of dollars, then you have unlimited (nominal) spending power. Personally, I consider bills and bonds to be money, if not currency, so the Treasury clearly has the ability to print money (of course, we all do to the extent that an IOU is money).
    In the Treasury’s case, this money will always be worth very close to its face amount in dollars.

    That’s a consequence perhaps of things exogenous to the current institutional structure, but my main point, and I still stand by it, is that nothing has to change and that MMT helps to understand why.

    Reply

    anon Reply:

    picking nits, or exposing a muddle

    there’s no way that time is an element in a operational “proof” that auctions can’t operationally fail

    can you please highlight your argument there again? thx

    Reply

    ESM Reply:

    There’s always some positive amount of reserves held by banks at the Fed which is earning whatever the Fed wants to pay on reserves overnight (which used to be zero). Suppose this amount is X. The Treasury can auction/issue T-bills up to X, although it would be prudent to issue T-bills only up to, say, X/2, so that the auction is competitive.

    The Treasury then spends the X/2 dollars it raised. The X/2 dollars ends up back in bank reserve accounts, and the amount of investable reserves is now back up to X again, and the Treasury can auction/issue another X/2 in T-bills (net). It may have to rollover any maturing T-bills, but that adds to investable reserves, and the maturing T-bills presumably would be rolled over into new ones.

    It’s a perpetual motion machine, although I suppose that if you had to rollover $10T T-bills with only $100B of reserves in the system, there might be some bank which held out for a higher yield and that could be costly. In theory there is no limit, although in practice I think that going up to $10T of T-bills could cause some problems that the Fed might want to take steps to mitigate.

    By the way, the availability of Fed repo for T-bills makes this process much easier, and in fact may allow the Fed to issue up to X or even higher than X in each step.

    ESM Reply:

    should have typed Treasury not Fed below:

    “By the way, the availability of Fed repo for T-bills makes this process much easier, and in fact may allow the Treasury to issue up to X or even higher than X in each step.”

    anon Reply:

    thx

    I do have problems with that sort of rationale

    first, there’s no reserve constraint on banks buying treasury debt directly; they can always borrow from the Fed at the end of the day – that holds for lending and it holds for treasury debt

    second, in normal times, pre-crisis, there is never a material build up of treasury cash at the Fed simply due to auction settlement; that’s empirically evident – the reason being that any material reserve drain from auction settlement itself can always be transferred back same day to the TTL accounts – it is for that the reason that the repo aspect is a red herring, since it doesn’t provide any meaningful cumulative reserve injection by the end of the day

    in any event, what you’ve described is not a proof that banks or bank customers will buy treasuries merely because of operational cash management arrangements

    on the other hand, as I said before, your pricing arbitrage argument in its generality is a reasonable one, but that’s got nothing to do with what you’ve described – all that’s saying is that somebody will buy if rates go high enough. I accept that roughly, although not completely – although I don’t feel its worth debating since its close enough to the truth in almost all circumstances

    Scott Fullwiler Reply:

    “on the other hand, as I said before, your pricing arbitrage argument in its generality is a reasonable one, but that’s got nothing to do with what you’ve described – all that’s saying is that somebody will buy if rates go high enough. I accept that roughly, although not completely – although I don’t feel its worth debating since its close enough to the truth in almost all circumstances”

    OK, so we roughly agree then (??).

    going back to the original statement or attempt at one, how about “the Tsy can spend by crediting bank accounts in unlimited fashion at roughly the Fed’s target rate provided the latter is instructed to credit bank reserves in corresponding fashion (i.e., instructed to provide an overdraft to the Tsy) OR an arbitrage between the rate the Tsy can issue securities and the Fed’s target rate is sustained”?

    The latter would suggest that if such an arbitrage is not roughly sustained for any reason, then there is an economically significant difference between receiving an overdraft at the Fed’s target and issuing bills. At that point, the only recourse would be to require the Fed to provide overdrafts or for the Fed to purchase Tsy’s in the open market at an announced price roughly corresponding to its target rate.

    If none of those three occur–overdrafts at the target rate, issuing securities at an arbitrage against the target rate, the Fed purchasing at roughly its target rate–then I would grant that there is an economically significant constraint (albeit self-imposed, but a constraint nonetheless) on the Tsy’s ability to credit bank accounts. (And, in fact, this has been my position for several years now.)

    Hope I’m shedding more light than heat.

    WARREN MOSLER Reply:

    auctions fail all the time

    Tom Hickey Reply:

    Ron Paul is right! End the Fed! Think of all the Ron Paul followers MMT can pick up. :)

    Reply

    Mr. E Reply:

    Warrens idea to go after this crowd was great.

    Reply

    Tom Hickey Reply:

    Seriously though, I think that the argument should be based on operational efficiency. There are many ways to change the presently existing rules to reflect operational reality, but why not go for the most efficient way by simplifying and eliminating that which is unnecessary, using Ockham’s razor?

    The Fed as it presently exists is not needed and can be eliminated by consolidating cb with Treasury. This would have a lot popular political support in the US as the moment, too. It also eliminates are the FUD about the Fed as a private institution, as well as the conspiracy theory about the Fed being a private institution through which the international banking cartel controls the US.

    Best of all it would end Fed “political independence” and put monetary operations under the aegis of a government agency responsible to elected politicians who are accountable to voters. It would also make it easier to set interest rates to zero, since who in their right mind would want government controlling interest rates and yields instead of markets?

    It makes a lot more sense to me to promote legally consolidating the Treasury and cb functions in a single government agency, issuing currency directly without the offset, and recognizing that the natural rate is zero than to jiggle with the existing system.

    In addition, explaining why this is the most efficient way to deal with the operational realities of the current system educates people about those realities and how to take advantage of them in order to achieve full employment along with price stability, which the mainstream presently thinks to be unachievable.

    Why not just demand the ideal instead of compromising off the bat? Maybe negotiations will lead elsewhere, but that is a political reality to be dealt with as it arises.

    That leaves MMT’s position regarding the external to consider. Dani Rodrick lays down the basics, I think, in The inescapable trilemma of the world economy. MMT needs to take a position regarding that trilemma, in which holds that democracy, national sovereignty, and global economic integration cannot all exist together. Two are possible but not all three together.

    MMT seems to hold democracy and national sovereignty, and presupposes that economic integration is also possible. If Rodrick is correct, that is a contradictory stance. Is there something wrong with Rodrick’s trilemma? It looks correct to me.

    What we are seeing in the EU/EZ is the test case for global economic integration. The issues are democratic politics and national sovereignty v. integration. Many lessons to learn by observing this dynamic. Globalism is the thrust of this century, and economic globalization come along with it. Does MMT have an answer?

    Reply

    anon Reply:

    Tom,

    You just wrote something that should be put front and centrer into Warren’s mandatory readings list.

    In addition to being a philosopher, you’re a strategic thinker.

    And I say this as somebody who’s not even sure yet he would support such a proposal – just that its something MMT should logically support based on all of its writing and thinking on this subject – too much of which is back door in my view.

    Nice job.

    I sincerely hope my endorsement doesn’t trouble you.

    My work may be done.

    MamMoTh Reply:

    It would also make it easier to set interest rates to zero, since who in their right mind would want government controlling interest rates and yields instead of markets?

    I do. If a long period of low interest rates is one of the main causes of the current crisis, who in their right mind would want interest rates set to 0?

    Tom Hickey Reply:

    I sincerely hope my endorsement doesn’t trouble you.

    Anon, the basis of philosophy as a social activity — and the ancient Greeks who began the process of critical thinking in Western civilization took it as such — is debate. The historical development of knowledge has been dialectical. You, Ramanan, and others who are at times critical of what you perceive as MMT “orthodoxy” add to the MMT debate. I welcome that debate and have learned from it. It illuminates the fine points.

    Tom Hickey Reply:

    MamMoTh: I do. If a long period of low interest rates is one of the main causes of the current crisis, who in their right mind would want interest rates set to 0?

    Setting the overnight rate doesn’t mean that all interest rates and yield all go to zero. It means that the market sets rate based on market conditions instead of what a small group of technocrats thinks about inflationary expectations. This arguably distorts the market and in practice (NAIRU) it leads to using unemployment as a tool to target inflation. The point of MMT is that fiscal policy is a more efficient and effective means than monetary policy using NAIRU and Taylor rules.

    beowulf Reply:

    The Fed as it presently exists is not needed and can be eliminated by consolidating cb with Treasury.

    I don’t know Tom, MacArthur didn’t need to depose the Emperor of Japan to rule the country like a Roman Caesar (William Manchester’s great MacArthur bio is titled, of course, “American Caesar”). The fiscal, monetary and banking systems need to be reformed to be sure but we will need a Federal Reserve (or replicate something just like it) to manage the banking system.

    Since there’s STILL white space in my one page monetary reform bill (so far: fund govt spending via issuance of debt ceiling-exempt US Notes, cap interest rates at WWII’s .375% short term cap), put the Federal Reserve under the control of the Secretary of Treasury.

    12 USC 246 (delete the struck lines)
    any power vested by this chapter in the Board of Governors of the Federal Reserve System or the Federal reserve agent appears to conflict with the powers of the Secretary of the Treasury, such powers shall be exercised subject to the supervision and control of the Secretary.

    You don’t have to lay anyone off or print any new letterhead, simply put the Fed on the leash and tell the Secretary its his job to take it for walks. Once in a while the Fed chairman could come over to the Dai-Ichi Insurance Treasury Building to pay his respects.
    http://www.nightscribe.com/Military/ww2/images/macarthurHirohito.jpg

    Tom Hickey Reply:

    What I saying, Beowulf, is that the Federal Reserve Act of 1913 is sooo 1913ish. Yes, its been jiggled with but we need an overhaul starting from a zero base, asking the question of what is the most efficient way to deal with this under the current monetary system. MMT’ers point out that the Fed and Treasury are de facto consolidated already, so why not must make it de jure? Plus, getting rid of the Fed is politically hot right now. Everyone can see that the Fed is being run for Wall Street, while throwing Main Street under the bus. Why not ride the crest of the wave?

    But my greatest concern going forward wrt the Rodrik trilemma is the threat that cb political independence poses for democracy and national sovereignty. The last thing we need is a world managed by central bankers and their cohorts. I would just as soon see central banking consigned to the dust bin of history.

  23. Neil Wilson Says:

    “If a long period of low interest rates is one of the main causes of the current crisis,”

    That’s a big if. Low interest rates aren’t the main cause of the current crisis.

    Ponzi lending on an asset bubble caused the current crisis.

    It should be possible to design lending so that rates can remain low and projects can be given the capital to proceed – but it should be based on the capitalisation of an income stream not some asset.

    Reply

    MamMoTh Reply:

    As a point of logic, with lower interest rates you will have at least as much Ponzi lending than with higher interest rates, all things equal. Probably more. The subprime crisis started with a hike in interest rates, right?

    Reply

    Tom Hickey Reply:

    Low rates did not cause the crisis, although they may have played a role in it, and raising rates did not precipitate the crisis, although they may also have had a role in it, since many factor came together to create the perfect storm. But interest rates played a relatively minor role. See the voluminous work of Prof. William K. Black, for instance. Interest rates are barely mentioned.

    Reply

    MamMoTh Reply:

    Wynne Godley:
    The end of the housing boom was triggered by a very sharp increase in interest rates (to 15 per cent in 1989) that was necessary to combat rising inflation – and, hopefully, to protect sterling.

    Why Gordon’s Golden Rule is now history

    Reply

    WARREN MOSLER Reply:

    yes, and we discussed the interest rate channel more than once

  24. MamMoTh Says:

    Tom:Setting the overnight rate doesn’t mean that all interest rates and yield all go to zero.

    No, but it means interest rates will be lower than with a positive overnight rate. So the risk of excessive private sector indebtedness can only increase right?

    Reply

    beowulf Reply:

    Not really, since only banks can borrow at the overnight rate (well Tsy too since short term rates usually are in sync with Fed Fund rate). Since the Federal Reserve is in the price fixing business, if “excessive private sector indebtedness” is a concern, it has the authority to direct banks to increase prime rate markup over overnight (from current 3.0% markup) while leaving overnight rate itself alone. Since we’re at zero bound, the Fed could conceivably direct banks to cut the prime rate markup (until the late 80s, prime rate markup varied but averaged half what it is now).
    http://www.interfluidity.com/posts/1160447599.shtml

    Of course that’s crazy talk (most of the big banks have one foot in the grave and one foot on a banana peel as it is), but at the very least the Fed could stop banks from pricing loans based on LIBOR.

    Reply

    MamMoTh Reply:

    OK, I should have added all other things equal.

    Reply

    Tom Hickey Reply:

    Not really, because interest rate setting involves the Fed in anticipating inflationary expectations, which it is not particularly good at, and the overnight interest rate is a blunt instrument to boot. The market is quite capable of calculating, and it can be argued, better capable than the FOMC. Hayek makes a good case for this in “The Use of Knowledge in Society”.

    MMT holds that fiscal policy is more apt since it can be tightly targeted as well as codified, and adjusted as necessary iaw special circumstances, which politicians definitely hear about from their constituents.

    Tom Hickey Reply:

    According to MMT, private sector indebtedness (dissaving) is based on sectoral balances and fiscal policy iaw functional finance. MMT considers private sector indebtedness to be a function of demand leakage, e.g., due to a fiscal surplus.

    Problems with credit quality arise, leading to financial instability, and this can be addressed through regulation and oversight, as well as discouraging rent-seeking through taxation of economic rent.

    Reply

    MamMoTh Reply:

    Tom: Problems with credit quality arise, leading to financial instability, and this can be addressed through regulation and oversight.

    So you believe that it is more effective to deal with problems in credit quality with the oversight of thousands of technocrats than with a few technocrats setting the overnight rate?

    Is there any evidence that oversight has been effective at detecting fraudulent behaviour in time?

    Reply

    wh10 Reply:

    I think this is Elizabeth Warren’s crusade.

    I also believe that interest rates, while potentially a precipitating factor, were not the prime cause of the crisis. The crisis could have still happened without low rates. At the core, this was about mortgage lenders flipping loans, which were made with hardly any documentation, to banks for securitization and the resulting principal-agent problem (lenders end up not caring about quality and securitizers know these things are selling like hot cakes). I think the most obvious and direct way to address the crisis is to regulate the loan origination process. I don’t know the details of Warren’s goals, but I would imagine this is would be a component. You could also target the finance/derivatives/capital requirements side of the problem, but I think you would get a lot of push back from Wall Street and I still don’t believe this was the heart of the problem. You also risk stifling innovation/progress, though that is certainly debatable.

    Tom Hickey Reply:

    Have you been following William K. Black, Yves Smith, Janet Tavakoli, Elliot Spitzer, and others with intimate knowledge about this, including MMT’er Randy Wray? This has almost nothing to do with rates.

    MamMoTh Reply:

    No, I don’t have enough time for that.

    Do they provide any evidence that oversight has been effective at detecting ponzi or fraudulent lending in time?

    Do they provide any evidence that an overnight interest rate set to 0 will not ALL OTHER THINGS EQUAL trigger more private borrowing than a strictly positive one?

    If they do I’d appreciate any links.

  25. Tom Hickey Says:

    This is a large body of literature. You’ll have to take my word for it unless you want to take the time to look at some it. And I suspect that there are others here to back me up on it. I find it hard to believe that no one else here is paying attention to this.

    Do they provide any evidence that oversight has been effective at detecting ponzi or fraudulent lending in time?

    Yes. Bill Black is a former regulator. People in the know were jumping up and down over this well in advance. Basically, the regulators were called off.

    Do they provide any evidence that an overnight interest rate set to 0 will not ALL OTHER THINGS EQUAL trigger more private borrowing than a strictly positive one?

    Not their concern, but none of them mentions rates as the problem leading to Ponzi finance.

    Reply

    MamMoTh Reply:

    I find it hard to believe that no one else here is paying attention to this.

    Me too. It seems all the little technical details about the Fed/Tsy operations are more interesting. Thanks for your answers.

    Yes. Bill Black is a former regulator. People in the know were jumping up and down over this well in advance. Basically, the regulators were called off.

    So supervision has been ineffective.

    Not their concern, but none of them mentions rates as the problem leading to Ponzi finance.

    It’s still my concern. I’m not saying low rates are the only cause of Ponzi finance, but that, all other things equal, you will have more Ponzi finance with low rates.

    I see the overnight interest rate as an instrument to reign in the amount of horizontal creation of bank money. A blunt instrument indeed, but an efficient one and not necessarily effective at preventing Ponzi finance.

    I can’t see what are the advantages of relinquishing that instrument.

    Reply

    Tom Hickey Reply:

    MamMoth: Black was a one of the S&L regulators brought in after the crisis. He is a lawyer and financial forensic specialist. Over 1000 people went to the pokey. So no one material in this crisis and Black is warning that the game of control fraud continues apace.

    Interest rates are relatively ineffective to regulate finance, especially when the game gets going. For example, if the Fed had raised rates to slow down the housing bubble, an effect would also have been to slow the economy as a whole, which would have been like trying to kill a fly with a hammer. Moreover, the Fed has not been willing to use rates to regulate finance anyway. The Fed doesn’t consider asset appreciation to be inflation, and raising rates is a blunt instrument that affects the entire economy.

    The problem was predatory lending and control fraud, as Black, Tavakoli, Smith and others were warning for some time, as early as 2004, I believe. Regulators took no action to prevent the bubble from forming and growing, when they were told where and how lines were being crossed. The problem was that the people in charge of regulation and oversight were neoliberals that believed all government intrusion in markets is unnecessary and detrimental.

    There was no need to slow the economy by raising rates when applying existing laws and regulations would have addressed the problem. The problem was intellectual capture (neoliberalism) and regulatory capture (subornation).

    From the Minskian vantage, the more effective way to prevent bubbles from forming is taxing economic rent to discourage rent-seeking rather than rate increases, as well as recognizing the stages of the financial cycle and increasing regulatory oversight as financial instability threatens. Instead, the cops on the beat were told to take a vacation.

    Reply

    ESM Reply:

    “The problem was predatory lending…”

    Real predatory lending was immaterial in scope. 99% of loans were quite beneficial to the borrower. It was investors who were hosed, not borrowers.

    ESM Reply:

    “The problem was that the people in charge of regulation and oversight were neoliberals that believed all government intrusion in markets is unnecessary and detrimental.”

    Oh, and for the record, I strongly disagree with this assertion. The problem was fundamentally caused by government. Creating a ridiculous system of skewed incentives and then expecting a patchwork of regulations to fix problems as they arise is completely unworkable.

    WARREN MOSLER Reply:

    and letting the deficit get too small

    and without the expansion phase of the sub prime thing, the last recovery would have been more like this one

    Tom Hickey Reply:

    The problem was fundamentally caused by government.

    Of course, government was the problem — after it was captured and rigged.

    ESM Reply:

    “Of course, government was the problem — after it was captured and rigged.”

    I think we agree there.

    Tom Hickey Reply:

    I can’t see what are the advantages of relinquishing that instrument.

    It is a costly instrument in terms of a subsidy for bondholders. Subsidies constitute dead weight and are inefficient. There are better uses of public funds for public purpose.

    If interest rates were proven to be an effective tool, I would agree with you. But they are not, which is another reason MMT’ers would like to get rid of this unnecessary subsidy.

    Reply

    Neil Wilson Reply:

    It’s more than a subsidy for bondholders. It is effectively an import subsidy – the currency sits at a higher rate than it otherwise would do.

    If that is the case then non-zero bond rates are what has created economies that live on the kindness of foreigners at the expense of domestic businesses.

    Which is a crazy way to run a shop.

    Tom Hickey Reply:

    IF that’s the case, Neil, then there can be government (cb) time accounts for the external sector with negotiated rates without borrowing in foreign currencies.

    WARREN MOSLER Reply:

    how about just leaving all govt liabilities as non interest bearing

    ESM Reply:

    Is MMT finally breaking through to Barry Obama?

    Government Lays Out Case Against Bonds

    Nope, doesn’t look good for poor Barry.

    Peter D Reply:

    LOL, classic :)

  26. anon Says:

    SF:

    “going back to the original statement or attempt at one, how about “the Tsy can spend by crediting bank accounts in unlimited fashion at roughly the Fed’s target rate provided the latter is instructed to credit bank reserves in corresponding fashion (i.e., instructed to provide an overdraft to the Tsy) OR an arbitrage between the rate the Tsy can issue securities and the Fed’s target rate is sustained”?

    The latter would suggest that if such an arbitrage is not roughly sustained for any reason, then there is an economically significant difference between receiving an overdraft at the Fed’s target and issuing bills. At that point, the only recourse would be to require the Fed to provide overdrafts or for the Fed to purchase Tsy’s in the open market at an announced price roughly corresponding to its target rate.

    If none of those three occur–overdrafts at the target rate, issuing securities at an arbitrage against the target rate, the Fed purchasing at roughly its target rate–then I would grant that there is an economically significant constraint (albeit self-imposed, but a constraint nonetheless) on the Tsy’s ability to credit bank accounts. (And, in fact, this has been my position for several years now.)”

    generally OK with this, but let me go one level up first

    It seems to me that MMT has taken the existing “Rube Goldberg” monetary mechanism and demonstrated how it “really works” as per your description above. The option then is to identify that existing mechanism as that of a currency issuer, as per your statement about crediting bank accounts. The idea being that the government is really not financially constrained despite all of these self-imposed contraptions. Then some (most?) in MMT seem to say – that’s what it is and we’ve show that’s what it is, so what’s the point in saying that it needs to be changed?

    I look at it a little differently. I look at the banks and their customers and then I look at the government, and what I see is a set of agents all with cash management disciplines, all defined by deposit account relationships with (other) banks. I then define all of those entities as currency users. The only entity that is not a currency user is the central bank, which is a currency issuer. I would go further and define commercial banks as both currency users (reserves) and currency issuers (deposits created by loans, viewed as a private sector peripheral extension of the central bank’s core ability to create currency).

    In the case of the government, MMT looks through that arrangement and suggests properly for the most part that it doesn’t really impose any financial constraint on the government, at least not in nearly all cases.

    I have two problems with that general approach to design for the monetary system. The first is perception, particularly by those market agents who don’t understand MMT. If there are actually people out there who think that the government can go “bankrupt”, then those people logically would think (in theory at least) that the government can run out of money in its Fed account because “nobody will want to buy our bonds.”

    So I look at that and ask what’s the harm in proposing a change to the system which assists in eliminating that perception? MMT shows how it actually works and that its not really necessary to change the system – but why not change the design just to make it that much clearer as to how it works? What do you have to lose?

    The second point is that unfortunate interruptions in the existing mechanism are still possible. These are things that can complicate treasury’s cash management function, in theory or practice. I see Warren made the point that auctions fail all the time, although I don’t quite understand it. But consider a “bond market crisis” of sorts in which a 30 year auction fails. Maybe treasury/Fed would smooth it out very quickly with TTL transfers, other mechanisms, etc. But the point is that the existing mechanisms contribute like a catalyst to the misperception by the market that the government “can’t afford” to do what its doing and provide feedback to the market that the government “needs” to issue these bonds.

    So I think the MMT view is that there are enough ways around any potential blips that the system doesn’t require changing. My view is that changing the system actually reinforces the MMT understanding of how things work and gets rid of all the clutter in front of that view.

    One more technical point: One of the dimensions here is the notion of arbitrage per se. If reserves were priced at an overnight rate and if treasury only issued 1 day bills, then the conditions for arbitrage could be defined to near perfection. There would be no apparent reason for banks to avoid purchasing 1 day bills where the yield started to exceed the reserve rate.

    As soon as the term structure of treasury debt starts to deviate from the term structure of reserve pricing, then arbitrage formulation becomes more problematic, because it depends in part on judgements about expected monetary policy, which can be very heterogeneous across agents as wells as volatile over even short time frames.

    An extreme case where an auction might fail for example would be a bond market “crisis” in which buyers would step away simply because they’re not comfortable with the idea of trying to catch a falling knife. This is compounded to some degree by the fact that banks must allow for such risk explicitly in their capital management. These situations typically don’t last very long, but it does illustrate a pricing situation that differs dramatically from the simple no bonds reserve pricing that would be available automatically in an alternative monetary structure.

    More generally, my focus is really not the question of equivalent economics across different monetary design alternatives. Its more that proving or demonstrating equivalence becomes unnecessary when proposing a system that is streamlined to the point that such proof becomes moot. It seems to me there is no debate about these sorts of questions if the central bank is combined operationally with the treasury function. Sure the existing structure can be backed out as economically equivalent in most cases, but that’s not really my point.

    Reply

    Scott Fullwiler Reply:

    “I have two problems with that general approach to design for the monetary system. The first is perception, particularly by those market agents who don’t understand MMT. . . . ”

    Sure. No problem there.

    “So I look at that and ask what’s the harm in proposing a change to the system which assists in eliminating that perception? MMT shows how it actually works and that its not really necessary to change the system – but why not change the design just to make it that much clearer as to how it works? What do you have to lose?”

    Again, no problem there. My point was to show the conditions under which it didn’t matter in an economically significant way–i.e., that sovereign govt’s right now could do as MMT suggests they can. And that comes down to the interest rate. But, yes, that’s different from proposing the “optimal” For instance, as Warren notes above, he’s been proposing the Tsy only issue Tbills for years now “as the least disruptive way to get from here to there,” while, obviously, at the same time it isn’t what he has often proposed as his first choice even if the difference isn’t economically significant right now.

    “The second point is that unfortunate interruptions in the existing mechanism are still possible . . . . ”

    Yes, agree. That’s why I had to qualify with “if” above. Marshall and Rob in pvt emails believe that bond traders could disrupt things because they think govt needs to finance deficits. Ratings agencies, etc. So, they proposed operation twist 2 last year. I think that’s less likely, particularly if the govt only issues bills (a standing proposal from us for several years running for improving things operationally, by the way, even if it doesn’t go all the way), but the probability of some problem occurring isn’t 0 even then, granted.

    “So I think the MMT view is that there are enough ways around any potential blips that the system doesn’t require changing.”

    Again, I would state it more as the govt can right now behave as a sovereign currency issuer even if things aren’t optimal operationally. There could be problems, but they can be worked around if that happens–for instance, stop issuing notes/bonds, cb target the term structure, etc. Point taken, but recognize the different intent.

    “My view is that changing the system actually reinforces the MMT understanding of how things work and gets rid of all the clutter in front of that view.”

    I would agree. I think all MMT’ers would, too.

    “As soon as the term structure of treasury debt starts to deviate from the term structure of reserve pricing, then arbitrage formulation becomes more problematic, because it depends in part on judgements about expected monetary policy, which can be very heterogeneous across agents as wells as volatile over even short time frames. . . . ”

    For a 3-month Tbill, that has never mattered except during 1979-1982 when the Fed allowed the funds rate to fluctuate within a very wide band on a daily basis. But, yes, as you go further out, it matters more and more. And, again, I wouldn’t argue the probability of it not happening in 3m bills is 0.

    “More generally, my focus is really not the question of equivalent economics across different monetary design alternatives. Its more that proving or demonstrating equivalence becomes unnecessary when proposing a system that is streamlined to the point that such proof becomes moot.”

    Yes, no problem there. Again, though, we don’t want to tell Obama that he can’t do anything now because the system isn’t operationally pure in an MMT sense. He and leaders of other sovereign govt’s can get moving right now, and there’s little economic significance in the difference under the vast majority of scenarios–the ECB has even shown that non-sovereigns can get away with it when the cb decides to buy their debt, and that’s even easier for a cb like the Fed to do if necessary. Different point than the one you are making, which again I don’t disagree with, but hopefully you understand our approach, too.

    It seems to me there is no debate about these sorts of questions if the central bank is combined operationally with the treasury function. Sure the existing structure can be backed out as economically equivalent in most cases, but that’s not really my point.

    Reply

    ESM Reply:

    Agreed.

    The main problem of course (which Scott has alluded to) is that combining the Fed and the Treasury isn’t going to happen any time soon, and possibly not ever. We need some MMT-consistent action now — actually, we needed some 4 years ago. If it wasn’t for automatic stabilizers, probably accidently built into the system, we would be in some serious deep doodoo right now. Even so, the economy is still pretty stinky.

    Reply

    Scott Fullwiler Reply:

    “It seems to me there is no debate about these sorts of questions if the central bank is combined operationally with the treasury function. Sure the existing structure can be backed out as economically equivalent in most cases, but that’s not really my point.”

    Had to run so couldn’t respond to this. Completely agree. We’ve been arguing at cross purposes, obviously, and unfortunately (VERY sorry!), though I think it’s important to recognize that the two aren’t mutually exclusive (and I think you already do)–most govt’s are already set up to run functional finance policies, while at the same time there are or should be formal proposals for institutional changes that are preferable to current setups for the reasons you’ve given above.

    Reply

    anon Reply:

    I think it would be quite interesting if some of the MMT writers were to publish a little more on what a combined function would actually look like. (Maybe I’ve missed it but I think its normally treated as a consolidation perspective top level, based on existing pieces, without too much drilling down into a unified function.)

    The interesting point I think that I haven’t mentioned yet is that the operational “fusion” of the two balance sheets is only the “visible” accounting result. At the same time, some pretty important policy drivers lie beneath the surface, which is the strategic consolidation of a group within the government that would steer both fiscal and monetary policy at a unified level. I.e. the institutional independence of current monetary policy apparatus is effectively abandoned, which I think is fairly supported by MMT.

    At the same time, I can envision a portfolio management function that steers the mix of reserves, currency, and debt based on integrated government balance sheet management. From there you can look at the elimination of debt, if desirable, but all the options are open for complete government liability management under one roof.

    Reply

    anon Reply:

    SF,

    actually didn’t see your earlier when I wrote the above

    thx

    would just modify then, with the idea that there’s a dual track way of approaching this

    I appreciate the MMT approach that emphasizes the failure of many to understand what is in place now, apart from any idea of reconfiguration

    against that MMT context, it might still be interesting to see an essay of some sort or a chapter in a paper on pros/cons/necessity or lack thereof of changing the existing configuration – maybe something for the UMKC blog?

    WARREN MOSLER Reply:

    so the congress that decides to spend x and tax y sets up this arrangement of tsy/fed/self imposed constraints/etc. that sort of works ok most of the time to get the funds into the accounts of whoever sells its goods and services to the US Govt.

    it’s not that the govt. can become insolvent.

    it’s that the govt can fail to make payments because it’s tied itself in (k)nots.

    Reply

    anon Reply:

    :)

    Reply

  27. Tom Hickey Says:

    Strategically, I think that Anon is correct in recommending that MMT’ers propose the changes necessary to align Treasury/cb ops with the operational reality of the currency monetary system most effectively and efficiently. (Scott’s general case).

    I also agree with Scott that MMT’s should be making policy-makers aware of how to use the existing rules to run an MMT-based approach to fiscal and monetary policy. It is quite obvious from past behavior that governments, cb’s, and international institutions will bend the rules and their mandates if need be. MMT can show them a better way to do this, which is consistent with operational reality and actually conforms to the rules. (Scott’s special cases)

    The problem with the latter “special case” approach, as we have seen from criticism of the Fed, ECB, etc., is political. Various factions typically attack such approaches as “cheating,” “overstepping bounds,” etc. As Warren observed, Treasury actually reacts to the rating agencies, even though there is no risk of sovereign default.

    Better to get a proposal out there that dispatches these kinds of reactionary forces with a comprehensive plan for change along with a complete rationale based on achieving full employment and price stability.

    I am thinking of something on the order of the position statements that Jamie Galbraith has submitted recently, e.g., to the Catfood Commission, organized with main points and a rationale for each.

    Others have done this, e.g., the Ron Paul End-the-Fed movement, and the American Monetary Institute, which has gotten as far as a bill proposed by Rep. Kucinich. Similarly Ellen Brown with the state banking proposal; there are initiatives to establish state banks in almost a dozen states last time I heard. These groups have strong political followings push their agendas.

    Reply

    ESM Reply:

    A lot more good would flow from “End-the-Ratings-Agencies” than “End-the-Fed”. And it would be easier to accomplish too. The problem with the Fed Dead-Enders is that most of them want to end the Fed for the wrong reasons.

    Reply

    Tom Hickey Reply:

    “The enemy of my enemies is my friend (for the time being).”

    Right now central banking is the greatest threat to liberal democracy and national sovereignty. This is where global integration under a command system is emanating from.

    Reply

    WARREN MOSLER Reply:

    i’d say the largest threat is from the failure to understand monetary operations

    Tom Hickey Reply:

    Warren, I agree on that economically. However, I am concerned about the political threat that cb independence and interdependence among cb’s constitute. I am sure that these people are well-meaning, and I agree that the direction is toward increasing globalism, but I don’t trust the direction they are taking to get there.

    If they understood monetary ops, that would be a help. but there is still Rodrik’s trilemma to deal with, and I think they know this and have an agenda to force increasing integration at the expense of either national sovereignty or liberal democracy, since the three can’t all exist together. This is clear in the case of the EU/EZ, for example.

    anon Reply:

    agree on the rating agencies

    and I think the institutional investors who bought ABACUS were much more the problem than Goldman who shorted into it

    the two are related in a way

    Reply

    vjk Reply:

    Agree many times over on rating agencies. Not entirely sure about the Fed/Treasury fusion.

    Agree on Abacus style CDS “products”. The level of not only financial but commonsense ignorance of the “investors” who bought Abacus is beyond belief.

    Re. shorting. Actually, it was Paulson, not Goldman, who shorted it with GS being the “facilitator” of such shorting. I vaguely recall that Goldman lost some small change(couple hundred millions)in the Abacus game.

    anon Reply:

    right, although Goldman was the one punished for brokering/enabling the short – same in principle

    ESM Reply:

    Yeah, but the SEC complaint was largely frivolous. ABACUS was a synthetic CDO, meaning that it was composed entirely of credit default swaps, and therefore a zero-sum game. If there was to be a long, there had to be a short.

    Something similarly stupid happened during the hearings where Lloyd Blankfein testified. One congressman was horrifed to find out that when a client bought a stock from Goldman, Goldman was in fact selling that same stock at the same time — to the client of course.

    Just for the record, I am no fan of Goldman. I think their influence within government (not just the US) is unseemly, and I think their reputation for screwing clients is well-deserved. But the stuff the government attacked them on was almost designed to make Goldman look better.

    WARREN MOSLER Reply:

    agreed.

    anon Reply:

    “Yeah, but”

    ?

    I agree, as per my previous

    beowulf Reply:

    I am thinking of something on the order of the position statements that Jamie Galbraith has submitted recently, e.g., to the Catfood Commission, organized with main points and a rationale for each.

    A good speech can change minds, but it takes an Act of Congress to change the law. One thing I give Kucinich credit for is that he (after much procrastination) introduced a bill (the NEED Act). Nothing gets rolling until its put on paper. Once a bill is drafted (and a Member found to sponsor it) then there’s something concrete to bug the politicians to support.

    Al Sheahen of US Basic Income Guarantee wrote a great article about his efforts a few years ago to draft and then lobby for a negative income tax bill. Its worth reading since this is the sort of road any monetary reform bill would follow (hopefully with a happier ending). From a political science standpoint, Sheahan’s piece is pretty interesting, though clearly Sheahen should have called it, Congress Doesn’t Make A Law. :o)
    http://webcache.googleusercontent.com/search?q=cache:dPYANnacIksJ:www.usbig.net/papers/169-Sheahen-BIGbill.doc
    http://www.amazon.com/Congress-Makes-Law-Stephen-Bailey/dp/0231017413

    As for the Kucinich bill, leaving aside his bad policy choices, the bill is too long. Its could have been profitably cut by at least 80% (I won’t even bother linking it, a 10 page preamble? geez). The shorter the bill the better, its easier to explain and it decreases the hiding places for lobbyist to hide amendments.

    Reply

  28. Winslow R. Says:

    Combining the Fed/Treasury might provide small benefits in terms of clarifying monetary operations, but would likely need to be preceded by a struggle to eliminate the Fed’s ‘slush’ funds supporting neo-classical research into the importance of an independent CB.

    Reply

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