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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.

Connecting the dots- deficit reduction is now only about inflation, not insolvency

Posted by WARREN MOSLER on August 11th, 2011

From comments by Warren Buffet to Alan Greenspan,

And from all the responses to the S&P downgrade by economists and financial professionals from the four corners of the world,

THE WORD IS OUT!

The US government is the issuer of the US dollar.

So no matter how large the federal deficit might be:

The US government can always make any payments in US dollars that it wants to.
There is no such thing as the US govt running out of US dollars.
The US government always has the ‘ability to pay’ any amount of US dollars at any time.

NOW CONNECT THE DOTS TO:

The US is not dependent on tax revenue or foreign borrowing to be able to spend.

And,
whereas Greece is not the issuer of the euro,
much like the individual US states are not the issuer of the US dollar,

THERE IS NO SUCH THING AS THE US BECOMING THE NEXT GREECE

There is no such thing as the US getting cut off from spending by the financial markets and forced to go begging to the IMF to get US dollars to spend.

Nor is the US government subject to market forces driving up interest rates on US Treasury bills.

EVEN AFTER BEING DOWNGRADED US TREASURY BILL RATES REMAIN NEAR 0%

Why, because, any nation that issues its own currency also sets its own interest rates.
So in the US, the Federal Reserve Bank votes on the interest rate

SO, THEN,

WHAT IS THE POINT OF DEFICIT REDUCTION?

Suddenly, it’s NOT solvency.
The US is suddenly NOT going broke.
Social Security is suddenly NOT broken.
There is suddenly NO risk the US will not be able to make all payments as promised.

So now,

the deficit hawks must CHANGE THEIR REASONS FOR DEFICIT REDUCTION
or shut up!

they must FLIP FLOP
or shut up!

Yes, there is a new reason they can flip flop to.

Inflation.

They can start claiming the current path of deficit spending will lead to inflation.

Fine.

Bring it on!

First, they need to do the research, as they haven’t even thought about this yet.

Then they have to convince Congress to cut social security and medicare
Not because we might become the next Greece
Not because the US government checks might bounce someday
Not because the deficit will burden our grand children

But ONLY because some day,
if we don’t do something when the time comes
and even though we don’t have an inflation problem now,
and haven’t had one in a very long time,
SOME DAY far in the future,
inflation might go from x% to y%.

Fine.

Do you think Congress would take draconian steps now,
during this horrendous recession,
to make things worse
by cutting Social Security?
and by cutting funding or public infrastructure?
and by raising taxes?

How about we get the word out and find out, thanks!

Please distribute!

183 Responses to “Connecting the dots- deficit reduction is now only about inflation, not insolvency”

  1. Ramanan Says:

    Krugman again on MMT

    http://krugman.blogs.nytimes.com/2011/08/11/franc-thoughts-on-long-run-fiscal-issues/

    Reply

    Art Reply:

    @Ramanan,

    “who insist that deficits are never a problem as long as you have your own currency”

    Only Dick Cheney (allegedly) says this. In MMT, deficits are of paramount importance. They need to be ‘right-sized’.

    “Someday private demand will be high enough that the Fed will have good reason to raise interest rates above zero, to limit inflation.”

    Depends on how the central bank chooses to operate, as Warren Mosler and Matthew Forstater have shown.

    “when that happens, deficits — and the perceived willingness of the government to raise enough revenue to cover its spending — will matter.”

    In MMT, deficits always matter, as does the govt’s willingness to manage inflation and employment.

    “on the (very MMT) grounds that the division of government liabilities between currency and short-term bills made no difference”

    MMT doesn’t say this. It says that (1) given the central bank’s policy target, there’s an appropriate mix of the two, and (2) there’s no financing constraint on creating either form of govt liability.

    “So what does this say about the United States? At a future date, when we’re out of the liquidity trap, public finances will matter — and not just because of their role in raising or reducing aggregate demand. The composition of public liabilities as between debt and monetary base does matter in normal times — hey, if it didn’t, the Fed would have no influence, ever.”

    MMT recognizes this. Public finances *always* matter when the govt sector is monopoly issuer. And composition of its liabilities is a critical determinant of whether central bank hits its policy targets.

    “So if we try at that point to finance the deficit by money issue rather than bond sales, it will be inflationary.”

    The deficit isn’t financed. Money issue via spending precedes “borrowing,” however it might look from the outside, and however it might have worked many decades ago.

    1) Deficits absolutely matter, always.
    2) Composition of sovereign liabilities is critical to success of central bank operations.
    3) Deficits are “money issue” and have been since at least 1973. They are not “financed” by money issue.

    If anyone wants to paste these over there, feel free. I’m too busy to sign in!

    Reply

    John Zelnicker Reply:

    @Art,

    Art — Good analysis, very concise. I think you could say that deficits as “money issue” has been the case since August 5, 1971, when Nixon finally closed the gold window.

    Reply

    roger erickson Reply:

    @Ramanan,

    Paul Krugman: “But couldn’t America still end up like Greece? Yes, of course. If investors decide that we’re a banana republic whose politicians can’t or won’t come to grips with long-term problems, they will indeed stop buying our debt.”

    http://www.nytimes.com/2011/03/25/opinion/25krugman.html?_r=1&hp

    What can you say? He’s got his own foot firmly lodged in his own mouth.

    Reply

  2. Clonal Antibody Says:

    Also, See Krugman’s latest post – Franc Thoughts on Long-Run Fiscal Issues

    He cites French debt after WW I as to why deficits could be a problem for the US. He appears to forget that the French debt was not denominated in Francs, but rather in currency outside its control.

    Somebody needs to point that out to him. Further, yes US would be in that situation, if for example its debt was denominated in Yuans, or Euros, and not in dollars.

    Reply

    Rodger Malcolm Mitchell Reply:

    @Clonal Antibody, He also says, toward the end of his article, “So none of this is relevant to the current policy debate.”

    Classic Nobel-winning Krugman.

    Reply

    MamMoTh Reply:

    @Clonal Antibody,

    Somebody needs to explain why exactly it makes any difference in which currency the debt is denominated.

    If a country can always print enough of its own currency to repay any debt denominated in its own currency, it can also print enough of its currency to buy whatever foreign currency its debt is denominated in?

    So I’d say the only relevant point is the net saving desire of your currency by the domestic and the foreign sector.

    Reply

    Mario Reply:

    @MamMoTh,

    as far as I understand it, the reason the currency matters is simply b/c of any spread that can develop between the two valuations.

    For example, some Eastern European nations apparently took loans out in swiss francs. Well they are sitting on some serious pain right now b/c the franc is through the roof. The differential is ripping their face off.

    Reply

    Neil Wilson Reply:

    @MamMoTh,

    Buying foreign currency increases the amount of financial assets in your currency zone which has the same inflation risk as any other form of government spending.

    Swapping one of your liabilities for another of your liabilities has much less inflation risk.

    Reply

    WARREN MOSLER Reply:

    Apart fro supply side effects in your first point

    Gary Reply:

    @MamMoTh,

    if your debt is in foreign currency and you attempt to buy that foreign currency with your own – and if the amounts are significant enough – the value of your currency will plummet and will make your debts much bigger.

    Reply

    Art Reply:

    @Gary,

    With speculative attacks speeding the process along. Asian Flu, Russia, Argentina…UK while it tried to fix to DM…

    MamMoTh Reply:

    @Gary,

    Not necessarily, it depends on the desire to net save in each currency.

    A country can always pay its debt denominated in its own currency by creating more currency. But if the creditors don’t want to hold the currency they will exchange it for another one and the value of the currency can also plummet.

    So, unless you don’t have a convertible currency I am not sure it makes any difference whether the debt is denominated in your own currency or not.

    I’d say a country is constrained in its spending by the desire of the foreign sector to hold its currency, and debt in a foreign currency is the result of that constraint.

    Gary Reply:

    @MamMoTh,

    if creditors (or citizens) do not want to hold your currency – it will plummet – no matter if you spend more in it, or as usual, or even less than usual.

    The difference between debts in your own currency and those in foreign currency – is that you can always pay debts in your own currency, while before you pay the debts in foreign currency – you have to acquire it. In the process of acquiring – if the sums are large enough – it the value of your currency drops.

    So when you spend your own currency – it is up to the holders of it to sell it or not, but if you pay debts in foreign currency – you HAVE to sell your currency to get it.

    That is how it seems to me.

    Héctor Reply:

    @MamMoTh,
    But Argentina or Russia don’t borrow in USD because they are stupid. It’s not like Argentina wouldn’t like to borrow in its own currency, the problem is that nobody wants to lend in pesos. So can you say that any country that issues its own currency is not dependent on tax revenue or foreign borrowing to be able to spend?

    Reply

    Gary Reply:

    @Héctor,

    Argentina does not need to borrow in pesos. It just has to spend in pesos for all domestic needs and not try to defend the foreign exchange rate (if it does it) by borrowing dollars.
    For imports it still needs foreign currency, of course. But if it should limit any borrowing in foreign currency to minimum.
    Taxes are needed to keep up the demand of peso.

    That is how I understand it…

    MamMoTh Reply:

    @Héctor, that was always my point, countries don’t borrow in US$ because they are stupid but because they have no choice. Although sometimes it seems they are stupid when they borrow from the IDB, or the World Bank to build schools and hospitals.

    WARREN MOSLER Reply:

    Yes they did. The tsy borrowed at the lower dollar int rates to save on interest

    WARREN MOSLER Reply:

    Deficit spending to buy fx is exactly what the problem is. It’s inflationary, with lots of historical examples

    Reply

    MamMoTh Reply:

    @WARREN MOSLER, that would be if the currency spent in buying fx is spent by the seller of fx, which is not necessary that case and could be avoided by sterilizing the purchase, i.e. replacing dollar denominated debt with sovereign debt.

    WARREN MOSLER Reply:

    when japan buys dollars with yen they are crediting yen accounts and adding that many net yen financial assets the economy.

    the point is to drive the price of the yen down to where they believe their exports will be more ‘competitive’

    The more dollars they buy to get competitive the more yen net financial assets they add. (whether they are held as yen or jgb’s is irrelevant for the point being made here)

    If they buy enough dollars, domestic yen spending will increase and the lower currency will introduce ‘inflation’ through that fx window as well

    MamMoTh Reply:

    @WARREN MOSLER, not sure how successful Japan has been in preventing the Yen rising buying fx, but it certainly didn’t seem to be introducing inflation in their attempt.

    Still, my main point is that any country with a floating currency faces no solvency risk even if it is indebted in a foreign currency. The risk is always inflation or devaluation of its currency.

    WARREN MOSLER Reply:

    agreed, and Japan can sell the yen down to any level it wants. the constraints are political

    Calgacus Reply:

    @MamMoTh, No risk of insolvency in its own currency of course, no matter what it does, but borrowing in foreign currency can cause insolvency in that currency, which is why it is dangerous.

    MamMoTh Reply:

    @Calgacus, No risk of insolvency in foreign currency either as long as the sovereign currency is traded and floating. Only risk is inflation and devaluation.

    Calgacus Reply:

    @MamMoTh, No, there is a huge risk in foreign currency insolvency. Inflation and devaluation of domestic currency can be such that they can cause insolvency in foreign currency. The foreign debt can approach infinity in domestic currency terms faster than the domestic economy can grow, faster than the state can pay domestic currency. Floating a currency is a good idea, not magic.

    A state can inflate as much as it wants, devalue as much as it wants, print as much of its own money, run its economy wonderfully well, export as much as it can, sell off all its assets & its people into slavery, but if its foreign debt is big enough, and foreign desire for saving in its (inflating, devaluing?) currency is not big enough to make up for this, then its foreign debt can be unpayable. Switzerland could not run up a quadrillion dollar debt, blow it all on cocaine, go back to work and then pay this debt due next year.

    MamMoTh Reply:

    @Calgacus, as long as the swiss franc is traded and floating, it can buy back the dollars from the cocaine dealers and pay its debt due next year.

    Calgacus Reply:

    @MamMoTh, No it can’t. With what? Swiss francs are worth next to nothing in this scenario. It blew the money on cocaine – up Swiss noses. It no longer has the cocaine. Big enough foreign debts can be unpayable, even by the best run, most MMT-directed, most innovative & productive economy of all time.

    MamMoTh Reply:

    @Calgacus, you are assuming the swiss franc becomes worthless to the point it will not be traded anymore, which is what brings insolvency. But as long as it remains traded and floating there is no insolvency risk, the only risk is inflation and devaluation.

    It all boils down to the desire to net save in your own currency by the non government sector. A country with its own floating currency can always print money to service its debt regardless if its denominated in its own currency or not. The inflation and devaluation that follows depends on the desire of the non government sector to net save the added currency.

    I think MMTers have the constraint backwards concerning debt denominated in a foreign currency. This is evidence of a lack of desire to net save a country’s currency, especially by the foreign sector.

    Calgacus Reply:

    @MamMoTh ,
    A country with its own floating currency can always print money to service its debt regardless if its denominated in its own currency or not. Absolutely wrong. Only in domestic currency.

    A printed franc will always pay off a franc in debt. But the number of dollars of debt it can pay off can go to zero. No matter how many francs the state prints to pay off foreign debt, it is a finite number. Multiply that by the dollar value of the franc, and you will get another finite number. This second number is bounded. (The only way it could not be is if there is an utterly irrational, utterly unrealistic desire to indefinitely save newly printed Swiss francs.) No matter what the Swiss do, there is some number of dollars above which they cannot pay a debt due at a fixed time.

    I am not assuming that the Swiss franc will not be traded. I explicitly stated that if “foreign desire for saving in its (inflating, devaluing?) currency is not big enough to make up for this” then it can become insolvent in the foreign currency.

    The inflation & devaluation caused by excessive money printing to service a foreign debt, can cause (really demonstrate) the insolvency in the foreign currency. Realistically, foreign savings desires would be minimal in a super-indebted country. And domestic savings desires in an inflating, devaluing currency would also be minimal.

    States do not have any sovereign power and special status when they are dealing in foreign currencies. They are just like people & companies – that can become too indebted to pay off debts, no matter how they try. To another state, a state’s domestic currency is just internal company scrip that it uses in company towns. No matter how many frequent flier miles an airline issues, it can still go bankrupt.

    MamMoTh Reply:

    @Calgacus,

    It is all about the desire to net save in your own currency.

    Debt in your own currency is evidence of that desire. Debt in foreign currency is evidence of the lack of desire.

    The ability to repay the debt printing your own currency is determined by the desire to save in your own currency, regardless of the currency of denomination of the debt.

    If you print currency to repay your own debt but the non government sector dumps it for a foreign currency you end up in the same situation (devaluation and/or inflation) as if you had a foreign debt.

    Calgacus Reply:

    @MamMoTh, Yes, MamMoth, I agree: “It is all about the desire to net save in your own currency.”

    But so what? And the desires – when? Foreign superindebtedness, especially denominated in foreign currency –> Low savings desire anywhere for domestic currency. What you are saying amounts to saying you won’t go broke if people will always accept/save some sum of your IOUs in return for sufficiently many of their IOUs. Sure, if you can always get a $10 loan from the bank in return for a $100 debt due in one year, go ahead, and Ponzi be with you. True, but not very likely.

    “The ability to repay the debt printing your own currency is determined by the desire to save in your own currency, regardless of the currency of denomination of the debt.”
    Not at all. There is a big difference between currencies. A state or anyone else can ALWAYS nominally repay debt denominated in their own currency – because all that is being asked at repayment is redemption of an old promise – a bond – for another promise – currency. The savers in your currency debt have no choice. It is not “determined by the desire to save in your own currency” currently. The decision to save was already made in the past when they acquired your bonds. They can destroy the promise/debt/bond – you are off the hook. Keep the promise/debt, for whatever it is worth. That’s it. What they CURRENTLY desire has nothing to do with it.

    When a state goes into debt in a foreign currency, it is just like an ordinary US citizen having a dollar debt. It can become unpayable. Whether he will be bankrupt or not depends on whether the original lender or 3rd parties are willing to save/accept his IOUs now, it depends on their savings desires NOW. Not what they did in the past, not their PAST savings desires, which was the case for domestic currency debt.

    Yes, you end up in the same situation domestically (devaluation/inflation) if the non-government sector does not save in it and dumps it. You can have a domestically-denominated sovereign debt which is unrepayable “in real terms”, unrepayable while keeping the currency at an uninflated value. But the domestic value of foreign-denominated debts is not controlled by the borrowing nation. The inflation/devaluation/”unrepayable in uninflated terms, but payable in nominal terms” domestic currency debt situation translates to inflation/devaluation/”default even in nominal terms” foreign currency debt situation.

    Domestic money printing or ANYTHING that one country can do by itself can not pay off arbitrarily large foreign debts. MMT is not magic. Borrowing in foreign currencies is generally a bad idea. You can always deliver on your own promises to make another promise. You can’t always deliver on your promise that another guy will make a promise.

    Clonal Antibody Reply:

    @WARREN MOSLER, Anybody who has been on the wrong side of a convertible preferred loan, will tell you that once you are unable to meet the loan obligations, you are no longer in the drivers seat. The company can issue however may shares it wants. The creditor can always drive the price of the stock down to the level that the creditor wants. The end result is unless the creditor is friendly, the ownership of the company changes hands. I can tell you first hand that the picture is not pretty for the corporations while negotiations are ongoing!

    That I believe was the difference between France and Germany. A friendly creditor vs an unfriendly creditor.

    WARREN MOSLER Reply:

    and it’s a wet blanket on US equities in general as well

    MamMoTh Reply:

    @Calgacus,

    When a state goes into debt in a foreign currency, it is just like an ordinary US citizen having a dollar debt. It can become unpayable.

    Wrong, the state can always print its own money, citizens can’t.

    The savers in your currency debt have no choice. It is not “determined by the desire to save in your own currency” currently. The decision to save was already made in the past when they acquired your bonds.

    People holding debt in your currency is evidence of desire to save in your own currency.

    Otherwise they wouldn’t hold it and you would have to borrow in foreign currency.

    So the real constraint is the desire by the non government sector to net save in your currency.

    You are assuming that this desire doesn’t change suddenly and I agree with that. But that is the constraint nevertheless.

    WARREN MOSLER Reply:

    a nation facing no foreign savings desires for its currency has to ‘use’ export revenues to import

    Ramanan Reply:

    “You are assuming that this desire doesn’t change suddenly and I agree with that.”

    That was what Krugman’s post on MMTers was about. Foreigners suddenly lost confidence in the Franc, provoking a collapse of the currency.

    WARREN MOSLER Reply:

    aka portfolio shifting

    MamMoTh Reply:

    @Ramanan, right, it usually never happens until it does.

    This shift hits suddenly and unless you take drastic action it hits hard.

    Calgacus Reply:

    @MamMoTh ,
    Wrong, the state can always print its own money, citizens can’t. Citizens certainly can print their own money. Airlines can create frequent flier miles. As Minksy said, anyone can create their own money, the problem is getting others to accept it. Draw your picture with some numbers on a piece of paper, and see what you will get for it. A sovereign state borrowing in foreign currencies is exactly like a US company or individual borrowing dollars.

    So the real constraint is the desire by the non government sector to net save in your currency. Yes, true in some sense, but uninformative, and not supporting the conclusions you draw. There is a huge difference between domestic and foreign denominated debt. Issuing & trading domestic-denominated debt simply is not borrowing, the way the word is normally used. It’s just offering a savings account instead of a checking account. Issuing foreign denominated debt is real borrowing. The “net savings desire constraint” in no way implies that domestic & foreign denominated debt are equally easy to pay off. One always, the other not always.

    Domestic-denominated: depends on past savings desires & no problem to satisfy nominally, no matter how big the debt and interest rate. “Our dollar, your problem” (John Connally) Foreign-denominated: to keep a Ponzi scheme going, you always need more suckers NOW to keep taking your paper, and give you valuable-to-you foreign currency to pay off your onerous foreign debt.

    Sure, they are both debts. They might even both be eventually settled identically in negotiation with creditors. (Where the ultimate “settlement” means creditors buying real assets.) But the foreign denomination can get arbitrarily large in terms of domestic. Taking on foreign debt can be like taking on an infinite domestic debt. You can always write a specific number on a piece of paper. You can’t always write a number which is equal to twice the number you are writing. Domestic-denominated debt-settlement might mean inflation, which one can think of as a form of default. Foreign-denominated debt settlement can mean just plain default, which everybody considers default.

    You are assuming that this desire doesn’t change suddenly and I agree with that. But that is the constraint nevertheless. I am make no such assumption. If anything the reverse. When you wrongly equate domestic and foreign denominated debt, you are the one saying savings desires don’t change suddenly. They do. You are going along OK, and then the bank calls in your loan, and you can’t refinance. There’s a boom & easy credit, and then a bust, and you are broke. Happens to countries too, which are foolish enough to take on large foreign-denominated debt.

    MamMoth, when you say – ‘foreign denominated debt, no problem, just like domestic denominated’ you contradict much of the basics of MMT & common sense.

    MamMoTh Reply:

    @Calgacus, we clearly disagree so there is no need to keep discussing past each other.

    I don’t think I am contradicting the basics of MMT and even less common sense.

    Yes, citizens could print their own money to settle debts if it is accepted. So that is my point, it’s all about the desire to net save your new currency.

    Countries which chose to default on foreign denominated debt do it in order to stop the spiral of inflation and devaluation of their own currency that you mention, which is the point I’ve been making all along: that the constraint is inflation and devaluation, and that’s it.

    Calgacus Reply:

    @MamMoTh, OK, last try then. I note that you said “net save your new currency” adding the crucial word “new”, so maybe some progress. Do you still really believe “No risk of insolvency in foreign currency either as long as the sovereign currency is traded and floating. Only risk is inflation and devaluation.”? Every MMT (& any other) publication that I have ever read, says that this is wrong.

    Countries don’t “choose to” default on foreign-denominated obligations. Why should they care about inflation/devaluation of their own currency if they could get dollars for free by printing their own currency? I wouldn’t. In reality, countries can’t make others desire to save their currency, and nobody would.

    Infinite inflation/devaluation isn’t the ultimate constraint, the worst case. There’s a point beyond which inflation/devaluation does nothing. Beyond that, foreign debts are unpayable, default is forced. In the old days your country might be invaded to take what can be taken. Forced by the lack of “desire to net save your new currency” – utterly unlike the case of domestic currency/debt, which has to do with past desires, already held currency/bonds.

    MamMoTh Reply:

    @Calgacus,

    Yes, I still believe that solvency is only a problem for countries with fixed exchange that ultimately need to default on their debt or on their peg or both (like Russia and Argentina did) but it is not an issue for countries with a floating currency. So I disagree with how things are often presented by some MMTers, but not with MMT principles (see Warren’s reply to my comment about Japan above.)

    Countries cannot force anyone to save in their own currency, I agree. That is my whole point and it’s something that is somewhat at odds with MMT: I don’t think a foreign denominated debt is a poor policy choice, because it is not a choice in most cases. (Ramanan posted an interesting link analysing this.)

    I see a foreign denominated debt as evidence of lack of desire to net save the country’s currency. Since a sudden change in that desire is unlikely, printing money to buy fx to pay the debt is much more likely to trigger inflation and devaluation than when printing money to repay its own debt. Still, solvency is not a problem. Latin american countries paid their debt through deficit spending for decades without defaulting, but they had very high inflation and were continuously devaluing their currencies.

    Calgacus Reply:

    @MamMoTh, genuine post-final :) comment:

    That countries can’t force anyone to save their currencies is not at all at odds with MMT.

    Saw Warren’s comment too. He can’t mean that foreign-denominated debt is always repayable. Afaik all MMT scholars who have written about such debts, including Mosler, say that it is possible to be unrepayable. If he did mean that, well, I’d tell him: that’s not MMT or anything deserving the name of economics, and to go home and think about it.

    MMT is not magic. If there’s a difference between a country selling its currency on fx markets to get dollars & a domestic US company selling its debt to get dollars, both to satisfy a dollar bank debt, both ultimately backed by their real assets, what is it? Answer: None at all. Sovereigns with a dollar debt turn themselves into the equivalent of US firms or individuals & can go dollar-broke.

    Significant foreign-denominated debt is (almost) always a choice, and a bad one. If you need it for food right now to avoid starvation or for guns right now to avoid subjugation, OK. Otherwise, it’s a stupid way to put a noose around your neck. Otherwise “live within your means” – pay for your imports with exports, without the luxury of running a trade deficit.

    The fact that you are floating and inflating can make it easier to run at full employment and export enough to pay foreign-denominated debts. You aren’t in the situation of a Greece or numberless IMF victims, which have such debts. Part of the ECB/IMF’s terms is austerity to wreck your economy, to make the unpayable debts even more unpayable.

    That doesn’t mean dollar debts are always repayable even if you float, even if Mosler, Mitchell, Fulwiller, Kelton, Tcherneva, Forstater & Wray are now running your economy from seances with the shades of Keynes, Kalecki & Lerner.

    A mathematical way of stating this would be noticing that infinite sums can converge to a finite, bounded result. Each (diminishing) term corresponds to how many dollars each of your devaluing currency units buy. You can spend an infinite number of Weimar Zimbabwe dollars and still not pay off your US dollar debt.

    MamMoTh Reply:

    @Calgacus, fine, I’m still sure you are wrong. I think Warren’s reply was clear enough.

    A basic MMT principle is that a government can always buy anything that is for sale in its own currency. That includes foreign currencies. So solvency is not an issue.

    MMT is definitely not magic. You cannot avoid inflation/devaluation if spending is too high. There is nothing in what I’ve said that implies any magic, on the contrary I said inflation/devaluation are always the constraint in the case of a floating currency.

    Look, Argentina had hyperinflation in the late 80s probably because of the dollar denominated debt, but didn’t default. It had a fixed exchange in the 90s and defaulted in 2001. Iceland didn’t default. Russia did.

    You are also confused with your mathematics analogy. As long as your currency trades at some price 1/P>0, then any foreign currency denominated debt D can be repaid printing D/P units of your currency, which is always a well defined positive real number as long as P>0.

    Calgacus Reply:

    @MamMoTh, Like I said, if that’s what Warren believes, he’s wrong. If that’s what he said, he didn’t realize what he was saying.

    A basic MMT principle is that a government can always buy anything that is for sale in its own currency. That includes foreign currencies. Right

    So solvency is not an issue. Wrong. As I and several others tried to explain above, at some point, the necessary amount of foreign currency just won’t be for sale at any price in domestic currency. That’s the whole point. That’s what happens in the real world, innumerable times, whenever anyone, any country goes broke.

    It was not a mathematics analogy, but a proof sketch. (“n” below could be time, or the serial number of printed units of currency.)

    As long as your currency trades at some price 1/P>0. That will not be true. That is your error. This assumption is violated in reality, and that is what makes your argument fail. (Makes clear to me how you could say what you have been saying.)

    Of course your statements are true if the foreign value of your currency is bounded below. We agree on the logic. But this assumption is never satisfied in the real world. Print & spend enough and the foreign value of your currency goes to zero – quickly – the more you print and spend.

    And this unrealistic assumption, positive lower bound of currency value, is far stronger than necessary for your argument to be valid. The foreign value of your currency can go to zero, and you still can run an fx ponzi scheme, if it goes to zero slowly enough – like (1/n) or even (1/pn) (pn being the nth prime number). You get a divergent series, with a sum going to infinity, but with each term going to zero. But if it goes to zero like (1/n^2) or (1/r^n) r>1 we have a convergent series.

    The convergent series is what happens in the real world. The value of your promises/currency depreciate (probably) geometrically. The (foreign / real) value of all your currency issued, ultimately a claim on your country’s real present & future wealth, is bounded. Quadrillion dollar debts due next year are unpayable by any means, by anyone else but Uncle Sam.

    WARREN MOSLER Reply:

    if there is anything for sale with a dollar price tag on it the US gov can buy it if it wants to

    MamMoTh Reply:

    @Calgacus, sorry but it is getting tiresome. Whatever you say, Warren’s reply is still clear to me.

    As long as your currency trades at some price 1/P>0 solvency is not an issue. If P=0 then it is because your currency is not traded anymore. That’s my point.

    Whether your currency devalues when you print it to pay a foreign debt, or rather by how much it will devalue, depends on the desire to net save your own currency, not on fanciful series.

    The real world validates my point. Argentina experienced devaluation and (hyper)inflation but didn’t default on their foreign debt in the late 80s. Argentina did default on its peg and on its debt in 2001. Greece is clearly insolvent and needed to be bailed out, Iceland did not face a solvency problem.

    Believe what you want, I’ll do the same and I have no problem with that.

    Calgacus Reply:

    @MamMoTh , Sure, whatever.

    Mario Reply:

    @Clonal Antibody,

    is that to say that if our dollar lost significant value, our debts that we have in US dollars would still be the same value? We wouldn’t get any discount on them?

    Reply

  3. Ron T Says:

    Krugman mentioned MMT again, please whoever feels competent, chime in.

    http://krugman.blogs.nytimes.com/2011/08/11/franc-thoughts-on-long-run-fiscal-issues/

    Reply

    Neil Wilson Reply:

    @Ron T,

    I’ve posted my response quoting the rules of functional finance.

    Probably better somebody else points out the mistakes made under the 1920s France example.

    I think we’re moving him. So be kind everybody.

    Reply

    Mario Reply:

    @Neil Wilson,

    “I think we’re moving him. So be kind everybody.”

    good point. Kindness does work better than anger with a guy whose “in transition” as they say. LOL

    Honey works better than vinegar at this point. Remember he’s not an Austrian…He’s Krugman…and if he turns…WOW.

    Reply

    Dave Carr Reply:

    @Mario,

    “…for the time being the MMT people and yours truly are on the same side of the policy debate.” Seems he is offering an olive branch; debate the nature of deficits and debt later, cooperate to affect public policy NOW. Other mainstream economists have a similar message. Saw Christina Romer on Maher last night, much the same.

    WARREN MOSLER Reply:

    more important than the message is the reason behind the message. he supports it with reasons that are not supportable

    rvm Reply:

    Think I was kind:

    Dear Mr. Krugman,

    Unfortunately the pseudo public debate in US and in the rest of the world is conducted by the so called deficit hawks and deficit doves only. You would never hear about the existence of another rear bird – deficit owl. No owls around public debate table.

    I like how Mr. Warren Mosler characterize the economic and political situation today. He cites a surprised carpenter:

    “No matter how much I cut it is still short.”

    I also noticed you didn’t find any time in your busy schedule to study what really MMT (Modern Monetary Theory) stands for. Don’t miss the last train and educate yourself!

    Reply

    Dave Carr Reply:

    @rvm,

    Somewhere on this site there is a picture of Krugman holding a copy of The 7 Deadly Innocent Frauds of Economic Policy. Smile on his face and a twinkle in his eyes.

    rvm Reply:

    @ Dave Carr,

    Yes, I saw it when it appeared. I don’t understand his game.
    Why does he continue with the same “deficit don’t matter” thing after all the comments he received regarding his first MMT related blog?! Is he insane, lazy or there is something else?

  4. anon Says:

    Really excellent post – one of your very best.

    Did notice this tucked in:

    “that it wants to”

    Reply

    WARREN MOSLER Reply:

    Thanks!

    Reply

  5. Mario Says:

    yes. It would appear this downgrade has woken up some people to say the least and now that big guns are coming out, things are looking positive.

    This is really, really good for MMT.

    The farther they push the neo-liberal line and go even more extreme, the more thinned out they become and therefore greatly increase the probability of failure. Their own process of existence is their very demise. Muhahahaha

    Now it’s only a matter of time.

    It will be interesting to see how the media spins this, if they can at all. More than likely they’d attempt to disregard it I’d say.

    Warren, can you get onto Huff-Po with this article or something like it? That would be good if you could.

    Reply

    WARREN MOSLER Reply:

    Up on huff now

    Reply

  6. Mario Says:

    Warren, can you get onto Huff-Po with this article or something like it? That would be good if you could.

    Reply

  7. Unforgiven Says:

    Seems like most of the “inflation” trouble has come from asset bubbles, which were brought on by horizontal (bank lending) money creation. Aside from supply shock (oil) inflation, have there really been any substantial instances of true inflation in the US?

    Reply

    Tom Reply:

    @Unforgiven,

    Yeah I was curious about that. It seems like we’d need to be a billion times more reckless wrt deficits than we are now to get true inflation. (Obviously a bit of hyperbole there) But I am curious as to how people can keep getting away with calling for true inflation and it never comes.

    I guess its like preachers calling for armageddon and that sort…use it to scare people to believeing what you say.

    I am also curious though about currency debasement wrt to MMT…what does MMT say about maintaining a valuable currency (foreign exchange rate wise) and what MMT steps are taken to do that? Is it as simple as if there is inflation and currency devaluation and low foreign exchange rates, you can just raise taxes or cut spending to reduce the amount of dollars out there in proportion to real goods/services?

    Reply

    Rodger Malcolm Mitchell Reply:

    @Tom, I always wonder why there is so much concern about exchange rates. Exporting is no better (dollar-wise) than deficit spending, and probably a bit worse (See: http://rodgermmitchell.wordpress.com/2011/08/11/which-is-better-for-the-u-s-increased-exports-or-increased-federal-deficit-spending/comment-page-1/#comment-6022 ) so why try to affect exchange rates?

    Anyway, you can increase the value of the dollar vs other currencies by increasing interest rates. (This is the point at which Monetary Sovereignty differs from MMT.)

    Rodger Malcolm Mitchell

    Reply

    Tom Reply:

    @Rodger Malcolm Mitchell,

    Thanks. I never understood why it was such a big deal either, but thats always what people bring up, “The dollar will be worthless in the world and no one will want it!”

    What about purchasing power? I know thinks are okay, but people also always bring up something like, “A dollar today buys so much less than it did in the past.” It’s lost it purchasing power, blah blah

    What is the best short, simple response to that? That seems to be the one piece I still need to fight back with :)

    WARREN MOSLER Reply:

    ‘so you think 2% inflation is too much?

    And what all the dollars buy is way more than what all the dollars bought back then since real GDP is way higher.

    Tom Reply:

    @Rodger Malcolm Mitchell,

    Also, one more question wrt your article. If we increase deficit spending, thats adding NFA to the economy on a vertical level to help keep the goods/services at home, right? It increases the money supply.

    But exports are paid for by money that was already created, right? So selling exports does not lead to new net money creation?

    Would exports then be a better option in an inflationary environment, rather than a larger deficit?

    WARREN MOSLER Reply:

    Sales are sales as far as the seller is concerned and both mean the same for prices

    Unforgiven Reply:

    @Rodger Malcolm Mitchell,

    Check Rodger’s article on inflation vs. the price of oil. That should help you out with the “dollar buys so much less” crowd.

    WARREN MOSLER Reply:

    Because there is no evidence to support it, and theory tells me the opposite

    Unforgiven Reply:

    @Tom,

    Ooops! Hit the wrong reply! Read the post just above….

    Reply

    WARREN MOSLER Reply:

    I think the 7dif on this website covers it so have a look and let me know thanks

    Reply

    Tom Reply:

    @WARREN MOSLER,

    Yeah, Ive read basically all your writings, and a number of others like Wray. Ive been an online/blog MMT student for about 6 months now. Its great so far.

    I’m a biologist in reality and am only 24 years old, so I dont have any financial experience at all in markets or in theory from college. So Im basically learning everything from scratch. So hopefully my questions dont come off too stupid sometimes as I’m still learning alot.

    Thanks for all the responses Warren, they help. Btw, my dad runs a business and he’s a closet MMTer. But not because of reading MMT online, he just seems to be really in tune with the business world and monetary realities. He was the first one that got me looking into MMT when he said to me “we can’t go broke because we run the printing presses” about 6 months ago. I think I have to get him a copy of your book to validate to him what he said, and also to pay him back for getting me into MMT indirectly!

    Thanks again warren

    WARREN MOSLER Reply:

    good to hear it!!!

    Unforgiven Reply:

    @WARREN MOSLER,

    Were you replying to my post?

    7DIF says: “So for me, our biggest inflation risk now, as in the 1970’s, is energy prices (particularly gasoline).”

    WARREN MOSLER Reply:

    can’t remember, sorry

    Paul Palmer Reply:

    The best reply to the decreased purchasing power of the dollar is:

    But there are many more dollars.

    If you divide almost any good that existed “way back when” by the minimum wage that same year, you will get the number of hours of labor to buy. That number – hours of labor at minimum wage to buy – fluctuates little over the years. It works for food, cars, most things you need to live.

    And the price of internet access, jet airline travel, on-demand TV, iPods, cell phones, was all infinite back in 1950.

    Reply

    Unforgiven Reply:

    @Paul Palmer,

    What the dollar is buying has changed too. More fuel efficient cars with more safety equipment and features that didn’t exist in the 50′s, longer service intervals, etc.

    Reply

    roger erickson Reply:

    @Paul Palmer,

    Exactly.

    > “A dollar today buys so much less than it did in the past.”
    > It’s lost it purchasing power, blah blah

    > What is the best short, simple response to that?

    Only useful comparison is context to context.

    Context a: N1 dollars X DPP1 = C1 purchasing power
    (DPP = dollar purchasing parity)
    Context b: N2 dollars X DPP2 = C2 purchasing power

    plus, as others note, there’s an indirect benefit of vastly superior range of vastly superior products available

    Reply

    JCD Reply:

    @Paul Palmer,

    Well there is one more thing.

    Some people save dollar denominated assets to purchase things when their labor no longer will. (Retirees, disabled, pensioners). If their assets (which are denominated in notional dollars) will no longer buy what they reasonably expected ex ante, they have lost to inflation.

    It does us no good to pretend that’s not the case.

    Reply

    Gary Reply:

    @JCD,

    if government pays pensions and compensations – it can always adjust it to inflation (unless it uses pensions as inflation curbing tool)

    Paul Palmer Reply:

    @JCD,

    JCD,

    True. But I don’t think you can construct a world where there is a guaranteed purchasing power return on savings.

    I’m not sure I have seen it discussed by Warren or anybody in MMT, but since you don’t need savings for investment, what need is there for savings at all? Forcing people to save becomes a huge cost to the economy.

    WARREN MOSLER Reply:

    when people don’t spend their incomes, for a given size govt our taxes can be lower.

    ;)

    WARREN MOSLER Reply:

    who pretends that?

  8. Gary Says:

    “whereas Greece is not the issuer of the euro,
    much like the US states are not the issuer of the US dollar,

    THERE IS NO SUCH THING AS THE US BECOMING THE NEXT GREECE”

    I this might be confusing to some if posted widely. I think it is important to stress that in second line we are talking about individual US states, and in the third line – the federal USA government.

    Reply

    WARREN MOSLER Reply:

    Changing now thanks

    Reply

  9. Ralph Musgrave Says:

    Raising taxes so as to rein the monetary base or debt might be necessary in a year or two so as to rein in inflation, as Krugman says. In which case it will be necessary to explain that such additional taxes involve no “austerity” whatever. Reason is that the extra tax simply removes money from the private sector which if were left there would exacerbate inflation, and inflation makes everyone WORSE OFF not better off.

    If politics makes such tax collection difficult, well that wouldn’t be the first time politics has messed up an economy. Politicians in Europe and the US are currently making a fine job of bu**ering up their economies.

    Reply

    beowulf Reply:

    @Ralph Musgrave,
    One day, Albert Speer advised JK Galbraith on the best way to bomb Japan (a cryptic statement, I know) by pointing out its easier to dam a river near its headwaters than near its delta.
    http://books.google.com/books?id=4UgEAAAAMBAJ&pg=PA57&lpg=PA57#v

    Likewise, instead of taxing every sale or every paycheck (requiring taxpayers to file a forest of paperwork and legions of revenue agents to check the paperwork), the easier way to drain bank reserves is to simply tax every transaction as it moves through the banking system.
    Since the FRS (and I’m sure the BOE as well) already levies its own transaction fees, Congress doesn’t actually have to ever raise taxes. What’s more, because the Fed’s net earnings flow to Tsy, the Fed can control inflation with user fee revenue since the fiscal impact would be identical to tax receipts, but with rather less collection costs.

    Tsy would spend what Congress orders it to spend, against which Fed coul mark up fee schedule for a net reserve drain or mark down fees for a net reserve add. If nothing else, the Fed could tighten or loosen fiscal stance a heck of lot faster than Congress could.

    Reply

    Neil Wilson Reply:

    @beowulf,

    The trouble then is that discourages transactions – like a sales tax. Turnover is not necessarily profit, yet turnover creates jobs.

    To me any sort of transaction tax exacerbates the Paradox of Thrift.

    The most appropriate drain is to tax what the country has given to people, ie a land value tax. You can’t move it, if you want to keep it you have to pay, and you can’t avoid it by becoming a hoarding miser.

    You assess, you charge the land tax and you confiscate the land from anybody who doesn’t pay. The percentage then moves up and down to drain excess bank reserves. It works exactly like floating mortgage rates.

    Reply

    Sergei Reply:

    @Neil Wilson,

    Neil: The trouble then is that discourages transactions

    It discourages *pointless* transactions potentially eliminating pointless jobs. And there are much more of those in the bubbling phase.

    The problem I have with this approach is that we already have lots of transaction based taxes. The fact that consumers often do not see them does not mean they do not exist.

    WARREN MOSLER Reply:

    agreed except bank reserves have nothing to do with it.

    and compliance costs are nil

    WARREN MOSLER Reply:

    jobs are a cost, not a benefit

    beowulf Reply:

    @Neil Wilson,
    I agree that land value tax is the best way to go, in the US, Tsy could do this by adding imputed rental value of land to income tax base. I should hasten to add that the govt taxes too much now. So if land taxes (or transaction fees) are added they should be used first and foremost to zero out other taxes. But just as electric utilities make a distinction between baseline and peak time power needs(nukes around the clock while fast-starting natural gas turbines fire up at peak times and turned off afterwards), the land tax and Pigouvian taxes can and should be the “baseline” tax base, but to deal with “peak time” inflationary pressure, what’s needed is a reserve drain that can start up fast and afterwards, can be powered down quickly. Nothing beats Fed bank transaction taxes on that score.

    There is a distinction, at least in the United States between taxes and user fees. Only Congress can levy or adjust taxes (perhaps they could index payroll or other tax rates to the unemployment rate). However, federal agencies are typically free to set their own user fees to cover direct or indirect (externality) costs of providing services. The criteria for setting Fed transaction fees is, “Over the long run, fees shall be established on the basis of all direct and indirect costs actually incurred in providing the Federal Reserve services priced…”
    http://www.law.cornell.edu/uscode/12/usc_sec_12_00000248—a000-.html

    If we use the the Quantity theory of money equation— Price = Velocity * Money supply– price inflation is the result of excessive monetary transactions. Since “over the long run” every FRS bank transaction incrementally adds to the Velocity of money, “the indirect cost” of any Fed transaction is price inflation. Therefore, the Fed governors could adjust their transaction fees to counter the inflationary effects created by this Velocity * Money. Whether it works by “discouraging” Velocity or by draining Money from reserves is besides the point if the concern is inflation, not insolvency.
    http://www.federalreserve.gov/paymentsystems/pfs_feeschedules.htm

    WARREN MOSLER Reply:

    i for one would drastically reduce my usage of the banking system if it was taxed

    Reply

    beowulf Reply:

    @WARREN MOSLER,
    “I for one would drastically reduce my usage of the banking system if it was taxed”
    If inflation is the problem to address, then taxing money velocity is simply a Pigouvian tax. Bank usage stays constant, reserve drain, a reduction in usage would be a velocity drain. In terms of reducing inflationary pressure, Uncle Sam wins either way.
    Once the inflationary peak time is over, the FRB can then reduce or zero out its fees (current half a billion a year take is close enough) much faster than Congress could ever cut taxes. After which, you can put away the gold coins and duffel bags full of Euros and start using the banking system again.
    I kid I kid! Look at it this way, if the Fed agreed to maintaining a positive FFR, they would be tempted to relapse into old habit every time inflation nudged above 2.5%. Giving the Fed governors a fiscal policy tool they can use instead of falling back on old habits, would be a prudent exercise in harm reduction, like setting up a methadone clinic for (barely) reformed addicts.

    WARREN MOSLER Reply:

    making payment outside the banking system doesn’t alter velocity or spending

    beowulf Reply:

    @WARREN MOSLER,
    Oops, I meant to say… if the Fed agreed to STOP maintaining a positive FFR.

    beowulf Reply:

    @WARREN MOSLER,
    “making payment outside the banking system doesn’t alter velocity or spending”
    The transaction fee would have be rather enormous (unlikely in any event) to push payments to a non-dollar clearing system. Any payment transaction in dollars, the Fed governors can regulate (and levy fees).
    In 1987, Congress enacted the Expedited Funds Availability
    Act (EFAA), which gave the Board, for the first time, the authority to regulate the payments system in general, not just those payments made through the Reserve Banks.
    (p. 2)
    http://webcache.googleusercontent.com/search?q=cache:MRiCIYSjsyMJ:www.federalreserve.gov/pf/pdf

    Of course the two Fedwires dwarf everything else. Between them, over $900 trillion in transactions annually (p. 35 of CRS report details various payment systems).
    http://webcache.googleusercontent.com/search?q=cache:DWF78rDo-DQJ:www.llsdc.org/attachments/files/279/CRS-R41529.pdf

    beowulf Reply:

    @Anon,
    Its not about “punishing” the banks or anyone else. Any govt levy on a company is going to be passed through to either workers, owners or customers. How its split up depends on the market power of the various players. Greg Mankiw had an interesting post about FAA excise fees last month that touched on this.
    http://gregmankiw.blogspot.com/2011/07/question-about-tax-incidence.html
    The idea is simply this: if the economy is nearing “peak time” full employment (and we can agree that taxes need to be cut dramatically before that comes about), what is the most timely and effective way to “take the punchbowl away” with fiscal policy?
    Since fiscal tightening requires either spending cuts or tax increases, bank customers in aggregate are going to take a hit in their accounts, one way or another. If Fed user fees were based on percentage of value (instead of its current flat fees per transaction), the percentage levied could be temporarily adjusted across all bank transactions almost instantly. As Andrew Jackson (the rsj of his day) might say, just “as Heaven does its rains, shower its favors alike on the high and the low, the rich and the poor, it would be an unqualified blessing”. :o)
    http://en.wikiquote.org/wiki/Andrew_Jackson
    If you think this is politically infeasible, we could take advantage of the fact forced savings are the functional equivalent of taxes (the best example being the voluntary in name only war bond drives during WW II). We could get the same fiscal tightening even if transaction fees levied were diverted to customer retirement/time-deposit accounts instead of to Tsy.

    WARREN MOSLER Reply:

    while an aggregate demand problem is possible, for all practical purposes the problem is generally found on the supply side.

    that is, relative value shifts get called inflation.

    in any case, as soon as excess demand becomes a problem, I start by looking at what the specific offending demand is, where it’s coming from, etc.

    If it’s the rich hiring too many gardeners, the problem is very different from other types of ‘over employment’

    anon Reply:

    @Beo,

    “forced savings are the functional equivalent of taxes”

    that’s pretty far out
    they’re both contractionary, but functional equivalent?

    the banking system is the main payment system for paying all types of taxes

    using it to pay taxes and using the system’s transaction velocity as the tax base are different ideas

    WARREN MOSLER Reply:

    they both reduce aggregate demand

    anon Reply:

    @beowulf,

    It’s not really about reserve drain, which is the means not the end of payment.

    Banks have to pass on the cost to customers obviously – highly visible and highly annoying to the regular customer. Unintended punishment of decent customers just trying to pay a few bills by those who want to punish banks.

    Change regs on the high velocity trading stuff instead.

    Reply

    anon Reply:

    sounds like an rsj idea

  10. John Says:

    Sorry, but your open letter to Greenspan and the world won’t get anywhere with the Very Serious People. It doesn’t matter how much they are proven wrong, their beliefs — or at least their pronouncements — are disconnected from reality. You can point out the facts until you’re blue in the face. They’ll ignore you, or respond with insults and ignore the argument.

    Reply

    WARREN MOSLER Reply:

    the all believe the govt can do what they call print dollars to make payments and therefore should be AAA.
    that’s the argument they’ve all been making.

    so i’m asking anyone making that argument why they are against the federal deficit.

    the answer has to be and is always inflation, and not solvency.

    that’s all Congress needs to know

    Reply

  11. Clonal Antibody Says:

    Also John Carney on CNBC

    There’s a school of economic thought called Modern Monetary Theory that tries to draw out the implications of the fact that governments that create currency are not fiscally constrained in the way households, businesses, or governments that don’t control their currencies are. The most readable version of MMT can be found over at the website Pragmatic Capitalism.

    One problem I have with MMT is that I fear its key insight—that government is not revenue-constrained—would tempt politicians to spend more and spend badly. The notion that dollars spent by the government are dollars taken away from people who earned them (or, in the case of deficit spending, dollars that will have to be taken away from those who will earn them in the future) seems to impose some discipline.

    Reply

    roger erickson Reply:

    @Clonal Antibody,

    that’s the lamest excuse for returning to the Garden of Eden that I’ve ever heard.

    If that’s the way American’s thought, they shouldn’t have fought the damn revolution to gain the right & responsibility to explore their own options.

    Reply

    Tom Hickey Reply:

    @Clonal Antibody,

    Did Carney read the whole post?

    “One problem I have with MMT is that I fear its key insight—that government is not revenue-constrained—would tempt politicians to spend more and spend badly. The notion that dollars spent by the government are dollars taken away from people who earned them (or, in the case of deficit spending, dollars that will have to be taken away from those who will earn them in the future) seems to impose some discipline.”

    This is the knee jerk reaction to MMT, and it is the grip of real fear that seem to close minds to understanding what MMT actually proposes. Big obstacles, since the public trusts politicians at about the same level as venomous snakes. Carney’s cortex apparently turned off at a certain point and he revert to his snake brain.

    The alternative? Adopt policy that makes people feel is safe but which does not work except for the extractors.

    Reply

    Matt Franko Reply:

    @Tom Hickey, Good one Tom… “Progeny of vipers!” Mat 23:33
    Resp,

    Reply

    WARREN MOSLER Reply:

    either you believe in an informed electorate or you don’t

    Reply

    pebird Reply:

    @WARREN MOSLER, I believe we will have one someday, I hope, I hope.

    Reply

  12. Clonal Antibody Says:

    John Carney ended with

    I suspect the government would view the chance to operate without revenue constraints as an opportunity to enrich well-connected big businesses and other special interests, wage wars, fund massive anti-crime and incarceration projects, and make life more difficult for anyone out of favor.

    In other words, MMT-enhanced government would look a lot like the actual, real government we have today—only more so.

    My reply to JC would be

    “No John, the world according to MMT would look like the world FDR put in place, but only more so! You forget MMT calls fro much tighter regulations!”

    Reply

    Clonal Antibody Reply:

    @Clonal Antibody,

    Sorry the italics and the line befor is my comment, and not JC’s

    Reply

    Tom Hickey Reply:

    @Clonal Antibody,

    This is the problem with people reading a short description of MMT and concluding that it is only an operational description of the monetary system and concluding that MMT economists have not considered such obvious issues.

    Reply

    PZ Reply:

    @Clonal Antibody,

    Trouble is GOP has always, well since the times of Reagan at least, understood that government faces no revenue constraint. This lopsided system where deficit doves dominate the democratic party just makes mockery of democracy.

    Only difference between deficit hawk and deficit dove is timing; deficit hawk would like to cut the deficit right away, deficit dove would like wait a while and then cut the deficit.

    Reply

    WARREN MOSLER Reply:

    so you think they’d be cutting social security. and laying off teachers

    Reply

    Clonal Antibody Reply:

    @WARREN MOSLER,

    Warren,

    I presume that you are replying to John Carney’s article, and not my italicized comment.

    Or are you replying to @PZ?

    Reply

  13. Clonal Antibody Says:

    Also,

    A plea from Canada No Retreat, No Surrender: Time For Progressives to Explode Deficit/Monetary Myths

    Friends, I’m concerned. I fear that too often, we on the left retreat when we should attack, surrender when we should vanquish. What do I speak of? Well, I am concerned that too many of us are willing to play in the frame, the box, the straighjacket of modern discourse about fiscal and monetary policy. Obama does it. The NDP does it. Even some of my fellow PEF bloggers do it.

    And I understand why. Some haven’t been exposed to theoretically, empirically and institutionally-grounded alternative ways of thinking (I’m thinking Modern Monetary Theory or MMT here) about these issues and so they do a heroic job with the tools they possess. Others have been exposed but aren’t convinced. Fair enough. These things take time. Still others have been exposed, are convinced but think the whole point is moot because if you step outside of the policy box, you get ridiculed, ignored, marginalized and that can’t be good for anyone, can it? I get that.

    Except except except…here’s the thing……
    .
    .
    .
    .

    Reply

    peterc Reply:

    @Clonal Antibody, Good link. Thanks.

    Reply

  14. Jim Says:

    Here is Mitt Romney at the Iowa State Fair, telling the crowd that Medicare and S.Security have to be slashed in order to ever have a balanced budge. Tom Hickey should have been there.

    http://bcove.me/qlrt00hh

    Reply

    Tom Hickey Reply:

    @Jim,

    Happy to see that some Iowans gave him hell. :)

    Reply

    pebird Reply:

    @Jim, Thank god the electorate hasn’t forgotten the bank bailouts.

    Reply

    WARREN MOSLER Reply:

    does he believe the US has limited ability to pay?

    Reply

    Unforgiven Reply:

    @WARREN MOSLER,

    More likely he believes that the voters have a limited ability to think.

    Reply

  15. Lula Says:

    Anyone smart enough who can answer this (maybe Warren)?

    I agree almost completely with Warren with the power of the fiat money system, BUT then why in the world did S&P downgrade US Bonds unless a 4-trillion spending cut is on the table?

    According to the guidelines for bond credit rating (Wikipedia):

    An AAA rating means that the “obligor has EXTREMELY STRONG capacity to meet its financial commitments.”

    Given that the US can print US$ and pay the creditors, the US does have strong capacity to meet its financial commitments, unless the Congress decide not to raise the debt ceiling. But this is a political issue. Every government should know that deficit spending is often necessary to grow the economy over time.

    Now, why then does S&P care about how much deficit the US has? It was even able to bring on the table this magical number of 4-trillion US$ in spending cut. What, can S&P predict that anything less than 4-trillion will lead to another fiasco in the Congress, which leads to a potential default (not raising the debt limit), in the future?

    Many economically weak countries cannot simply print their own currency to meet their obligations, because that would translate (in the presence of fear) an immediate drain of their foreign reserve. But the US is different.

    Anybody?

    Reply

    Keith Newman Reply:

    @Lula,

    The last paragraph you cite is incorrect. A country that has a free-floating fiat currency can always pay off its obligations denominated in its own currency. Foreign reserves are irrelevant unless the country wishes to keep the value of its currency at a certain value in which case it is not free-floating.

    There is a serious potential problem though. The exchange rate of the currency could drop considerably in which case the price of essential imports could rise a lot: food and energy in particular. That could also trigger off a rise in prices, so inflation to varying degrees. This could be a problem for poor countries especially.

    Reply

    John Zelnicker Reply:

    @Lula,

    Lula — S&P has become nothing more than a political hack. Even if they understand that the US can always pay their bills, (they may not understand), they are just trying to help the bankers and wealthy shrink the federal government. If they can do this, the people on the bottom of the totem pole (economically) will suffer the most. I have come to believe there is a wider understanding of MMT among the policymakers than they would admit. If there was a broad understanding and acceptance of MMT, the public would be demanding more deficit spending. With a bigger pie to cut, there is more for everyone. If the pie is smaller, it is always the relatively disadvantaged that lose.

    Reply

    Tom Hickey Reply:

    @John Zelnicker,

    Basically, the less the government spends, the more that will be borrowed from the private sector. This is really what “crowding out” means to them — government deficits crowding out their business by making people independent of private borrowing. This is what MMT means about offsetting saving desire. If saving desire is not offset, then people either have to cut back spending, draw down savings, sell assets, or borrow. Low rates and easy credit draw then into borrowing. That had been the USA business plan until it blew up. Now the push is on to start it up again.

    Michael Hudson explains that this is all about FIRE forcing debt peonage. And since most of the large corporations now have financial arms, it is not only banks that profit.

    Reply

    WARREN MOSLER Reply:

    mikey must be assuming shareholders don’t spend their earnings. same problem of any unspent income

    Tom Hickey Reply:

    @Tom Hickey,

    Question is what % is spent and what % is saved. Those the the top are at the top because they ave predominantly savers, i.e., make more than than they wish to consume as a matter of choice. Those at the bottom are at the bottom because they are of necessity or choice predominantly consumers.

    It’s true that those at the top are responsible for about 40% of national consumption, but even so, look at the figures that show income and wealth concentration at the top and increasing indebtedness at the bottom until the crisis forced saving.

    WARREN MOSLER Reply:

    ability to pay is not an issue with any nation that issues its own currency and has a floating fx policy.

    Reply

  16. Henry Says:

    German Taxpayers Willingly Subsidise Bankers
    August 11, 2011
    By Michael Hudson

    NY Times, August 11, 2011
    A debate between five economists on “Why Aren’t Germans Protesting?”

    Rightly Disgusted at the Banks

    A bailout, like any other government expenditure, is a tax. Someone must pay all this money. And it is unfair to tax the broad population to pay for a special interest. Instead of being a progressive tax policy, bailouts enable bad behavior by the financial elite, sticking taxpayers with the cost.
    ——————————
    What the heck is wrong with Hudson. The bailouts were paid with “taxpayers” money. Is he confusing Europe with the US? He seems to wobble a lot on the boundaries of the paradigm.

    Reply

    Tom Hickey Reply:

    @Henry,

    Uh, if you notice the current political debate, it’s about reducing government social spending instead of raising progressive taxes, cutting tax spending by closing loopholes and ending subsidies, or cutting military expenditure. Cutting social spending is essentially a tax on the bottom (which is not taxed) and the middle class (which is already taxed regressively).

    This is what the present political kerfuffle is about. It is assumed that the deficit/debt is too large and cannot be increased, to the funds allocated to wars, bailouts, subsidies (including tsys interest) has to be “paid for” by cutting social spending. Everyone but progressives and MMT’ers seem to agree.

    Progressive want to pay for this by cutting back on the military and raising progressive tax rates, as well as closing loopholes and ending subsidies. MMT, of course, has a different analysis and approach, but since it doesn’t speak in terms of the mainstream paradigm, it is marginalized and gets no traction.

    Hudson knows the MMT paradigm but seldom speaks in terms of it. Apparently, he finds greater effect in speaking in terms of the prevailing universe of discourse. I think the same is true of Dean Baker.

    Reply

  17. Henry Says:

    Tom, don’t put “uh’s” before your comments. It is sophomoric and disrespectful.

    You are wrong about Hudson. He is inconsequential and out of paradigm, and I’m sure Warren would agree. And it is frustrating. This despite his evident very good points and courage. Make all the excuses for him you like, but double-speak and your “traction” lead to further confusion. If “traction” is so desirable, let’s blame Warren, Auerback, Fulwiller, Wray, and the rest, for lack of realism. Two weights, two measures.

    Reply

    Tom Hickey Reply:

    @Henry,

    I disagree. Most people of power and influence make strategic decisions consciously and intentionally. A lot of people understand the basics of monetary and fiscal operations under a fiat system and don’t let on for a variety of reasons. They are acting strategically, which often involves being disingenuous. That is the way of the world, and everyone knows this. If you don’t know it, you are the sucker who is the mark.

    Someone needs to tell the truth over and over again until it is finally accepted, however. These are patriots and heroes. In other cultures there is great financial and even physical risk. Here one is just marginalized, ignored, and maybe insulted. Actually, being insulted is a good sign, because it shows that you are being noticed.

    Anyone who thinks that Michael Hudson does not understand the details of the debate about creditary economics should follow the gang of 8 at Yahoo Groups.

    Even Greenspan suddenly “discovered” the truth that the US government cannot default when the default debate came down to the wire. Did he just find that out? Hardly.

    Anyone who thinks that what people say is what they actually think is naive. Almost no one in any position of power or influence shows their cards unless it profits them or is expedient.

    Reply

    Clonal Antibody Reply:

    @Henry,

    As per Scott Fullwiller, both Michael Hudson and Bill Black are very much on the MMT bandwagon and paradigm. He ought to know, since his office is only a few doors down from both their offices, and talks with them quite often.

    Reply

    Calgacus Reply:

    @Clonal Antibody, Yes, I agree with Tom & Clonal that Hudson is basically an MMTer, especially from his gang of 8 postings. I think one should generously interpret what he is saying as merely a manner of speaking. It is perfectly reasonable to call bailouts a tax. Note he is saying any government expenditure is a tax – spending is the real taxation. And he is mainly talking about Europe, not the US. Dean Baker doesn’t get MMT / creditary economics yet, but he is getting ever closer.

    Reply

  18. Jon Says:

    I am aware of Hudson’s being a faculty member, for heaven’s sake.
    Tom, you really need to measure your language. Call someone else a sucker, please.

    Hudson is not a man of “power.” He is a professor. He is an intellectual and not a politician, with an intellectual’s responsibilities for putting the truth above all things. I go by what he writes, not by what I might speculate regarding his motives. And people who read him will also go by that. I stand by my remarks.

    Reply

    Tom Hickey Reply:

    @Jon,

    I was using “you” in the colloquial generic sense, not aiming personally. Sorry for the confusion.

    I think you are confused about Hudson. Most of what he does for public consumption is politically oriented, highly polemical, and populist in appeal. He has worked out a strategy for attacking his targets (rentiers, the financial elite, the military-industrial complex, and the ruling elite in general). This strategy, not unlike Noam Chomsky’s since he submerged his linguistic research, is quite effective in getting him exposure in diverse venues from Democracy Now to Max Keiser. The range and depth of his effect is pretty broad and deep, and he has been at this awhile. Super Imperialism was first published in 1972 IIRC.

    Michael Hudson is not just standing up and telling the truth. That’s what every scholar is supposed to do. He has been on the offensive for along time, just like Chomsky. They choose their targets and attack them strategically in a very public way, not through academic publications. Conversely, most academic that play public roles are “celebrities” and get paid big bucks to represent the status quo. They are basically lobbyists.

    Michael Hudson now has a professorial appointment at UMKC, he has not been only an academic in his professional life. He was employed in the financial sector. In fact, he reports that it was his employment in the financial sector that radicalized him, just as serving in the military during Vietnam radicalized me.

    Reply

    Calgacus Reply:

    @Tom Hickey, Yes, and his real name is Huckleberry Hudson. Changed it to Michael. As an admirer of Twain, like his father, I think he should change it back.

    Reply

    Tom Hickey Reply:

    @Calgacus,

    :)

    BTW, Michael Hudson is hardly the odd man out at UMKC, although he is the furthest to the left. Bill Black and Randy Wray have been increasingly in the attack from left of center. Marshall Auerback, too. Of course, Bill Mitchell has also been a sharp critic of the status quo from the left for a long time.

    In his political campaign, Warren advertised himself as a Tea Party Democrat (as a libertarian rather than a progressive). I would call his position center left, and he is the most “conservative” of the MMT economists that have a political agenda in addition to an economic one. There seems to be at least an implicit strategy developing here as the group becomes more influential wrt policy alternatives.

    Folks like Joe Firestone, selise and Lambert Strether are spreading MMT as the progressive solution that works in the progressive blogosphere.

    Jamie Galbraith, an MMT ally, is also unabashedly progressive and a strong advocate of reform, and Yves is giving MMT as push at Naked Capitalism, as well as sounding the voice of outrage, too.

    This is shaping up into a contest between MMT and the Libertarian/Austrian and conservative/neoliberal cohorts over policy, with MMT doing its best to either bring aboard liberals and progressives that are clueless about monetary economics, Minskyian financial instability, etc., or else sideline them if they don’t come over.

    I don’t know whether there’s time and resources to ramp up for ’12, but I suspect that this conflict will be front and center in ’16, given the way things are heading. MMT’ers need to work on the up and coming political candidates and let the others die off or see themselves replaced.

    anon Reply:

    @Tom,

    You can’t go further left than Bill Mitchell. And I think its silly to suggest that MMT has no ideological bias. The paradigm is built around the potential for deficit spending, which is definitely ideological.

    WARREN MOSLER Reply:

    The tea party should be all over it. Cut spending an cut taxes twice as much
    Taxed enough already and all that

    Tom Hickey Reply:

    @Calgacus,

    I think this is correct, anon. “Reality has a liberal bias.” That’s why the right seeks to impose political restraints.

    beowulf Reply:

    @Calgacus,
    And then you have people like Matt Franko and me coming at this as paleoconservatives, both of us voted for Pat Buchanan back in the day. Can’t speak for Matt but I think in terms of microeconomics (macro still 2 years in the future), Henry C. Simons was definitely on the ball.
    [In] A Positive Program for Laissez Faire (1934) Simons set out a program of reform to bring private enterprise back to life during the Great Depression.
    “Eliminate all forms of monopolistic market power, to include the breakup of large oligopolistic corporations and application of anti-trust laws to labor unions. A Federal incorporation law could be used to limit corporation size and where technology required giant firms for reasons of low cost production the Federal government should own and operate them… Promote economic stability by reform of the monetary system and establishment of stable rules for monetary policy… Reform the tax system and promote equity through income tax…”

    http://en.wikipedia.org/wiki/Henry_Calvert_Simons
    http://billtotten.blogspot.com/2009/12/positive-program-for-laissez-faire.html

    beowulf Reply:

    @Tom Hickey,
    “This is shaping up into a contest between MMT and the Libertarian/Austrian and conservative/neoliberal cohorts”

    Its an accident of timing, were John McCain in the WH now, he’d be running even bigger deficit, the GOP keeping the Austrians safely locked up in the attic. Meanwhile the grass roots power would on the side of neoliberal anger at the budget deficit (with Pete Peterson astroturf the one constant in the multiverse) and groups like US Uncut working for “tax the rich only” deficit reduction bills.

    The party out of power always tries to kneecap the party in power over the deficit issue, when they switch places they switch arguments. As Rick Boettger commented:
    This hideous strategy works
    because, bizarrely, when the
    minority party cold-bloodedly
    shuts down the government
    and kills needed bills, it is
    the majority party and the
    President who get blamed.

    http://www.kwtnblue.com/2010/03/rick-boettger-minority-treason/

    Calgacus Reply:

    @Anon, You can’t go further left than Bill Mitchell. Lots of people further left. Took the political/social test he displays on his site somewhere. Was slightly to the right of him on social matters (I guess he thinks dogs & cats should be allowed to marry.) But a bit to the left politically

    Like Tom says, it’s reality that has the bias. MMT is a scientific theory, not a policy program, and has no real ideological bias. Unlike most economic theorizing, it makes logical sense and applies to the real world. It appears ideological to the extent that what is called “right” or “conservative” has a superstitious, flat-earth, pro-human sacrifice for astrological purposes bias, and hardly all of the “right” does.

    WARREN MOSLER Reply:

    I suspect bill was classified further left before mmt, which defuses both the mainstream left and right

    anon Reply:

    The MMT approach to deficit spending and inflation control pretty well implies ELR, whether or not ELR is stated explicitly as part of the package, and it often is anyway. So I think its difficult to separate MMT from ELR. That’s what seems ideologically left to me.

    WARREN MOSLER Reply:

    It always comes down to a buffer stock policy
    Gold, unemployed, employed (elr), fx which uses someone else’s buffer stock, etc.

    So which is right and which left?

    Tom Hickey Reply:

    @Calgacus,

    ELR is core MMT.

    WARREN MOSLER Reply:

    All fiat currency involves buffer stock policy

    Tom Hickey Reply:

    @Calgacus,

    I would call JG/ELR “employment assurance” and refer to it as a buffer of employed instead of a buffer of unemployed. It really is not ideologically left seen in the light of economic efficiency. The countries greatest loss other than loss of life and limb in war are idle and deteriorating real and human resources. I don’t see it as a political argument based only on ideological norms. There are a sound economic criteria to roll out for adopting it as policy.

    WARREN MOSLER Reply:

    Agreed

    anon Reply:

    “It always comes down to a buffer stock policy
    Gold, unemployed, employed (elr), fx which uses someone else’s buffer stock, etc.

    So which is right and which left?”

    roughly, I’d say the popular perception would be:

    gold – right
    unemployed – right
    employed – left
    fx – center

    anon Reply:

    “I would call JG/ELR “employment assurance” and refer to it as a buffer of employed instead of a buffer of unemployed. It really is not ideologically left seen in the light of economic efficiency. The countries greatest loss other than loss of life and limb in war are idle and deteriorating real and human resources. I don’t see it as a political argument based only on ideological norms. There are a sound economic criteria to roll out for adopting it as policy.”

    what would you regard as left that is not economically efficient?

    WARREN MOSLER Reply:

    basic income guar.

    beowulf Reply:

    @Anon,
    roughly, I’d say the popular perception would be:
    gold – right
    unemployed – right
    employed – left
    fx – center

    The Govt’s fiscal stance itself is a buffer– automatic stabilizers such as progressive income tax and formula-based spending programs (e.g. unemployment insurance and food stamps) counter-cyclically loosen fiscal stance as unemployment rises and tighten up when employment drops.

    The lowest lying fruit is expanding automatic stabilizers via the tax code (and revenue bills, uniquely, can sidestep Senate filibusters via the budget reconciliation process). One idea is adjusting payroll tax rate inversely to unemployment rate. Another approach is Ralph Musgrave’s idea of implementing a jobs guarantee through the tax code. Without conceding that Ralph’s idea is economically superior, an employer tax credit is certainly more “sellable” politically (and doesn’t preclude a separate govt-run jobs guarantee as well).
    http://ralphanomics.blogspot.com/2011/02/make-work-job-guarantee-wpa-etc-should.html

    Tom Hickey Reply:

    @Calgacus,

    many things that both left and right espouse are ideologically based rather than on economic efficiency. Generally, when one sees a moral argument, that is the tip off. Both sides frequently make moral arguments based ideological norms, or should I say regularly.

    Ramanan Reply:

    @Calgacus,

    Anon,

    Re: the ideological bias .. the deficit argument cannot be given for it.

    Simply because of the sectoral balances approach, if the private sector wants to have a lot of saving, the government has no alternative to accommodate this unless it is prepared to run the economy in less than full employment.

    But don’t disagree on the bias.

    anon Reply:

    @Ram,

    spoken like a true MMT’er :)

    the right preaches balanced budgets

    the right can stake and preach ideology, while being wrong on theory

    anon Reply:

    @Ram,

    Bachman’s speeches don’t exactly overflow with sector balance reasoning.

    Ramanan Reply:

    Anon,

    A bit of the style of Wynne Godley, actually.

    Here’s some from the Guardian Archives from 1980:

    http://dl.dropbox.com/u/16533182/Godley/Cambridge%20Group%20Sings%20The%20Blues.mht (opens in IE)

    “The Review is written in a style that any trade union official should be able to understand”.

    Ramanan Reply:

    Anon,

    Even Ben Bernanke recently in a hearing mentioned that if the politicians want a balanced budget rule, it should be worded such that during recessions the rule is not followed or something of that sort.

    So he is going in that direction – seeing the budget balance as endogenous and attempts to tighten the fiscal stance putting the economy into recession.

    Tom Hickey Reply:

    @Calgacus,

    As far as I can see, only an MMT approach (sectoral balance approach, functional finance) holds economic water.

    “Living beyond our means” and “make the rich pay their fair share” are both moral arguments, not economic ones.

    Ramanan Reply:

    ““Living beyond our means” and “make the rich pay their fair share” are both moral arguments, not economic ones.”

    Like households can have any debt ? I thought in the past decade, people in the US lived beyond their means.

    Are you arguing for further cuts in tax rates or no increase for the rich ?

    Tom Hickey Reply:

    @Calgacus,

    Ramanan, “living beyond our means” is a contemporary US campaign slogan of the GOP conservatives for “fiscal sustainability” and a balanced budget amendment. “Make the rich pay their fair share” is the corresponding campaign slogan of the Democratic progressives to end the Bush tax cut for the wealthy, to eliminate tax breaks and subsidies that constitute “tax spending,” and to increase progressive tax rates. Both appeal to ideological norms rather than sound economic reasoning.

    Tom Hickey Reply:

    @Calgacus,

    Randy’s 2002, A Monetary and Fiscal Framework for Economic Stability, shows how MMT is a “cleaned-up” version of Milton Friedman’s 1948 proposal of the same title. Pretty much same as Friedman’s basic intent, but in light of sectoral balances. Randy assumes that MF’s proposal was based on Lerner, whose work was au courant t back then.

  19. Henry Says:

    I used my pen name for the reply. Sorry for the confusion. I was using my other browser.

    Reply

  20. aeolius Says:

    “Reality has a liberal bias.” That’s why the right seeks to impose political restraints.

    That is very funny. Tom, and a kind of summit of wishful thinking. You are very American. :-) See Chairman Mao: “power comes from the barrel of a gun.”

    Regarding Hudson, I think you’re right about his strategy. He grew up in a Marxist environment. Very political. At the same time, he can say things that really do deviate from the paradigm when it comes to monetary operations, apparently not his strongest side. He also has a strong China bias (married to a Chinese, I believe), hence his somewhat off-paradigm explanations there as well.

    Reply

    beowulf Reply:

    @aeolius,
    Ha ha, I love how Hudson will contact Chinese officials with helpful suggestions like using their dollar reserves (to use American legal terminology) to condemn by eminent domain US investments in China… with just value for compensation established by the US companies’ own book values. Since book values tend to be rather low for tax reasons, Hudson’s enormously clever idea is a twist on Lenin’s line, “The Capitalists will sell us the rope with which we will hang them”.
    The genius part of this idea is it allows China to scare the hell out of the White House, and of course US CEOs (perhaps this is why Jeff Immelt is working part-time at the WH these days) without posing any kind of security threat to the American public. FDR’s Pearl Harbor speech would have fallen a little flat if Japan had merely eminent domained US investments instead of bombing the Pacific Fleet.
    Dear Premier Wen Jiabao,
    I write this letter to counteract some of the solutions that Western politicians are recommending for China to cope with its buildup of excess foreign-exchange reserves.. The most workable solution is to use its official reserves to buy back US and other foreign investments in China’s financial system and other key sectors.

    http://michael-hudson.com/2010/07/dollar-hegemony-and-the-rise-of-china/

    Reply

    Tom Hickey Reply:

    @beowulf,

    :)

    Reply

  21. Aeolius Says:

    Well, China has no domestic market in proportion to its holdings. It needs foreign customers. It doesn’t have a lot of time. It can’t very well buy up US assets in China and then sell back product to the US–to an effectively shrinking customer base. What it probably should do with the dollars is do what the foolish US austerity measures won’t let the US itself do for itself: furnish credit to Americans, to cities, to towns, modernize infrastructure (railways, above all), and pursue alternative energy investments, different housing and urban arrangements, and so on. In short, create jobs and more sustainability–if they could work with the right people and ideas. Others have already suggested this entry of China into banking in the US.

    However, above and beyond all that, the combination of the endless growth “development” ideal in the US, Europe, Russia, China, and India, puts a serious strain on resource and energy availability, creates serious tensions and conflict, and who knows how much potentially catastrophic ecological imbalance. And there are just too many people. Eventually, serious wars are almost a certainty.

    Reply

    WARREN MOSLER Reply:

    first you need to know what the goal is.

    i sort of assume it’s not the general standard of living…

    Reply

  22. Anonym Says:

    Hi Warren,

    This is a comment in relation to which post? It is a bit too telegraphic. If it’s to Aeolius’ last comment, please clarify your point.

    Reply

  23. WARREN MOSLER Says:

    sorry, can’t follow, need more context

    Reply

  24. Anonym Says:

    This one (at 21.):

    first you need to know what the goal is.

    i sort of assume it’s not the general standard of living…

    Reply

    WARREN MOSLER Reply:

    ok,
    question is, what’s china’s goal? can’t make suggestion without knowing what those in power are trying to accomplish?

    Reply

  25. Anonym Says:

    I see, that makes sense. My question was more simple: was your comment directed at Aeolius’ post, and if so I wasn’t sure what point you were making, since Aeolius didn’t seem to be asking a question, but seemed to be saying that global sustainability in the face of limited, hotly competed for resources was uncertain, along with ecological disturbances. He/she seems to think that this is a recipe for war eventually.

    Reply

  26. Anonym Says:

    Two good articles:

    http://golfcourseproject.com/uploads/Soil_Science___Carbon_Civilization.pdf

    http://www.insurgentamerican.net/download/StanGoff/FoodandFinance.pdf

    Reply

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