Mike Norman Economics: General theory and special cases in Modern Monetary Theory
Posted by WARREN MOSLER on June 22nd, 2012
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June 22nd, 2012 at 10:53 am
Wow, talk about ignorance, lack of ability to reason! Here is another theory call MRT – modern religious theory that is equally thought through.
What is intelligent design?
Intelligent design refers to a scientific research program as well as a community of scientists, philosophers and other scholars who seek evidence of design in nature. The theory of intelligent design holds that certain features of the universe and of living things are best explained by an intelligent cause, not an undirected process such as natural selection. Through the study and analysis of a system’s components, a design theorist is able to determine whether various natural structures are the product of chance, natural law, intelligent design, or some combination thereof. Such research is conducted by observing the types of information produced when intelligent agents act. Scientists then seek to find objects which have those same types of informational properties which we commonly know come from intelligence. Intelligent design has applied these scientific methods to detect design in irreducibly complex biological structures, the complex and specified information content in DNA, the life-sustaining physical architecture of the universe, and the geologically rapid origin of biological diversity in the fossil record during the Cambrian explosion approximately 530 million years ago.
The scientific method is commonly described as a four-step process involving observations, hypothesis, experiments, and conclusion. Intelligent design begins with the observation that intelligent agents produce complex and specified information (CSI). Design theorists hypothesize that if a natural object was designed, it will contain high levels of CSI. Scientists then perform experimental tests upon natural objects to determine if they contain complex and specified information. One easily testable form of CSI is irreducible complexity, which can be discovered by experimentally reverse-engineering biological structures to see if they require all of their parts to function. When ID researchers find irreducible complexity in biology, they conclude that such structures were designed.
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Sleeper Reply:
June 22nd, 2012 at 8:43 pm
@Alex the truther, Oh dear, a cut and paste from the Disco’tute.
Inteligent Design was a political scam to intoduce Creationism into American classrooms and pretend it has something to do with science. It is the same as Creationism!
Just read the Wedge Documents where this is made explicitly clear.
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Brian Reply:
June 23rd, 2012 at 1:51 pm
@Alex the truther,
You seem confused about how the scientific method works. Scientists do not predict that they should find x (in your case “irreducible complexity”) and the go look for x and if they find it conclude their theory was correct. The actual scientific process is very much the opposite of that. No number of observations that can be explained by a theory is sufficient to prove the theory, rather a single observation that cannot be explained by a theory is sufficient to disprove it. For example, consider the hypothesis that the Earth is flat. If that were true, it would predict that at a given time the angle of the sun to the horizon should be the same everywhere. Eratosthenes demonstrated that it was not, and thus proved that the Earth was NOT FLAT. He did not prove that it was round. A round Earth became the new hypothesis subject to testing.
ID is pseudoscience precisely because it does this backwards. ID makes a prediction (there is complexity in nature) and then concludes that since the prediction is right, their explanation of that complexity must be right as well. Rather, what happens is that creationists declare something irreducibly complex by fiat, and then some biology student does a Ph.D. thesis trying to (and ultimately succeeding in) disproving that it was irreducibly complex, by showing how it evolved. The mammalian eye is a good example of this. Creationists then simply pick a new “irreducibly complex” system and the process repeats.
It is because of this failure to disprove any hypotheses that ID is not real science. ID is un-falsifiable and thus doesn’t even reach the level of disproved theories like Lamarckian evolution (replaced by Darwinian evolution, and then later more sophisticated theories). Instead ID is mere dogma, conjecture, and superstition.
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June 22nd, 2012 at 12:31 pm
This is circular reasoning. The general case is not realistic. Life is all about special cases. Governments have rules and regulations that guide how they can and cannot act. The general case is government without constraint. Is that all MMT is? About stating the obvious fact that a government could theoretically do whatever the hell it wants? That’s a mistaken view of the world.
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paul Reply:
June 22nd, 2012 at 12:54 pm
@Lars,
The government can choose to do whatever it wants. If it chooses to do something that violates system maths it will fail.
MMT tells us where not to go.
It isn’t that complicated.
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WARREN MOSLER Reply:
June 22nd, 2012 at 5:26 pm
sorry, but that makes no actual sense to me
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Unforgiven Reply:
June 24th, 2012 at 12:03 am
@Lars,
“Life is all about special cases.”
Pwnd youself right there, Lars!
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Art Patten Reply:
June 24th, 2012 at 8:58 am
@Lars,
“The general case is government without constraint.”
Even though based on the idea of boundary conditions-?
And special cases able to fall ‘out of bounds’?
Not sure where you’re getting that.
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June 22nd, 2012 at 2:02 pm
“The government can choose to do whatever it wants. ”
I understand this. It is rather obvious. The reason why there are “special cases” is exactly because of this. There are rules and regulations put in place to stop government’s from being able to to “whatever it wants”. MMT appears to be based on the obvious notion that a government can act entirely without constraint if its citizens allow it it. Well duh!
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paul Reply:
June 22nd, 2012 at 2:16 pm
@Lars,
MMT simply makes the point that constraints are self-imposed, not by any notions of exponentially exploding interest payments or massive inflation.
And, self-imposed for some nebulous reasons that doesn’t hold up to scrutiny.
There are no mathematical constraints yet we are told by TPTB, anyone and everyone that there are.
We are told that we are “going further and further into debt” and are “impoverishing our grandchildren”.
These are myths, not constraints, but are framed as constraints.
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ESM Reply:
June 22nd, 2012 at 2:34 pm
@paul,
“MMT simply makes the point that constraints are self-imposed, not by any notions of exponentially exploding interest payments or massive inflation.”
I would add that MMT also makes the point that within the self-imposed constraints we already have, there is no practical constraint to running as a high a budget deficit (or total debt) as we need. T-bill auctions simply will not fail, nor even fail to clear at some small number of basis points above the Fed target rate, despite what foreign central banks do, or what the bond market thinks about inflation.
So it’s not at all that the government has the power to change the rules. The government has the power to change the rules under a gold standard as well. The distinction is that the government can play by the rules as currently set perfectly well and still do all the things that MMT suggests.
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paul Reply:
June 22nd, 2012 at 2:45 pm
@ESM, “So it’s not at all that the government has the power to change the rules. The government has the power to change the rules under a gold standard as well.”
Exactly.
Art Patten Reply:
June 24th, 2012 at 9:07 am
@paul,
“MMT simply makes the point that constraints are self-imposed, not by any notions of exponentially exploding interest payments or massive inflation.”
Whoa…let’s not affirm the myth that ‘MMT [like Dick Cheney] says deficits don’t matter.’
A sovereign deficit (or official CB rate paid on reserves, etc) can absolutely be too large (high). Nominal policy errors tend to have real impacts, and electorates are unlikely to put up with either of them if they get too big. Even under a dictatorship, there’s a boundary constraint operating somewhere.
Maybe I misunderstood and you’re saying constraints under present conditions are purely self-imposed? If so, apologies, and I agree.
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WARREN MOSLER Reply:
June 24th, 2012 at 11:45 am
no nominal constraints, just political constraints, including regime change risk…
WARREN MOSLER Reply:
June 22nd, 2012 at 5:31 pm
tell our presidential candidiates who agree we’ve run out of money and need to borrow from the likes of china to be able to spend.
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June 22nd, 2012 at 2:49 pm
“MMT simply makes the point that constraints are self-imposed, not by any notions of exponentially exploding interest payments or massive inflation.”
Yes, speed limits are also self imposed. That doesn’t mean they don’t exist for good reason or that they should be done away with just because the “general case” means we could theoretically drive as fast as we want.
There are limits on what governments can and can’t do for good reason. I understand that many of the politicians might not understand the precise dynamics behind the monetary system, but that doesn’t justify MMT’s explanations which essentially try to ignore the specific case in order to justify unconstrained government response.
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paul Reply:
June 22nd, 2012 at 3:09 pm
@Lars,
“…MMT’s explanations which essentially try to ignore the specific case…”
A monetary economy functions within a closed system in only one possible way.
The notion that the specific case – general case argument has any effect on the system is nonsense. You misunderstand the argument completely. You seem to think the tail wags the dog.
The argument is there to show how various governments adapt to closed-system realities.
The government is powerless to change the system. It would have to change math itself.
All a government can try to do is control the system response with respect to it’s needs.
When the controls help a few at the expense of the many the government is illegitimate.
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WARREN MOSLER Reply:
June 22nd, 2012 at 5:35 pm
we all agree there are good reasons for limits, such as tsy, military, etc. can’t spend without Congressional allocation of funds.
nor can the irs tax beyond instruction from congress. and courts, congress, exec, check and balance each other.
but tsy/fed ‘no overdraft’ rules and ‘debt ceiling’ rules are anachronisms of the gold standard no longer there ‘for good reason’
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Art Patten Reply:
June 24th, 2012 at 9:09 am
@Lars,
“that doesn’t justify MMT’s explanations which essentially try to ignore the specific case in order to justify unconstrained government response.”
If anyone has advocated an unconstrained govt response, they don’t understand MMT, imo. Sounds like you’re doing likewise?
MMT simply spells out the possible govt responses that would be sufficient to meet some desired result.
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June 22nd, 2012 at 3:33 pm
“A monetary economy functions within a closed system in only one possible way.”
This is absolutely not true. For instance, not every country can be sovereign in its currency. Some nations just don’t have a choice due to any number of real constraints. MMT takes the examples of a few developed nations and applies that as the “one possible way”.
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paul Reply:
June 22nd, 2012 at 3:47 pm
@Lars,
“…not every country can be sovereign in its currency…”
It doesn’t matter if a country is monetarily sovereign or not – it is still constrained by closed-system maths.
Private-sector economies cannot create their own state money.
MMT is based on closed-system arithmetic re state money.
Countries can try to go against the grain all they want. They will ultimately fail.
Every time in US history it became necessary to “break the rules” it was done.
“Breaking the Rules” is creating new state money when you aren’t supposed to be able to.
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Lars Reply:
June 22nd, 2012 at 4:06 pm
@paul, An economy is not only based on state money. In fact, fiat monetary systems are based almost entirely on bank credit and have very little to do with state money. So any theory designed around understanding state money is guaranteed to miss the bigger picture. Which you clearly do.
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paul Reply:
June 22nd, 2012 at 4:40 pm
@Lars,
FYI, credit extended in dollars (or Euros, etc.) is “state money”.
Bank credit can’t create net growth or financial wealth. If the government doesn’t follow through and “print”/spend into the economy, the system will eventually come to a halt, and any paper gains will evaporate (again, in the aggregate).
Seems vaguely familiar…
Credit creates gains in “value” through a mechanism called leverage. This is on a par with levitation until one cash’s out and actually realizes their gains.
Those that don’t cash out before the music (credit) stops get caught with the losses.
Credit isn’t limited by the government’s ability to create money/liabilities. It’s limited by borrowers ability to service the debt.
I should also point out that credit only creates the principal. Since the interest isn’t created I will leave it as an excercise for you to figure out where the balances to pay the interest might come from.
Lars Reply:
June 22nd, 2012 at 5:05 pm
@Paul,
Bank credit is bank money. The only money the state directly issues is reserves and coins. Everything else is bank money. You have to differentiate between the two.
“Bank credit can’t create net growth or financial wealth.”
Bank credit can’t create net growth? You are surely mistaken. Most of the growth that occurs in an economy is due to perpetual credit growth. This is why most of the transaction in our economy occur in credit money, not state money.
Yes, there is a limit to the amount of credit that can be issued given the constraints of real economic growth and the government can help ease the strains at times, but this is a separate issue.
You don’t seem to understand that the entire fiat money system is built on bank issued credit and only loosely supported by government money.
Barton Reply:
June 22nd, 2012 at 5:34 pm
Lars I understnd what you say, but I’d have to say after studying MMT for a long time that state money has, at least, “primacy” over credit money. First, nearly all claims created with credit money, as far as I can tell, are promises to pay and are ultimately reimbursable in state money. That is through the mechanism of the Federal Reserve system which clears via the debiting and crediting of RESERVE accounts….that is clearly state money isn’t it? Of course there are other clearing systems that banks may use to clear payments, but always implicit is the stipulation that state money is ultimately payable.The way our system is set up, banks do actually need state money to do what they do. They do need reserves.
Second of course is that fact that the government requires that taxes only be paid in state money. They will take a check drawn on a bank account, but it has to clear in state money. Thus state money is in demand and has value.
So I guess you might say that credit money and the credit economy, which you rightly imply is huge and dwarfs state money, is a leveraging of state money. You need both to get an economy to function smoothly and grow.
WARREN MOSLER Reply:
June 22nd, 2012 at 5:38 pm
depends on how you are defining ‘based’
Tom Hickey Reply:
June 22nd, 2012 at 7:45 pm
@Lars,
Lars: “Bank credit is bank money. The only money the state directly issues is reserves and coins. Everything else is bank money. You have to differentiate between the two.”
Not the way that MMT would express it. Banks have a government franchise that gives them access to reserves that are only created by the cb, in the US the Fed, which is agency of the government. Reserve and cash are govt created.
Having this access, banks can denominate their business in state money, which widely accepted instead of private money issued by banks as banks at one time did under “free banking.” This is not a free banking system in which banks create their own money. They use state money, which is used for settlement throughout the currency zone in that final settlement that is not netted takes place in either cash for spot transactions or through bank reserves through drafts.
So all virtually money in a modern modern economy is state money and all transactions are denominated in state money, unless a contract for some other form of payment is specifically entered into, which is unusual if not rare.
Within this system of state money are the unit of account, there is inside money created by credit extension, which nets to zero, and outside money injected by govt that creates net financial assets in non-govt.
It safe to say that anyone who doesn’t get these key distinctions cannot understand how a modern economy operates financially since transactions are chiefly monetary and accounting is based on the unit of account, which is authorized by the state.
WARREN MOSLER Reply:
June 22nd, 2012 at 9:59 pm
I like to say it this way- bank loans ‘create’ bank deposits, and bank deposits are accepted for payment of taxes, as designated by Congress.
Lars Reply:
June 22nd, 2012 at 8:45 pm
@Tom H, So I see what MMT does. You guys are saying bank issued money is state money or something similar. That’s a very flawed way of looking at the two. Government money is very different from bank issued money.
But I can see that you all don’t really have any interest in considering that you might be wrong.
jim Reply:
June 23rd, 2012 at 7:42 am
@Lars,
Lars said:
“You guys are saying bank issued money is state money or something similar.”
Of course they are similar.
It is people like drug dealers and tax dodgers that worry about the differences.
I agree with you in the sense that MMT is often too trusting and simplistic in terms of money supply. There needs to be self imposed constraints. However, they don’t have to be based on superstition as they are now.
The ideological argument you are raising is that MMT believes the govt can do a fine job of supplying the system with money and you believe the private sector does a fine job of maintaining the supply of money in the form of the expanded purchasing power of leverage. What happened is 2008 is pretty good evidence that your view is wrong.
In the 1950′s one new dollar of US debt generated almost one dollar in increased production. by 2007 one dollar of additional debt was matched by only 15 cents of new production. The entire post war period until 2008 private sector debt expanded at fairly constant rate of 10% per year while production expanded at less than 4%. In other words, a train wreck waiting to happen.
As Minsky said “anybody can create money. The problem is getting others to accept it”.
WARREN MOSLER Reply:
June 23rd, 2012 at 7:46 pm
why? for a given size govt taxes can always be low enough for full employment.
and the smaller the ‘multiples’ the lower the taxes.
seems like a good thing to me?
Tom Hickey Reply:
June 23rd, 2012 at 8:25 pm
@Lars,
Lars: “So I see what MMT does. You guys are saying bank issued money is state money or something similar. That’s a very flawed way of looking at the two. Government money is very different from bank issued money.”
You still don’t get it. inside money (what you call bank money) and outside money (what you call govt money) are both denominated in the unit of account, which in a modern economy is currency, i.e., “state money”
Loans are denominated in state money, deposits are denominated in currency (state money) in the US that is dollars. The debits and credits are in dollar amounts that is. Neither loans nor deposit are currency. They are accounting records denominated in currency. Banks do not create currency.
The accounting records at the cb are denominated in currency and ARE currency. Huge difference. Those reserves are exchangeable for cash by banks at the Fed. The Fed does not accept bank IOUs for cash. It only accepts is own liabilities (reserves) in exchange for its own liabilities (cash)
Lars Reply:
June 23rd, 2012 at 10:21 pm
@Tom Hickey, cash and reserves are a very small part of the money supply. All transactions do not settle in cash and reserves. It seems you are the one confused here.
Tom Hickey Reply:
June 23rd, 2012 at 10:54 pm
@Lars,
“All transactions do not settle in cash and reserves. It seems you are the one confused here.”
Read what I said — “after netting.” First everything is netted intra-bank. Then some banks use clearing houses to net out to save $ on Fedwire fees. But, only the largest banks use clearing houses, since it is not financially beneficial for small banks. They settle via Fedwire.
jim Reply:
June 24th, 2012 at 7:57 am
Warren said:
why? for a given size govt taxes can always be low enough for full employment.
Then why JG? A given size govt is a constraint, but it is loosely defined and JG illustrates how easily it is tossed aside.
WARREN MOSLER Reply:
June 24th, 2012 at 11:51 am
seems to me an employed buffer stock is a far more effective price anchor than an unemployed buffer stock?
my proposals will quickly restore aggregate demand/sales/jobs/etc. and I’d feel a lot better about the prospects for inflation with a JG/transition job offer in place to facilitate the transition from unemployment to private sector employment during the expansion.
The transition job may seem trivial since it doesn’t involve a lot of funding, but for me it’s critical to optimize the expansion which is ultimately limited (among other things) by the amount of people the economy employs.
paul Reply:
June 22nd, 2012 at 5:19 pm
@Lars,
“Bank credit can’t create net growth? You are surely mistaken…”
Add a loan transaction to a balance sheet and tell me what happens to net worth.
“…Most of the growth that occurs in an economy is due to perpetual credit growth. This is why most of the transaction in our economy occur in credit money, not state money.”
Separate growth from NFA expansion from “growth” from credit expansion. “Growth” from credit expansion can only move assets from one balance sheet to another. The “growth” is leveraged “value” that is on paper only. In other words “not real”.
Real is the dollars you have in your pocket (or mattress) plus the things of value you own net of liabilities. If you have a $200,000 house with a $100,000 mortgage, you’ve got nothing until you sell it, (except a place to live as long as you make the payments).
If everyone tried to cash in their pension funds at once what do you think would happen?
You’ve ignored most of the points I’ve tried to make which tells me you are taking your cues from “what other people say”, ie you don’t really understand math.
Hopefully you aren’t too old to learn.
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WARREN MOSLER Reply:
June 22nd, 2012 at 5:40 pm
when you borrow to build a house the house is new real wealth
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Lars Reply:
June 22nd, 2012 at 5:49 pm
@WARREN MOSLER, You might want to explain to your readers that there is more to wealth than government issued money. Some of them obviously don’t understand this.
paul Reply:
June 22nd, 2012 at 6:04 pm
@WARREN MOSLER,
“when you borrow to build a house the house is new real wealth”
True, just not necessarily new “net” wealth.
The new wealth is offset by a liability that is usually anywhere between 50% and 90% of “value”.
“Value” is the slippery term here. “Wealth” is slippery too.
The ability to accumulate debt is limited by one’s ability to earn the funds to service the debt. Debt can’t fund itself because the interest isn’t created with the debt.
If there were no NFA creation by the government, where would the balances to pay the interest come from?
The argument is similar to the familiar chicken/egg paradox.
Can an economy be based on credit alone?
Lars Reply:
June 22nd, 2012 at 6:07 pm
@Paul,
“when you borrow to build a house the house is new real wealth”
True, just not necessarily new “net” wealth.”
When the money is borrowed to purchase the house and the loan is repaid there is still a house. That is “net new wealth”.
WARREN MOSLER Reply:
June 22nd, 2012 at 7:37 pm
it’s net if the ‘value’ is more than the ‘value’ of the materials that went into it were.
that’s pretty much the labor content.
paul Reply:
June 22nd, 2012 at 6:47 pm
@WARREN MOSLER,
“You are once again showing your ignorance here. When the money is borrowed to purchase the house and the loan is repaid there is still a house. That is “net new wealth”.”
“when the loan is repaid” is the key phrase here.
Right now, a $100,000 loan to buy a $125,000 house at 3.375% for 15 years will take $127,576.77 to pay back.
Where will the money to pay the $27,576.77 in interest come from?
Not to mention you have to earn the $100,000 needed to make the principal payments, which has to come from existing money in the economy (unless we run deficits in excess of the trade deficit), much of which is being accumulated as financial wealth by the few.
BTW, that money you’re spending to repay the loan? That’s not spending. It does nothing.
And you spent $127, 576.77 for a $125,000 house, with $25,000 down. So you could have it “now”.
That’s $152,576.77 for a $125,000 house.
What’s the definition of net again? Is that a positive or negative number?
WARREN MOSLER Reply:
June 22nd, 2012 at 7:41 pm
interest paid is another’s interest income earned.
yes, unspent income is a demand leakage, regardless of the source of the income
paul Reply:
June 22nd, 2012 at 6:48 pm
@Lars,
The previous reply was meant for Lars, not Warren
Lars Reply:
June 22nd, 2012 at 7:00 pm
@Paul,
You’re confusing two separate points. The money to pay back the loan will mostly come from other bank deposits being transferred to your account and then to the bank when the loan is fully paid. The problem is not that there is not enough of these deposits in the system to repay the loans, but that too many deposits in the system can create booms and busts in asset prices upon which these loans are based. When too many loans are created to satisfy unsustainable asset price gains you get a bust and loan defaults when asset prices adjust and debtors are unable to obtain more deposits for various reasons.
You’re confusing two entirely different matters here.
WARREN MOSLER Reply:
June 22nd, 2012 at 7:41 pm
too much spending creates booms, not just too many bank deposits, whatever that means
WARREN MOSLER Reply:
June 24th, 2012 at 11:40 am
‘too many deposits’ doesn’t create booms/busts
too much/too little spending does
paul Reply:
June 22nd, 2012 at 7:10 pm
@Lars,
So, I’m confused that interest payments on bank loans can only come from net government spending?
That it’s mathematically impossible to be otherwise (without violating the closed system boundary condition)?
Let’s go back to the closed system reality…and think about this for a moment.
WARREN MOSLER Reply:
June 22nd, 2012 at 7:42 pm
interest income that is spent can be ‘used’ for interest payments
Tom Hickey Reply:
June 23rd, 2012 at 11:37 pm
@WARREN MOSLER,
“when you borrow to build a house the house is new real wealth”
Right, but what is the “value” of the house? Real wealth only has use value. That has to be converted to nominal value for accounting purposes. First there is cost of land and buildings, or book value. There is appraised value. Then there is market value, which fluctuates and it not known for sure until the sale of the property closes. Then then there is rental value (even if one doesn’t care to rent the property.) Then there is the insured value (replacement value).
So how to measure real wealth? Most people think of the market value of the assets in thinking of their net worth. That is, of course, only on paper and is an illusion until realized. We all know how that works out, both ways. :o
WARREN MOSLER Reply:
June 24th, 2012 at 12:07 pm
the house only has ‘relative value’ the way I see it.
Lars Reply:
June 22nd, 2012 at 5:46 pm
@paul,
“If everyone tried to cash in their pension funds at once what do you think would happen?”
It’s funny that you’re lecturing me on math when you don’t even understand the basics of market dynamics. It’s impossible for everyone to cash in their pension funds. Markets are made up of buyers AND sellers. Real wealth is not just cash. It also resides in the form of unsold assets.
You very obviously have no idea what you’re talking about here since you don’t even understand the most basic facts.
Reply
WARREN MOSLER Reply:
June 22nd, 2012 at 5:52 pm
if everyone cashed in their pensions at once, whatever that means, and didn’t spend the dollars, there would be no change in sales, output, employment.
Lars Reply:
June 22nd, 2012 at 5:55 pm
@WARREN MOSLER, There is no such thing as cashing in pensions all at once. That’s like saying that everyone can run a trade deficit at once. You’re not making sense.
paul Reply:
June 22nd, 2012 at 6:11 pm
@Lars,
There is nowhere near enough cash in existence to pay everyone the value of their pension funds at once. Not even close. Not even if you included Treasuries and they already belong to someone. The money in your pension is supposed to be yours.
“Real wealth is not just cash”
Real wealth isn’t anything if you can’t sell it when you need to and you can’t use it.
What good is a pension fund you can’t spend? It’s spending for someone else maybe?
WARREN MOSLER Reply:
June 22nd, 2012 at 7:40 pm
The term ‘real’ is meant vs the term ‘nominal’
nominal wealth is financial assets. real wealth is the ‘real stuff’ like drill presses
WARREN MOSLER Reply:
June 24th, 2012 at 11:39 am
the amount of ‘cash in existence’ is a function of demand for cash by credit worthy demanders.
WARREN MOSLER Reply:
June 22nd, 2012 at 5:37 pm
any entity with taxing authority can issue tax credits and spend them
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Lars Reply:
June 22nd, 2012 at 5:53 pm
@WARREN MOSLER, the ability to tax does not mean you’re sovereign. Was Russia sovereign before it defaulted? Was Weimar sovereign? I have seen MMTers claim these were not sovereign entities. I agree they were not sovereign so taxing alone does not make an entity sovereign.
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WARREN MOSLER Reply:
June 22nd, 2012 at 6:06 pm
i don’t use the word ‘sovereign’ and have suggested others don’t either.
It’s loosely defined at best and also misses the point.
Yes, Russia had taxing authority and was the issuer of their own currency. Same with Weimar.
maybe by some definition of sovereign they weren’t sovereign. Don’t see why i should care?
Lars Reply:
June 22nd, 2012 at 6:10 pm
@Lars, If you can tax, but you still rely on the kindness of strangers to run your currency regime then you should care. Greece can still tax, but they’re not sovereign in the Euro. Isn’t being sovereign in the currency one of the cornerstones of MMT?
WARREN MOSLER Reply:
June 22nd, 2012 at 7:38 pm
Try saying it without the word ‘sovereign’
Greece can tax and spend Greek tax credits, for example.
Tom Hickey Reply:
June 22nd, 2012 at 7:54 pm
@WARREN MOSLER,
“any entity with taxing authority can issue tax credits and spend them”
Not sure that this is permitted by law in the US unless the tax credits are not denominated in the unit of account (USD), and even then it is questionable.
States and local government can tax but as fara as I can see, not create their own tax credits.
US Const. Art 1, sec. 10 “No State shall … coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder….
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WARREN MOSLER Reply:
June 22nd, 2012 at 10:00 pm
Seems state and local govts issue all kinds of tax credit for all kinds of things such as ‘clean energy’ investment, etc.?
I don’t know of any federal restrictions on states issuing tax credits good for payment of state taxes?
Tom Hickey Reply:
June 22nd, 2012 at 10:42 pm
@Lars,
You are mixed up about the unit of account and outside money. Inside and outside money are both denominated in the unit of account in modern economies, that is, the currency, which is issued by the state, in the US iaw US Constitution, Art. 1, sec. 8, which courts have interpreted as giving the federal govt sole authority over its currency called the USD.
Inside money is created by banks and nets to zero (loans create deposits).
Outside money is created by fiscal deficits that inject net financial assets into the economy.
If you don’t get this, you haven’t even reached step one yet.
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FDO15 Reply:
June 23rd, 2012 at 2:43 am
@Tom Hickey,
Tom, inside money has no linkage to the amount of outside money that exists. Most money in the economy is inside money. This has nothing to do with reserve settlement or NFA’s. MMT tries to have it both ways. When it’s convenient you say banks are serving public purpose by issuing state money. When it’s convenient to claim the banks are evil then you say they create money in ways that doesn’t serve public purpose.
Lars is right that this is all circular reasoning and a totally convoluted and inaccurate understanding of the monetary system.
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WARREN MOSLER Reply:
June 23rd, 2012 at 5:05 am
I don’t say banks are ‘evil’
they are what they are as created, regulated, supervised, and insured by Congress.
Responsibility lies with the Congress that remains firmly in control, knowingly or unknowingly.
Tom Hickey Reply:
June 23rd, 2012 at 2:10 pm
@FDO15,
“Tom, inside money has no linkage to the amount of outside money that exists.”
Where did I say it did. You don’t get what I said.
“Most money in the economy is inside money.”
Agreed.
“This has nothing to do with reserve settlement or NFA’s.”
Wrong. Final settlement of interbank transactions that are not netted takes place using reserves in the interbank settlement system provided by the Fed, that is, on the Fed’s spreadsheet.
“MMT tries to have it both ways. When it’s convenient you say banks are serving public purpose by issuing state money. When it’s convenient to claim the banks are evil then you say they create money in ways that doesn’t serve public purpose. Lars is right that this is all circular reasoning and a totally convoluted and inaccurate understanding of the monetary system.”
Emotional rant that is bonkers regarding both the facts and understanding.
June 22nd, 2012 at 3:49 pm
Basically, what this says is that countries can decide on an international monetary standard and the choice is essentially between convertible or non-convertible currency, and fixed or floating rates. There are other choices, too, such as a system that generally relies on central banking or on that does not. These and other options have historical precedents.
This post focus on having made the choice in favor of non-convertible currencies and floating rates, which is now enshrined in international treaty post-1973 when Nixon’s unilateral decision to shut the gold window two years before was formally ratified.
That established a framework within which countries agreed to operate but it let considerable choice to individual countries regarding specifics. The general theory articulates the framework in terms of the boundary conditions that the agreement imposes. The specific ways to implement this in each county constitutes the actual special cases, although other cases are also possible since all the options are likely not exhausted. Countries are also free to alter the specifics within the general framework that has been agreed to.
What is so difficult to understand about this? It’s all legally formalized in international agreements and laws and regulations of the different countries.
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June 22nd, 2012 at 5:23 pm
The ‘general theory’ states that the government issues currency whenever it spends, and that bond sales are simply a reserve drain. But since Nixon closed the gold window that hasn’t actually been the case. The Treasury has to receive deposits in its account before it spends.
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WARREN MOSLER Reply:
June 22nd, 2012 at 6:00 pm
the general theory states that a currency issuer (and/or its designated agents) has to spend (or lend) first before it can collect taxes and/or borrow its currency.
For the US Congress has designated the fed as the ‘scorekeeper for the dollar’ that debits and credits accounts on its books, generally at the instruction of those with Fed accounts.
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Lars Reply:
June 22nd, 2012 at 6:05 pm
@WARREN MOSLER, This idea is false. Banks can create money with which to pay taxes or borrow bonds.
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Tom Hickey Reply:
June 22nd, 2012 at 7:28 pm
@Lars,
Well, you either get it or you don’t. Most people don’t, including most economists, whose models don’t work out so well when interpreted as “policy science.”
It took most people a long time to become convinced that the sun did not actually rise and set as appears obvious to naive commonsense because they could not grasp the big picture.
It’s kind of like the duck-rabbit graphic that can be seen as either a duck or a rabbit. Temporally, govt money creation with cb reserve issuance and Tsy bond issuance appears like actually borrowing using bank created credit money. But reflection on the logical relationship based on accounting and using aggregates, it turns out that NFA are increasing through the process, whereas bank created credit money nets to zero. Similarly, when the cb exchanges reserves for tys or vice versa, the amount of NFA does not change, only the composition the way assets are held by the respective parties.
But this was argued ad nausaeam in Marshall’s Latest some time ago here and lot of people didin’t get it then. The kerfuffle has been raging in various forms and forums since.
So it’s likely that this time it will also end in “It is so,” and “No it isn’t.”
WARREN MOSLER Reply:
June 22nd, 2012 at 7:43 pm
Tom, got time to do a piece on demand leakages, the ’cause’ of deficits?
Tom Hickey Reply:
June 22nd, 2012 at 8:06 pm
Good suggestion, Warren. I’ll get on it this weekend.
Lars Reply:
June 22nd, 2012 at 8:42 pm
@Tom H, This isn’t about the sun going around the earth. It’s about basic banking. The simple fact is, most of the deposits that exist in the monetary system are because of bank issued credit. Not from government deficits. The money to pay taxes and buy bonds comes mostly from privately issued banks. MMT seems to be twisting this reality into some other story that doesn’t apply.
WARREN MOSLER Reply:
June 22nd, 2012 at 10:08 pm
yes, bank deposits can be/are used for payment of federal taxes, said payment ‘clears’ by the Fed debiting the bank’s reserve account while crediting the tsy’s fed account.
and bank loans ‘create’ bank deposits that can be used for tax payment.
however, banks do this as ‘designated agents’ of Congress, and it all comes with direct regulation and supervision.
that is, banks to me are public institutions, federally chartered, regulated, and supervised, and bank deposits are federally insured as well.
yes, private capital is employed for the further purpose of pricing risk, but, with a 10% capital ratio, for example, bank loans correspond to 90% federally insured $deposits and 10% private capital.
So what i’m getting at is that Congress is the ‘source’ of said bank deposits, with banks best thought of as public institutions that are public/private partnerships.
Unforgiven Reply:
June 22nd, 2012 at 9:13 pm
@Lars,
Bank credit isn’t Net money added to the system. Only the US Gov’t can add Net USD to the system.
Dan Kervick Reply:
June 22nd, 2012 at 11:16 pm
@Lars, Lars, are you talking about a system that could exist in some countries? Or one that actually exists in a country like the US?
When a bank creates a deposit balance for someone, they have thereby created a liability for themselves. And that liability is a liability for the state’s money. If you pay your taxes by drawing on that deposit balance, then the clearing of the payment results in a transfer from the bank’s reserve account to a treasury account. The government doesn’t simply accept the bank liability itself as payment, but requires payment in the form of the government’s own liability – that which the bank liability is a liability for.
WARREN MOSLER Reply:
June 23rd, 2012 at 4:58 am
and the bank’s liability in the US is for all practical purposes FDIC insured so in that sense it is ‘state property’
Tom Hickey Reply:
June 22nd, 2012 at 11:49 pm
@Lars,
Lars: “The money to pay taxes and buy bonds comes mostly from privately issued banks.”
Most people pay their taxes by drawing on their demand deposit account. What happens then? The bank marks down the taxpayer’s account and marks up its account canceling its liability. The bank then draws down reserves from its reserve account to transfer the payment as the taxpayer’s agent to the Tsy account at the Fed. So the bank’s reserve account at the Fed is marked down, and the TSy account is marked up, satisfying the tax the taxpayer’s obligation. (The process is more complicated than this owing to the use of TTL accounts for reserve management but this is the general framework.)
The point is that taxes are paid are paid in govt liabilities called reserves when a draft is used rather than cash, also a govt liability. Only the Fed creates reserves and Federal Reserve Notes, and banks have have excess reserves or obtain reserves by borrowing in ofer to act as agents for taxpayer in paying taxes. The basic ;point of state money is that the tax authority doesn’t accept bank IOU’s, only its own IOU’s in payment of taxes, fees, fines and other obligations to the state, and that means either reserves or cash must be used. In the US taxes are remitted to Treasury by bank draft, but final settlement takes place in reserves. In this way, government withdraws net financial assets from non-govt, and banks cannot create NFA. It’s all visbile in the accounting.
(The process is more complicated than this owing to the use of TTL account for reserve management.)
WARREN MOSLER Reply:
June 23rd, 2012 at 5:01 am
right, the way I say it is Treasury, an agent of Congress, gets paid via a credit to it’s account by the Fed, Congress’s designated scorekeeper for the dollar. And, operationally, that credit is independent of anything else the Fed might be doing.
Tom Hickey Reply:
June 23rd, 2012 at 12:47 am
@Lars,
Let me try to simplify the distinction among state money, inside money and outside money.
When the bank extends credit by making a loan it marks up the borrowers account by the amount of the loan, which is a bank liability and customer asset, and creates a liability on its books in its loans account in the name of the customer — bank asset and customer liability. Both the bank’s books and the customer’s book each net to zero. These accounts are all denominated in the currency, that is, state money, as the unit of account.
The customer decides to withdraw all or part of the newly created deposit in cash. The bank then gives the customer the cash at the window and marks down its liability to the customer in that amount and it also marks down its cash (asset) account. The customer’s loan remains booked by the bank as an asset, the economy now has more cash, and the bank has less cash. Where did the bank get the cash to meet demand at the window? From the teller’s till, which came from the bank’s cash vault, which came from the Fed by the bank’s exchanging reserves for cash.
Where do the reserves to get the cash come from? They have to come from the Fed since only the Fed creates reserves. So this transaction was not only denominated in state money at the time of the loan was extended, but the demand deposit was settle spot in cash — state money.
Outside money was not directly involved in the transaction, since the Treasury was not a party to it.
Drafts on demand accounts are not settled spot in cash, like window withdrawals. After netting, they are settled behind the scenes, as it were, at the Fed interbank settlement facility. So most people are unaware of the mechanics of how this takes place, although they are alerted that something is going on when they deposit checks that are held for clearing or bounced for insufficient funds to cover.
Final settlement is the same in principle, however, in that a government liability (state money) is used, be it cash or reserves. Just has MamMoTh says below.
FDO15 Reply:
June 23rd, 2012 at 2:40 am
@Tom H,
“Where do the reserves to get the cash come from? They have to come from the Fed since only the Fed creates reserves. ”
This is not correct. Mosler himself knows how this process works and he has directly stated that banks create their own reserves. There is no central bank choice in the matter. You are spreading a myth.
Tom Hickey Reply:
June 23rd, 2012 at 11:58 pm
@Adam (AK),
Interesting view, Adam (AK), but rather dark. I hope we can do better than that, but I have to admit that I am pessimistic with neoliberalism cresting, the world in turmoil politically, a potentially powerful anti-Western coalition developing, and global warming kicking in more evidently and more strongly earlier than anticipated. High unemployment may be the least of our worries sooner rather than later.
So I agree that practical step need to be taken, but gunning up? The US already spends more than the ROW combined on military, intelligence and related misc.
MamMoTh Reply:
June 22nd, 2012 at 10:10 pm
@Lars,
You are the one who doesn’t get it. Most deposits are created out of thin air by banks. But financial transactions, including tax payments, are nevertheless settled with state money, cash or reserves.
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WARREN MOSLER Reply:
June 23rd, 2012 at 4:56 am
interbank clearing is via fed debiting and crediting member bank accounts. you can call that the likes of ‘state money’ if you want but better to just describe what it is and not get into semantic sidetracks?
FDO15 Reply:
June 23rd, 2012 at 2:36 am
everyone except Lars,
Lars is right. The banks essentially create their own reserves in a floating exchange rate system. There is nothing special about the state supplying reserves because the state has no choice in the matter. Banks create the reserves by virtue of creating the new loans. There is no central bank choice in the matter.
You have all fallen prey to circular reasoning. Your theory is wrong. Get over it.
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WARREN MOSLER Reply:
June 23rd, 2012 at 5:03 am
the state has choice- it establishes the banks via federal charter, regulates and supervises them, and insures their liabilities.
the banks are designated agents of Congress.
Once established, there is no choice as you state, however Congress remains firmly in control whether they know it or like it or not.
Adam (ak) Reply:
June 23rd, 2012 at 6:27 am
@FDO15,
I have to admit that to me the fact that “inside money” nets to zero is practically irrelevant. I am with Lars and FDO15 in this debate. I would go further – to me the deductive reasoning based on the Chartalist axioms and building grand “general theories” is only vaguely related to the real world we are living in.
In the reserve banking system bank deposits are as good as bank notes issued by the central bank. Except for generating transfer payments the amount of private debt is macro-economically relevant only in a perverse way that is during the debt deleveraging phase of the business cycle. Debt deflation only develops if the government does not step in with deficit spending large enough to allow for the seamless repayment of the private debt.
It is true that reserves must be provided by the central bank on demand otherwise the banking system would be in danger of losing liquidity and bank runs could occur. It was that experience what led to the creation of the modern Federal Reserve. In the same way a central bank in a country which has both the CB and Treasury may not allow for treasury bonds to lose value (as it happened recently in Europe).
What if we can’t take the legal statements related to monetary sovereignty at a face value? In my opinion the reason why MMT has failed to get traction is very simple: people don’t like the idea that the government is something special. They don’t want to aggregate the central bank and treasury in one sector even if this makes perfect economic sense. But an alternative reference frame exists: the only scorekeeper is the central bank sitting on top of the whole baking sector while the treasury is pretty much the same kind of agent as the households. As long as no statements are made about causation this framework is also valid. Only when we ask a question who can make a decision about spending (the government) and determine that the central bank will intervene to defend the bond yields – we may arrive at the familiar conclusion that the CB and the treasury can be aggregated.
What if the government (acting as an agent of the whole society) is in reality not fully sovereign? What if certain social groups have more power than the group of career politicians and bureaucrats?
What if we cannot take the axioms about the legal and political system at the face value?
Looking at the issue raised many times by Ramanan – why did many governments of developing countries such as India defend the exchange rate until they ran out of foreign reserves and had to “invite” the IMF? Why do semi-persistent current account deficits develop? Is it just because people in power and those who voted for them are stupid or corrupt? If this is the preferred answer – we can’t do anything, sorry about that. The theory based on the assumption that everyone is an idiot cannot describe the reality and will never get any serious traction among these “idiots” who are to be saved from themselves. It only suggests that something is wrong with the proponents of the theory.
What if the political reality puts certain constraints on the actions of the theoretically fully sovereign governments? We have to ditch deduction and start collecting facts in order to build a proper inductive theory.
Governments and central banks do defend exchange rates and governments (except for the US) often take loans denominated in foreign currencies. We may say that this is bad in the long run but this is how it is. If a government needs to buy new F-16 jets or a submarine or two – the only way to finance this is to take a loan. Someone may say that this is bad. So what? – this is how it is.
The Congress remains in control of the legal framework in which banks operate in the US. Who does control the Congress though – not the banking lobby?
We cannot just say that economics exists without any references to political science.
What needs to be done in my opinion is convincing these who have economic and political influence that austerity is not in their interest. Austerity hits not only wages but also profits. If something was tried for a year or two and didn’t work then pushing harder won’t do. Maybe some rentiers can profit from austerity but certainly capitalists are among these who are ruined. 10 or 20 more years of stagnation in the West is exactly what is needed to completely rebalance the global political and economic system and create a new brave world ruled by true progressive democrats like Ahmadinejad or Asad. The only chance to convince American conservatives to Functional Finance is to preach militarised Keynesianism to them. A trillion-dollars coin can be spend on Job Guarantee, on reducing carbon dioxide emissions or on a program aimed at developing new, more advanced weapons. This may sound immoral but if the Americans don’t develop these weapons, the Chinese and Russians will do it anyway. So let’s mint a coin (or a few) and ensure the scientific and military domination of the West for the next 50 years if Job Guarantee is not accepted by the majority. I didn’t think like that a year ago but if something doesn’t work (the “progressive” approach)- the attitude has to be changed.
The real enemies are not the conservatives. The real enemies are the people who believe in incorrect economic theories such as the loanable funds model, money multiplier, NAIRU, QTM, current deficits are the liability of our grandchildren or that the American government can run out of money etc – and think that if these theories are ditched – everyone will worship Karl Marx. These people need to be helped. Otherwise stagnation and “muddling through” will prevail what is worse than anything else.
FDO15 Reply:
June 23rd, 2012 at 10:15 am
@Mosler,
Congress having legal controls has nothing to do with this. In fact, if there were no reserve requirements this conversation would be irrelevant since the monetary system would be able to operate with close to zero reserve balances as it does in Canada. This idea of settlement in reserves and NFA’s is confused. If there was only one bank in the USA (for instance, let’s say one big nationalized MMT bank – as opposed to many) then this whole idea would be irrelevant.
WARREN MOSLER Reply:
June 23rd, 2012 at 7:54 pm
you are mixing metaphors?
what point are you making?
Matt Franko Reply:
June 23rd, 2012 at 12:11 pm
@FDO15, What if the regulators do not agree with the increased value of the collateral?
ie Same house in 1999 that sold for $200k then sells for $275k in 2006? This would result in an additional $75k of “loans create deposits”, but this is only because the regulators sign off on the house now being worth $75k more 7 years later (when in real terms it has depreciated).
If regulators allow banks to keep increasing the collateral values of the same things (in many cases it is the exact same house) they are financing, this looks like this process could continue for quite a while. But this is not due to anything the banks are doing, it is solely due to the fact that the regulators keep approving an increase in the nominal value of the same house.
For instance in my area the FNMA limit is now $417k for a house but I can remember when this used to be in the $200k range.
rsp
WARREN MOSLER Reply:
June 23rd, 2012 at 8:12 pm
true!
Matt Franko Reply:
June 23rd, 2012 at 12:48 pm
@FDO15, Why dont the banks (who all they do is lend against property and cars) lend more against a 5 year old car than when it was new? Like they routinely have done against houses? Is it because the regulators will not let them? rsp
FDO15 Reply:
June 23rd, 2012 at 12:54 pm
@Franko, Regulations are just part of the “specific case”. See how stupid and confusing that logic is? Yes, you guys do that all the time. It’s called circular reasoning and it makes no sense at all.
But to answer your question in all seriousness. The reason a bank does not lend more against a used car is because its asset value is less. A home holds its value better because it is built on a plot of land that is perpetually increasing in value for any number of reasons. So your example makes no sense. Banks don’t lend more against depreciating assets.
As I explained above, it’s asset values that matter here. Not regulators.
WARREN MOSLER Reply:
June 23rd, 2012 at 8:14 pm
larger point- banks can only lend as approved by regulation, regulators, and supervisors
Matt Franko Reply:
June 23rd, 2012 at 8:01 pm
@FDO15, ” perpetually increasing in value for any number of reasons.”
If there is a number of reasons, the number is one. And that is that the deal comes in at a now increased value for the same piece of property and the price and associated collateral value assigned by the bank is ‘ratified’ by the govt regulators when they review the loan…. this is where half of ALL so-called “inflation” comes from, government ‘ratification’ of increased prices thru the process of allowing banks to use ever increasing values in collaterals… as long as govt allows this process to continue, ever increasing NFAs are created by banks and the system can work for a while.. rsp
WARREN MOSLER Reply:
June 24th, 2012 at 10:37 am
my general statement is the value of the currency is a matter of prices paid by govt. when spends and/or collateral demanded when it lends.
June 23rd, 2012 at 5:41 am
Lars, this is usually an astute crowd, but the easiest person to lie to is yourself, and when you think you are “smarter” than the other guy, sometimes it is hard to admit you are wrong. Here is a guy just recently arguing with a scientist that the earth is flat: http://www.youtube.com/watch?v=7j9Ja6bZDh4
You can see he really believes this. I was watching a special on NASA tv the other day about some CME (coronal mass ejection) scientists only a few decades ago arguing against the newer theories and basically ridiculing the younger scientist, later proven correct. People don’t want to feel uneducated or foolish, scientists whose reputation are at stake doubly so, but that is no reason to start getting emotional, I have noticed Warren has 2 times publicly lost his emotional control on this blog, that is a bad sign to me and very unspock like.
“When a bank creates a deposit balance for someone, they have thereby created a liability for themselves. And that liability is a liability for the state’s money.”
I used to talk with a Miami loan officer, he was intentionally makign bad loans that he knew would never come back on his bank and was basically given full leeway by his banking regulators, he gave his illegal alien relatives loans and they bought houses, cars, boats, houses for thier mistresses, and then sold the loans to some sucker pension fund in norway. Brooksely borne warned about these moral hazard problems, recently Citigroup chairman Reed said in an interview his jaw is agape that the same corrupted cronies are still influencing policy in DC and that the people have not risen up.
Warren says congress is the ultimate regulator of these banksters and a servant of the people, but that has been shown to be false and is beyond comment at this point. From kling’s 250 states, to ericksons own admissions everyone there in DC are basically crooks, to the recent Dimon congressional hearings where those boys were puckering up to Dimon.
Also Warren recently posted an article talking about holding up the USA as an optimal currency area to highlight what should be done in Europe, but no one here cared to comment on the Fed paper posted that argued that the USA was not an optimal currency area, but in the past Warren has ridiculed me for bringing up this idea saying why not make every human being thier own sovereign currency issuer, frankly I expect higher order mental acuity from someone of warren’s stature than that (sigh)
Now warren says this:
WARREN MOSLER Reply:
June 23rd, 2012 at 4:58 am
and the bank’s liability in the US is for all practical purposes FDIC insured so in that sense it is ‘state property’
http://seekingalpha.com/article/668791-fdic-rule-will-return-gold-to-the-center-of-the-banking-universe
Way back, on October 6, 2011, I wrote an article that addressed the probable return of gold to reserve asset status, in the private banking world. Now, the first steps are being taken. Once these rules are passed into law, for example, gold bullion will fulfill bank capital requirements better than Fannie Mae or Freddie Mac bonds. This reflects the real world reality. The proposal is a reform that could prevent future financial instability.
Perhaps, the most interesting thing about the notice, is its choice of words to describe an unspecified US “central bank”. Why describe the central bank in an amorphous manner? Why not refer directly to Federal Reserve? Perhaps, many people, in high places, including the top people on the Federal Reserve Board itself, have concluded, as I have, that Fed will not survive this crisis.
The most important thing from the standpoint of precious metals investors is that gold is slated to return to the center of the financial universe. Under this joint proposal, co-sponsored by FDIC, OCC and the Federal Reserve, gold will once again be a zero risk asset in the private banking world. It has been legally barred from that most important of positions for 80 years now. That return will have profound implications.
Lars, if warren owns a bunch of bonds, and his friend rickards owns a bunch of gold, in what future is it detrimental to Warren if he wants to purchase a new super yacht? ;) MMT ultimately rests on advanced monkeys doing good in thier hearts, but that is not the reality of history, even in the future “planet of the apes” we all blow each other up LOL!
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June 23rd, 2012 at 9:16 am
Paul,
“If there were no NFA creation by the government, where would the balances to pay the interest come from?”
As Warren points out, if income keeps circulating, either as a result of spending or through redistributive government policies, the system can sustain itself. It’s the leakages which seem to create the problems, not the expansion of credit itself.
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y Reply:
June 23rd, 2012 at 9:31 am
*by ‘the system’ I mean the process of paying off loans (inc. interest).
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June 23rd, 2012 at 9:25 am
FDO15,
The central bank has to provide new reserves over time as credit expands if it wants to maintain its target interest rate. Note, the cb doesn’t have to create new reserves every time a commercial bank makes a loan, just when more reserves are needed to stop the interest rate from rising above its target rate.
The cb could choose to follow a policy of targetting a specific quantity of reserves instead, but this leads to erratic and uncontrolled interest rate movements which threaten the payments system and, in turn, commercial banks. So, if the cb didn’t pursue a policy of maintaining a target interest rate, there’s a good chance that pretty soon banks could start to collapse.
Banks pose a threat to the government not by holding a gun to the government’s head (as you have suggested before), but by holding a gun to their own heads. The government has to help them if it doesn’t want them to blow their own brains out.
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FDO15 Reply:
June 23rd, 2012 at 10:20 am
@y, More confused logic. There is no central bank choice in the matter. Banks create their own reserves by making loans.
MMT has two conflicting stories going on here. On the one hand, they want great systemic reform to make the banking system serve public purpose. On the other hand, they have a great big evil banking system whose sole purpose is to charge rents and extract saving from the rest of the private sector.
These two positions are incoherent if you understand the theory as a whole and the convoluted logic of the hierarchy of money and banks needing reserves to settle payments so they can go on serving “public purpose”.
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FDO15 Reply:
June 23rd, 2012 at 10:22 am
@FDO15, Should read:
“MMT has two conflicting stories going on here. On the one hand is a great big evil banking system that requires reform because all they do is charge rents. On the other hand, MMT says banks serve public purpose by issuing state money as though they’re some charitable arm of the government.”
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Unforgiven Reply:
June 23rd, 2012 at 10:34 am
@FDO15,
That’s YOUR story. It’s your interpretation that’s in conflict.
y Reply:
June 23rd, 2012 at 10:52 am
Warren Mosler argues that banks are essentially public-private partnerships. As such, they should serve ‘public purpose’. I don’t believe he thinks that everything banks do or have done serves public purpose. Therefore, the banking sector should be reformed so that it better serves public purpose. Ask him what he means by public purpose.
He has laid out a comprehensive set of banking sector reforms. However he has not advocated nationalising the banking sector as he appears to think that it is better for it to remain as a public-private partnership.
Bill Mitchell, on the other hand, advocates nationalising banks, or having a system in which state banks operate alongside private banks. He has also recommended reforming the private banking sector.
That’s my understanding. I hope it helps.
FDO15 Reply:
June 23rd, 2012 at 11:00 am
@FDO15,
“they should serve ‘public purpose’. ”
And here we come full circle. Banks should serve public purpose, but they don’t. So MMT has implemented a whole bunch of reforms that are necessary before MMT can even be applied to the monetary system.
Some have said nationalized banking is a necessary component of this. I tend to agree with them. MMT’s only logical base case is a fully government controlled banking system.
These necessary reforms are completely at odds with the idea of a general vs specific case. The fact is, the general case does not exist and in order to get us closer to that world the system needs an overhaul. So MMT is largely inapplicable without the reforms making it a moot point.
WARREN MOSLER Reply:
June 23rd, 2012 at 8:05 pm
disconnected logic there.
the military does’t always seem to serve public purpose either, but it’s still a public entity.
nor have i ‘implemented reforms’ necessary for ‘mmt to be applied to the monetary system’
where do you get this stuff?
y Reply:
June 23rd, 2012 at 11:42 am
Please bear in mind that I was trying to describe Mosler’s position. It might be better for you to communicate directly with him regarding his views.
You should probably place less weight on my comments. It’s flattering, but I’m probably not as important as you seem to think.
But anyway, your comments made me wonder to myself whether John Boehner or Paul Ryan, for example, are serving ‘public purpose’ or not. From a democratic party view, probably not. But at the same time they are politicians – part of the government in the wider sense – so doesn’t that mean that by definition they serve ‘public purpose’? If not, does that mean that the government doesn’t necessarily serve public purpose?
Might it be accurate to say that the government serves ‘public purpose’, but that different people have different views of what ‘public purpose’ means? Or is ‘the government’ simply a load of competing special interest groups and there is no such thing as ‘public purpose’? Vague ruminations.
Unforgiven Reply:
June 23rd, 2012 at 11:48 am
@FDO15,
MMT is ENTIRELY applicable without the reforms. You like the reforms? You get this scenario. You don’t like the reforms? You get that scenario.
WARREN MOSLER Reply:
June 23rd, 2012 at 7:56 pm
again, i sure didn’t say that?
i don’t even recall using the words ‘issuing money’
WARREN MOSLER Reply:
June 23rd, 2012 at 7:55 pm
not MMT per se, but maybe some MMT proponents, which doesn’t include me
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WARREN MOSLER Reply:
June 23rd, 2012 at 7:51 pm
fed rate changes don’t mean changes in reserve quantities.
the fed either just changes the interest paid on reserves if there are excess reserves,
or changes the price it charges for reserves if the banking system is net borrowed
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y Reply:
June 24th, 2012 at 8:10 am
I thought the fed funds rate was established through open market operations? When you say ‘fed rate’ do you mean the support rate?
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June 23rd, 2012 at 10:37 am
1. Is the government’s balance sheet really consolidated?
My household is different from my next-door neighbor’s household. His household debts are not my household debts; his household assets are not my household assets; his household transactions are not my household transactions.
And yet sometimes economists speak of the household sector, and the total debts, assets, spending or income of the household sector. Sometimes they speak of the entire business sector, even though businesses are also separate economic units. Sometimes they even combine both of these sectors and speak of the entire private sector. Amazing!
So the question has no unambiguous answer. It all depends on what level of economic analysis one is interested in working at. If you are interested in economically analyzing the entire government sector, then you need to combine the balance sheets of all of the agencies and branches of the government, just as you do with households to analyze the household sector.
In the case of the government sector, or the private sector, one can ask about the degrees and ways in which the different units in the sector are, or are not, operationally integrated, and what legal rules govern the behavior of the various units in that sector, and determine their legally permissible options.
But there is this important difference: in the case of the household sector, there is no household or cluster of households with direct operational control over the laws under which the household sector operates. But in the case of government, there are branches of the government that make almost all of the legal rules, including those under which that branch does and does not act as part of the economy.
2. Do commercial banks create their own reserves?
Commercial banks create deposits in the course of making loans, and the deposit creation initiates a process that sometimes leads to additional reserves being created as well. But if additional reserves are created, they come from the government. It makes little sense to say that the commercial banks “created” these additional reserves, because they have to pay for them. Nothing you have to pay for is something you have created. If an individual bank needs additional reserves, it has to buy them from another bank – that is, it borrows them overnight, and pays an interest rate for the borrowing. If expanded lending of the banking system as a whole necessitates an aggregate growth in reserves, it has to obtain these reserves from the Fed. It obtains them at a cost: the Fed demands something in return. What the Fed gets in return is either interest, if the banks grow the reserves through discount window borrowing, or a treasury security that the banks previously purchased from the government.
Is there choice involved? Not much. Banks automatically borrow the needed additional reserves, because they need to make their payments. And the government automatically sells the additional reserves, because it wants banks to make their payments, and wants to maintain its target interest rate.
By the way, when we say that a bank “creates” a deposit out of thin air, all we mean is that it issues an IOU, just like any one of us can issue an IOU. It is true people can come to exchange IOUs without redeeming them. But in the case of bank IOUs, they are almost always redeemed, because almost every bank deposit balance is eventually drawn on to make an interbank payment.
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FDO15 Reply:
June 23rd, 2012 at 10:57 am
@Dan Kervick,
You misunderstand some basic banking and also contradict your fearless leader here who understands how this all works. Mosler recently explained this:
“With fixed fx lending is continuously reserve constrained and the interest rate is endogenous via competition for reserves.
With floating lending is never reserve constrained, as this particular institutional structure allows banks to create their own reserves.
that is, with floating fx/non convertible currency,
loans create deposits and reserves as a matter of accounting ”
So there’s either an inconsistency in the MMT logic or Dan Kervick is all of the sudden a banking expert.
Also, banks don’t issue IOU’s like any of us can. If I lend money to someone my purchasing power goes down and theirs goes up. This is nothing like a bank lending money because the bank lends money independent of the government’s prior reserve position. Further, the bank’s purchasing power does not necessarily get reduced as is the case when Dan makes a loan to Warren.
Again, this is basic banking. The inconsistencies in MMT on this matter a frightening.
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y Reply:
June 23rd, 2012 at 12:01 pm
Have you never paid for something with your own IOU? The way I understand it, when a bank makes a ‘loan’ they are actually buying an asset from the ‘borrower’. That asset is a contract in which the ‘borrower’ promises to pay the bank a certain quantity of money over a period of time.
The difference between your IOU, which might get you some beers at a bar, for example, and the bank’s IOU, is that the barman probably won’t be able to buy anything from other people with your IOU (unless you’re Warren Buffet perhaps), whereas banks accept each others IOUs, so everyone accepts bank IOUs.
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Dan Kervick Reply:
June 23rd, 2012 at 12:16 pm
@FDO15,
With floating lending is never reserve constrained, as this particular institutional structure allows banks to create their own reserves.
Bank lending is indeed not reserve constrained. That doesn’t mean that banks create their own reserves. The bank is unconstrained in the sense that it can generate a loan, create a deposit account for the borrower, and credit a positive balance to that deposit account, even if that means that the bank needs to acquire more reserves. But it then obtains those reserves either by borrowing them from other banks, borrowing them directly from the Fed, selling securities to the Fed, or by attracting more deposits from customers of other banks that result in a transfer of reserves from those banks’ reserve accounts. None of these ways of obtaining additional reserves constitutes “creating” anything.
If I lend money to someone my purchasing power goes down and theirs goes up. This is nothing like a bank lending money because the bank lends money independent of the government’s prior reserve position.
If you lend someone actual money in exchange for their written promise to pay you back, then you presently have less money and they have more. If a bank lends someone actual money from its vault cash in exchange for a written promise of repayment, the same is true of the bank. If you instead give your borrower an IOU, then you have the same amount of actual money on hand, but your borrower has in his possession a claim against your assets. So your net position is the same as if you had lent cash instead of having written an IOU. And that is exactly what happens when a bank makes you a loan, not by handing you cash, but by creating a deposit account for you with a positive balance in it. That balance in your possession is a claim against the bank’s assets.
Among the bank’s assets are its total reserves – the sum of the amounts in its reserve account and its vault cash. Banks don’t simply “create” their own assets from nothing. They acquire those assets in the course of doing business.
A lot of the talk about bank’s “creating” money is careless. All banks create from scratch are liabilities – liabilities against their own assets. When the bank creates a deposit it has a new liability. It is willing to do that because in exchange it receives a repayment (with interest) promise from its borrower. That’s how it makes money. These bank liabilities are exchangeable and so count as money. But banks don’t simply create their own assets from scratch. If they could do that, every bank office would have a palatial office, a fleet of luxury cars, and tellers wearing Paris fashions.
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Dan Kervick Reply:
June 23rd, 2012 at 12:19 pm
@Dan Kervick, Also, one difference is that the bank’s IOU is guaranteed by the government. But if the bank’s irresponsible lending requires the government to make good on these guarantees, it can be shut down.
FDO15 Reply:
June 23rd, 2012 at 12:22 pm
@Dan Kervick,
1. Your comments on how reserves are created conflict with Mosler’s position so take it up with him. Personally, I trust him over your understanding since he’s a banker and you’re a book publisher pretending to be a banking expert.
2. “If a bank lends someone actual money from its vault cash in exchange for a written promise of repayment, the same is true of the bank.”
Banks don’t lend the cash in their reserves. You’re trying to create a money multiplier where it doesn’t exist. Again, you have the basics wrong.
3. Bank loans are not “guaranteed by the government”. Yes, sometimes the government steps in to guarantee the banking system, but that’s totally different.
You really have no idea what you’re talking about. This isn’t the first time you’ve said things like this that prove your lack of understanding. Some of us are actually in banking. So why don’t you let the experts hash this out rather than filling up space and wasting people’s time?
y Reply:
June 23rd, 2012 at 12:42 pm
How do banks create these reserves? Given that you work in a bank, can you explain the process?
My understanding is that to get additional reserves they either have to borrow reserves from each other or from the central bank, or they have to sell some of their assets to the central bank or to other banks/institutions, or they have to attract depositors or investors, or more payments have to be made to their customer’s accounts than are made to other bank’s accounts.
If they have a way of bypassing any of these steps and just creating reserves themselves, what is it?
As far as I’m aware the central bank has to buy assets in exchange for reserves, or lend additional reserves, if it wants to maintain its target interest rate. It doesn’t necessarily have to do this every time a bank makes a loan, does it. That on its own doesn’t necessarily put so much pressure on the interest rate that new reserves have to be added for the rate to stay on target.
FDO15 Reply:
June 23rd, 2012 at 12:50 pm
@Y,
The process of banks creating their own reserves is simple. Any needed reserves are essentially overdrafts at the Fed reserve accounts. So when new loans result in new necessary reserves the overdraft occurs whether someone at the Fed wants to do it or not. The central bank never has a choice in the matter. The point of inception is the loan creation, not something the Fed does on their end. So in this regard the new loans create the new reserves by a matter of accounting. That’s just the way it is.
Also, I would not listen to Kervick on any of this. I work at a commercial bank and I can assure you he does not understand how all of this works. He will only confuse you on these matters.
WARREN MOSLER Reply:
June 23rd, 2012 at 8:14 pm
agreed on the reserve thing
Ramanan Reply:
June 23rd, 2012 at 1:31 pm
@Dan Kervick,
“one difference is that the bank’s IOU is guaranteed by the government”
Super exaggeration as usual. Sorry.
Assuming you are talking of bank liabilities …
Only $250,000 per account increased recently from $100,000
Bank bonds are not … except those under TGLF.
Dan Kervick Reply:
June 23rd, 2012 at 2:40 pm
@Dan Kervick,
We were talking about bank deposits, Ramanan. Those are the bank IOUs that FDO15 and I were discussing. I was just trying to give the benefit of the doubt to his statement that those bank IOU’s are different in some fundamental way than your IOUs and my IOUs. They are, only insofar as they are federally guaranteed. My IOUs are not federally guaranteed. As you say, the federal guarantee is not absolute, covering only certain kinds of bank liabilities up to only a capped amount. But for most ordinary depositors and most ordinary accounts, the guarantee is total.
What I’m trying to get beyond is the tendency some have to engage in a lot of loose talk about what commercial banks create. We live in the US under a hierarchical monetary system in which some forms of money are IOUs for other forms of money. The money a bank “creates” when it makes a loan to me and credits it with a $10,000 balance is one such IOU. If I have a demand deposit account and go into my bank and demand that they give me the $10,000 in cash, or that they make a payment to another bank from their reserve account, they have to do it. If they don’t, and I take them to court, it is not a defense for them to say, “Judge, we have already paid him, because we have given him an account with a positive balance.” That is not a defense, because legally that account balance simply represents the bank’s IOU to me. I have the right to demand payment in the form of money that exists further up the monetary hierarchy.
And the existence of this hierarchy does not mean the loanable funds model is correct, or that the money multiplier governs lending. The fact that bank money consists in IOUs for government money does not mean that the government can determine the pace of lending by adjusting the quantity of government money it supplies to the banking system ex ante.
It also doesn’t mean that the government controls the quantity of broad money in existence – not unless it chooses to change the operational rules and run the banking system differently.
WARREN MOSLER Reply:
June 24th, 2012 at 11:31 am
bank deposits are both federally insured and the bank it self is regulated and supervised under the requirement that it have sufficient assets to cover its liabilities.
Ramanan Reply:
June 23rd, 2012 at 3:21 pm
@Dan Kervick,
I wasn’t interrupting your comment with FDO15 – although I generally agree with him.
I was merely pointing out to the fact that I see this regularly. Incomplete statements. Instead saying bank deposits are guaranteed upto $250,000 you simply stated bank deposits are guaranteed (or it equivalent).
Bank IOU is a vague term and could mean assets as well.
More generally this monopoly argument refuses to die. There is nothing great about this monopoly (even Milton Friedman stated this regularly and Austrians too.). Except that it is misleading. Someone who has monopoly has the power to *not supply* it.
FDO15′s argument is that since the central bank has no choice but to provide banks reserves, it is technically incorrect to use the phrase monopoly.
The deposit insurance has nothing to do with really because unlike the world MMT wants, all deposits are not guaranteed. If I have a million bucks in my JPM account, only a fraction of it is guaranteed. till recently it was as less as 10% of 1m. If I had 50m, only 2% would be guaranteed.
The State doesn’t even have a monopoly in the kinds of moneys. We all use bank deposits and this is not State’s money. There’s no monopoly there.
WARREN MOSLER Reply:
June 24th, 2012 at 11:11 am
with banks designated agents of govt, ‘not supplying’ it would mean not supplying it to yourself which is meaningless.
what you can do is set bounds of behavior for your agents, aka rules of engagement, etc.
While the FDIC/deposit insurance scheme that govt has created isn’t my first choice of how to do it (see my proposals) it does function to allow banks to fund themselves via depositors who lean on the deposit insurance for safety vs reading bank financial statements to decide which banks to bank with, and thereby removes much of the risk of liquidity failures due to bank runs.
and, again, the monopoly is in the thing it demands for payment of taxes to itself.
Sergei Reply:
June 23rd, 2012 at 4:57 pm
@FDO15,
FDO15: So in this regard the new loans create the new reserves by a matter of accounting.
LOL.
Sergei Reply:
June 23rd, 2012 at 5:04 pm
@Dan Kervick,
Ramanan: Only $250,000 per account increased recently from $100,000
I honestly think that these limits are irrelevant but would probably need beowulf here. For all practical purposes regulators set the capital requirements which is a probability measure. By taking responsibility for the cut-off point of failures due to insufficient capital regulators agree to clean up the mess beyond wiping out equity and subdebt holders. Converting and hair-cutting senior bondholder or unguaranteed depositors sounds to me like a court case against the central bank (or whoever sets the rules and does the supervision) for professional negligence. In the end MoF will foot the bill. This obviously concerns true banks and like bank toys aka lehman brothers.
Dan Kervick Reply:
June 23rd, 2012 at 2:08 pm
@FDO15,
Banks don’t lend the cash in their reserves. You’re trying to create a money multiplier where it doesn’t exist. Again, you have the basics wrong.
This has nothing to do with the money multiplier or the loanable funds fallacy. Banks obviously do sometimes lend from cash reserves. If you go to a bank and take a $10,000 loan, you might very well take $5000 of it on account and the other $5000 in cash. The bank hands you some of the actual cash it has in the bank and you walk out with it. It might also be the case that at the time the bank makes the loan it is carrying excess reserves, and still has excess reserves after making the loan. But the point is that it doesn’t have to have excess reserves in either form to make the loan, and so that is why its lending is not reserve constrained, why the money multiplier is irrelevant, and why monetarism is misguided.
Bank loans are not “guaranteed by the government”. Yes, sometimes the government steps in to guarantee the banking system, but that’s totally different.
Commercial bank deposits are FDIC guaranteed up to $250,000. Those deposits are bank IOUs.
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WARREN MOSLER Reply:
June 23rd, 2012 at 8:04 pm
i don’t have any inconsistencies that I’m aware of?
and if i make a loan to you your signed note is my asset that I may be able to ‘spend’ directly or indirectly.
banks are allowed by congress to use said loans/assets they create as ‘collateral’ for funding as well, though their liabilities/deposits are fdic insured and mine aren’t.
so conceptually it’s all not quite as different as you might thing
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y Reply:
June 23rd, 2012 at 11:04 am
What about if a bank actually has excess reserves before/when it makes a loan? Then it won’t need to borrow from another bank, and will just keep the reserves it now needs rather than lending them overnight to some other bank. In this case no additional reserves would be created or borrowed or lent.
How about in a system without reserve requirements? If reserves can technically go to zero then a bank’s demand for reserves will be based on an assessment of its settlement needs, etc, which may vary. As such, when it makes loans it might not even choose to borrow or buy additional reserves, even if it doesn’t have a excess reserves at that time (?). If the bank needs to settle more transactions – i.e. for example the government increases taxes on its depositors all of a sudden, then it will need to acquire more reserves..
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Dan Kervick Reply:
June 23rd, 2012 at 12:23 pm
@y, There are systems without positive reserve requirements, but the payments are still cleared through the reserve account. Payments by the bank are debited from that account; payments to the bank are credited to the bank.
Whether the reserve requirement is 20%, 10%, 5% or 0% only determines the balance below which debits to the account will carry a penalty charge.
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WARREN MOSLER Reply:
June 23rd, 2012 at 7:59 pm
commercial bank lending creates both deposits and any required reserves as a matter of accounting as previously discussed
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y Reply:
June 23rd, 2012 at 9:30 pm
Okay, but just to clarify this little point, would you say the commercial banks create the reserves themselves or are they created by the central bank in a kind of automatic response to bank lending, as required?
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y Reply:
June 23rd, 2012 at 9:35 pm
My thinking was that, if I go overdrawn at my bank, my bank automatically extends credit to me up to a certain limit. I didn’t create that money myself – it was created or added to my account by the bank, however my action of going overdrawn set off an automatic response from the bank which accomdated my action. Minor point but I’d like to be clear on your thinking.
y Reply:
June 24th, 2012 at 8:14 am
Just to be clear, are you saying that commercial banks actually create the reserves themselves, or are reserves automatically created by the central bank as needed in response to commercial bank lending activity?
Also, does each new loan by a commercial bank necessarily entail the creation of new reserves, or not?
thanks
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Dan Kervick Reply:
June 24th, 2012 at 1:10 am
@Dan Kervick, Ramanan, the notion that the Fed has no choice but to supply reserves, under the current rules of the road shouldn’t be overdone. The Fed has all kinds of choices because it writes the rules of the road for the banks in the Federal Reserve system. The Fed could change the reserve ratio; it could change the calculation period; it could change the compliance period; it could require the banks to go to a 100% reserve system; it could require banks to have excess reserves in order to lend, and charge whopping penalties if they fail at any time to have sufficient reserves.
The fact that things don’t work that way, and that money is created “endogenously” by the banking system, as they say, is a consequence of policy decisions that the Fed itself has made, and that it could change at any time. And of course the ultimate power here, Congress, could bring about even more radical changes if it wanted, changes that lie outside the scope of the Fed’s legislatively permitted actions. The freedom of banks to create IOUs in the form of deposit balances in the process of lending, is solely a matter of the degree of freedom they are currently permitted by the Fed. The Fed’s hand is “forced” in the matter of creating additional reserves in response to expanded bank lending solely as a result of operational rules the Fed itself has established and policy choices the Fed itself sets.
The Fed is clearly the monopoly supplier of reserves. I don’t see how that can be doubted. There are different kinds of monopolists. Since the production of the good they supply is usually subject to a variety of real resource constraints, the fact that some entity is the monopoly supplier of some good does not entail that it has absolute control over how much is supplied. For example, even if there were a single monopoly supplier of uranium, the monopolist’s ability to supply uranium would be constrained by the amount of uranium in the world and the difficulty of mining it.
Reserves aren’t like uranium, since they can be produced at virtually zero cost in as high a quantity as it wishes. But even a monopolist that has total, unconstrained discretionary control over supply in that way does not control demand for the product it supplies. Therefore it has a choice. It can seek to target a price, and then vary its supply in line with fluctuations in demand to maintain its price target. Or it can target a quantity supplied during any given period, and then allow the price to fluctuate in response to demand fluctuations. I don’t believe that this is any kind of special MMT story, but is standard stuff about the nature of monopolies.
Legally, the deposit balances that banks create are liabilities, debts, IOUs. They are IOUs for a form of money that only the Fed can supply to the monetary system.
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WARREN MOSLER Reply:
June 24th, 2012 at 12:05 pm
the fed allows it’s member banks- it’s designated agents- to ‘create’ reserve balances within the regulatory framework.
This framework includes reserve requirements as well as extensive regulation on what type of loans/assets are allowed and not allowed. So if a bank creates a loan/deposit/reserves it’s done so within the regulatory framework as a agent of government.
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June 23rd, 2012 at 11:07 am
@Tom Hickey,
Didn’t California almost do this about 5yrs ago?
Weren’t they going to allow people to use IOUs issued by the state as a means to pay state taxes?
Pretty sure there were discussions here on this issue. I don’t think there were any federal regulations forbidding it.
Warren’s examples are also good ones. Plenty of tax credits (many tradable) out there.
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Tom Hickey Reply:
June 23rd, 2012 at 1:53 pm
@Djp,
I believe that there is no issue over whether a state can issue IOU’s. It does this with suppliers all the time. The issue is whether it can issue IOU’s as transferrable tax credits.
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Djp Reply:
June 23rd, 2012 at 10:44 pm
@Tom Hickey,
And doesn’t tradable=transferable?
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Tom Hickey Reply:
June 23rd, 2012 at 11:06 pm
@Djp,
This is the grey area I was pointing to. I am not a lawyer and I don’t know the precedent behind state-created IOU’s as a tradable/transferrable asset denominated in the currency. The Constitution seems to deny that power to states as I read it, but I don’t know exactly what the limits are in working around this. So how far the states can go toward making their own IOU’s tradable tax credits is unclear to me. But I am hesitant to say that states can do this, when the art. 1, sec 10 seems to state that they cannot.
WARREN MOSLER Reply:
June 23rd, 2012 at 8:07 pm
yes, thanks
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June 23rd, 2012 at 11:53 am
“MMT’s only logical base case is a fully government controlled banking system.”
I’m not entirely sure what you mean by “logical base case”. Please explain.
As I said above, Warren has laid out proposals for banking reform. He has also stated somewhere that nationalising the banking sector is a policy option, but as far as I’m aware it is not one that he actually favours. Does this mean that Warren is maybe deviating from MMT’s “logical base case”? Is Warren perhaps not really MMT? Maybe he’s more MMR? Oh my gosh.
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FDO15 Reply:
June 23rd, 2012 at 12:09 pm
@y,
MMT refers to their “base case” as a money monopoly. But a money monopoly only exists if there is one entity that controls the money supply. The system today is actually an oligopoly controlled by private banks and not the government. MMT confuses this point by claiming all sorts of things like settlement in reserves or NFAs or banks as serving public purpose as partners of the government (which is quite frankly laughable). This is all just circular reasoning to explain away the reality and make the MMT mythology more coherent (this actually makes it entirely incoherent if you understand this all).
The logical MMT base case is one fully nationalize banking system with the government completely in control of the money supply and a true monopoly on money issuance. Until you have that the MMT story is inapplicable.
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y Reply:
June 23rd, 2012 at 1:34 pm
What do you mean by “base case”?
It looks like you don’t know what the MMT argument re the idea of “money as a public monopoly” actually is. I wouldn’t have thought that it’s just about “controlling the money supply”, as MMTers always seem to say that the overall money supply is determined endogenously. So I’m not sure where you got that one from. Where did you read that?
I’m not saying you should agree with the MMT argument, I’m just saying that you don’t appear to know what that argument is. Again, maybe you should ask Mosler directly so he can clarify his position for you, if you’re interested. If you’re not interested, why are you here?
Also, you still haven’t explained what you mean by “logical base case”.
I explained above that Mosler doesn’t, to my knowledge, advocate nationalizing the banking system so I don’t know why you keep saying that this necessarily follows from MMT. Surely Mosler is reasonably representative of MMT?
When you say “the MMT story is inapplicable”, what do you mean?
Are you saying the government doesn’t issue the currency? Are you saying the central bank doesn’t control the interest rate? Are you saying government is somehow constrained in its ability to spend?
What exactly are you saying? And what is the point of what you are saying?
I’m struggling to see a substantive criticism here. Instead I’m looking at a lot of quibbling over little bits and pieces.
I don’t agree with everything MMTers say, but I really don’t see much value or strength in the criticisms you are putting forward, no offence intended. Maybe I’m missing something.
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y Reply:
June 23rd, 2012 at 1:54 pm
“The process of banks creating their own reserves is simple. Any needed reserves are essentially overdrafts at the Fed reserve accounts”
Ok, thanks for the info. Is it not the case however that an overdraft is actually a loan? An overdraft is borrowed money.
So, if a bank’s reserve account is overdrawn, then they are borrowing money from the central bank.
If the central bank wants to maintain its target interest rate then it has to ensure that there are always enough reserves (or not too many reserves) in the system – so it constantly has to add and subtract, borrow buy and sell. It’s activity is essentially an automatic response to changing circumstances.
I understand that having a target rate policy means the central bank is obliged (or forced) to act in certain ways, but I don’t see how this equates to banks actually creating their own reserves.
Wouldn’t it be more accurate to say that banks’ activities oblige (or force) the central bank to add or subtract reserves as needed in order for the central bank to maintain its target interest rate?
Or if you think it’s more accurate to say that “banks create their own reserves”, then aren’t we sort of stuck in a dead-end chicken and egg type argument?
FDO15 Reply:
June 23rd, 2012 at 2:03 pm
@y, A monopoly involves ONE entity controlling the supply of a particular thing. I don’t know what else MMT thinks the definition of monopoly could be, but this is the english definition. So unless MMT is speaking in some foreign language then there is no money monopoly in the USA. It is an oligopoly. An oligopoly that MMT often attacks.
I’ve been reading MMT blogs for several years now so I understand their arguments quite well. In fact, I am pretty sure I understand most of this better than most MMTers (perhaps all) do. I am one of two people with real world banking experience here (the other being Mosler) and I see a lot of errors in the understandings and writings of the various commenters on MMT blogs. Most of these people are not bankers and have no real world banking experience, but they comment on these matters as if they are an authority.
WARREN MOSLER Reply:
June 24th, 2012 at 11:36 am
it’s about one ‘entity’ which in this case is about control.
a monopoly rarely has just one ‘owner’ and no employees/agents executing on behalf of the owner.
Dan Kervick Reply:
June 23rd, 2012 at 3:00 pm
@y,
Y said, “So, if a bank’s reserve account is overdrawn, then they are borrowing money from the central bank.”
You didn’t respond to this FDO15. You do accept it, right?
Tom Hickey Reply:
June 23rd, 2012 at 4:42 pm
@y,
Dan K: “Y said, “So, if a bank’s reserve account is overdrawn, then they are borrowing money from the central bank.”
You didn’t respond to this FDO15. You do accept it, right?”
Dan, banks can take an overdraft during a period without incurring a penalty as long as it is gone by the close of the period. Required reserves (RR) serve as a buffer, so the overdraft is usually the bank falling below the RR, not that it hasn’t enough reserves (rb) to settle its interbank accounts. At the end of the period, the bank has to has the RR after account settlement or the cb will charge a penalty interest rate on the difference.
Dan Kervick Reply:
June 24th, 2012 at 1:40 am
@y, Tom, thanks. But isn’t the key point here is that even if the penalty is not charged unless the reserve deficiency persists beyond some CB-determined compliance period, in order to restore the required balance, the bank must obtain those reserve assets somehow. It doesn’t just “create” its own assets out of thin air. It either borrows them, for a price, from other banks or from the Fed directly, or it attracts more customer deposits.
For example, if I have two million dollars in Bank A and decide to transfer one million of the deposit to bank B, I deposit a check on my Bank A account in my bank B account. When the check is settled and cleared, Bank A debits my deposit account by $1 million, Bank B credits my deposit account by $1 million, and the Fed debits Bank A’s reserve account by $1 million and credits that amount to the reserve account Bank B. Bank B now has an additional liability – the $1 million addition to its deposits. But it also has picked up $1 million more in assets.
If the compliance period ends without the reserve deficiency being repaired, then the Fed will automatically credit the needed amount to the bank’s reserve account. But that’s a loan. The bank has $1 million more, for example, in its reserve account, and in return the bank now owes the Fed $1 million more than it owed the Fed previously, along with owing some interest.
WARREN MOSLER Reply:
June 24th, 2012 at 12:02 pm
not to mention the fed’s monetary policy instrument for controlling interest rates is its member bank’s cost of funds.
so causing banks to ‘pay up’ for funds in the fed funds market is in fact a rate hike.
Tom Hickey Reply:
June 23rd, 2012 at 3:20 pm
@FDO15,
Y said, “What do you mean by “base case”?”
Economics doesn’t typically use “base case” as far as I know. It is more typical in finance, e.g, taking the base case scenario to all equity financing and then developing other scenario using different debt-equity ratios. Economists would more typically say something like “key assumption” wrt a theoretical model.
Thus, the base case scenario of a currency issuer as the monopoly provider in this sense would be direct issuance of currency the monopoly provider with no money creation denominated in the unit of a account by other means, such as credit extension.
The claims seems to be that this is the starting point of MMT, or else MMT economists don’t understand what a monopolist is.
Reply
Tom Hickey Reply:
June 23rd, 2012 at 3:46 pm
@Tom Hickey,
FDO15 states it well here: “MMT refers to their “base case” as a money monopoly. But a money monopoly only exists if there is one entity that controls the money supply.” That is, control ov the money supply is a necessary condition for being the currency issuer being the monopoly provider and thus holding monopoly power over money stock.
What this states in terms of the historical economic debate is that MMT in asserting that the currency issuer is the monopolist is on the side of monetarism in asserting the the money supply is exogenous and vertical rather than endogenous and vertical, which is the Post-Keynesian position, especially the Circuitists.
Since MMT economists want to side with the endogenous money crowd against the exogenous money crowd they cannot simultaneously hold the money monopolist assumption.
This means that the MMT economists have to deny the necessary conditionality that results in this by giving different meaning to the term “monopolist,” which FDO15 claims is an illicit move since monopoly power is well-defined.
WARREN MOSLER Reply:
June 24th, 2012 at 11:01 am
mmt says the govt (and/or its designated agents) is the sole determinant of that which it demands for the payment of taxes.
For the US this means the US govt. determines what it will accept for payment of taxes, and it has elected to accept only $US, of which only designated agents of the US govt. can ‘supply.’
That is, the $US is a public monopoly.
A govt that accepts gold, for example, for payment of taxes, has elected not to be the sole supplier of what it accepts for payment of taxes.
(note that I find it best to state this without the word ‘money’)
Also in the case of the dollar, net $US financial assets are what’s exogenous for the non govt sector, for example.
However bank deposits, and gross financial assets in general can expand endogenously within sectors.
There is no conflict between all of the above.
WARREN MOSLER Reply:
June 24th, 2012 at 11:13 am
for me
http://www.moslereconomics.com/mandatory-readings/a-general-analytical-framework-for-the-analysis-of-currencies-and-other-commodities/
has proven useful as the base case for analysis of a currency.
WARREN MOSLER Reply:
June 23rd, 2012 at 8:11 pm
any monopolist can have what I call ‘designated agents’ authorized to supply the ‘commodity’ in question and still be a monopolist
try asking any ‘private banker’ how much control govt. exerts over his lending function, and how much more control it could exert if it so elected
Reply
Dan Kervick Reply:
June 24th, 2012 at 1:46 am
@WARREN MOSLER,
Right, even if the Coca-Cola company permits a network of local bottling facilities to keep the ingredients for Coke on hand, and to mix, bottle and sell batches of Coke at its own discretion in response to local market demand, that doesn’t mean that that the Coca-Cola company is not still the monopoly supplier of Coke. And CC Corp can change the rules any time it wants, just like the Fed can.
FDO15 Reply:
June 24th, 2012 at 3:07 am
@Dan, the banks don’t just resell the government’s product. They are deciding price, quantity and at times redesigning the entire product. Anyone who calls that monopoly control is delusional.
WARREN MOSLER Reply:
June 24th, 2012 at 11:56 am
they are govt agents operating under Congressionally sanctioned rules of engagement
WARREN MOSLER Reply:
June 23rd, 2012 at 8:09 pm
It used to be ‘mosler economics’ before someone started calling it MMT a few years back.
might be time to go back to ‘mosler economics’?
Reply
y Reply:
June 23rd, 2012 at 9:26 pm
Might not be a bad idea. Then there would be Mosler Economics, Modern Money Theory (UMKC), and MMT (Bill Mitchell), at least, plus any other offshoots. Each has its own character and slightly different views it would seem. R Wray seems to be resisting Money Theory’s incorporation into modern moneTARY theory.
Reply
WARREN MOSLER Reply:
June 24th, 2012 at 12:17 pm
already is that way. i got them all started on the monetary side way back, with ‘soft currency economics’ and they’ve all taken it from there. And never would have gotten to where it is without all of them!!!
Look at how much the MMR guys have done to get the word out, for example.
(And I’m still not sure they actually differ from what I say?)
Djp Reply:
June 23rd, 2012 at 10:50 pm
@WARREN MOSLER,
Would help distinguish your views from other MMT proponents that have somewhat different views.
Reply
Tom Hickey Reply:
June 24th, 2012 at 3:14 pm
@Djp,
Waren, would it be a fair representation of you position to say
1) that what became MMT began as Mosler economics,
2) that Mosler economics remains distinct from MMT,
3) that you agree substantially with MMT as set forth by MMT economists,
4) that while you agree substantially with acknowledge MMT economists say about MMT, you would express some things differently,
5) that you disagree in substance with some things that some MMT economists say about MMT,
6) that you may disagree with some things that MMT economists say that are related to MMT but not integral to it, such as Bill on bank nationalization,
7) that you may disagree with some things that MMT economists say about economics or policy that are not integrally related to MMT, since as academics, MMT economists delve into other areas of interest in the academy.
Finally, if there are any significant areas of disagreement, it would interesting to know specifically what they are for the record.
WARREN MOSLER Reply:
June 24th, 2012 at 5:12 pm
1. yes
2. good question! i’ve been presuming mosler economics morphed into mmt, but i’ve never discussed it with anyone and i could be wrong.
3. yes, from what I’ve seen.
4. yes. I don’t like to use the words ‘sovereign’, ‘money’, ‘high powered money’, ‘inject’ etc. as they often seem counterproductive to me.
5. probably, but when I know about it and we discuss it the perceived differences, at least so far, get resolved and we move on in agreement.
6. Bill and I both understand the risks/benefits of national banks, with those risks pretty obvious for all to see. Same for the risks/benefits of having the private sector price risk with capital at risk. So I don’t specifically ‘favor’ either one but in the case of the US today looks to me like we’re better off just making the adjustments I’ve proposed rather than turning the pricing of risk and the allocation of credit over to the current, highly politicized, US government.
7. probably
Finally, could be, but I’m not specifically aware of them.
Keep in mind that you and many of the other readers of this website are much the ‘mmt economists’ you are talking about.
I’ve worked with all of you for the last 20 years as you all moved from ‘there’ to ‘here’ as it remains a work in progress.
And it’s kind of cute when I see an economist proclaim he’s not MMT while at the same time supporting the fundamental MMT monetary positions that he never supported before he ran across my stuff.
;)
Tom Hickey Reply:
June 24th, 2012 at 5:45 pm
@Djp,
Thanks for the clarification, Warren. That should put a lot of controversy about this to bed.
Djp Reply:
June 24th, 2012 at 10:05 pm
@Djp,
@Tom and Warren
As long as we’re clarifying, let’s clarify a couple of points that I find pretty important in distinguishing what I think of as MMT from I thought of as MoslerEconomics.
(1) Is the Employer of Last Resort (ELR)/Job guarantee(JG) an essential component of MMT?
My understanding is that Tom’s answer is (yes) and Warren’s is (no).
(2) Is this column mostly about MMT or about political ideology:
Wray’s essay on NewEconomicPerspectives titled “MMT for Austrians Part4″ circa 201203
I believe it has nothing to with MMT.
(3) Is MMT tied to a political ideology?
Apparently Wray’s answer is (yes) see (2).
I always thought MoslerEconomics was not.
I think that if two people answer these questions differently then they must not agree on what MMT is.
One nice thing about this blog was that the views were originally seemingly apolitical — I say “seemingly” because maybe I just missed some undercurrent that was always there. But increasingly the MMT chatter elsewhere seems to be highly political, and I suspect is a real impediment to getting across the ideas that seemed to be the main points of MoslerEconomics. I find that discouraging.
WARREN MOSLER Reply:
June 25th, 2012 at 9:23 am
I was the first to show how an employed buffer stock policy was a viable option back in ‘soft currency economics’, and that in the context of our political goals- full employment and price stability- it was my opinion that it was obviously a far superior option vs the current policy of using unemployment as a labor buffer stock, and that the only reason it wasn’t our policy was the usual deficit myths. I still hold that position and I think most who understand MMT do as well.
But to your question, I’d say it’s a fundamental understanding. The term ‘essential component’ itself seems to miss the point of MMT?
This is not about promoting a political ideology. It is about analyzing what’s happening and the ramifications of various policy options.
I don’t tie MMT to a political ideology.
I personally don’t have any use for either political party at this point in time.
Nor do I feel good about any of their candidates.
They are all out of paradigm and as such are part of the problem, rather than part of the answer.
That said, it makes perfect sense for people who understand MMT and have political agenda to formulate policy that’s in paradigm and support it as such.
Djp Reply:
June 25th, 2012 at 10:20 pm
@Djp,
@Warren
Agree with your sentiments.
I do understand though, why some find MMT so confusing when there are so many who will intertwine it with ideology. It’s as if someone’s arguing that some political group can’t ever be in paradigm with Quantum Mechanics.
You tend to keep the ideology clearly separate. If everyone did, we’d probably figure things out more rapidly – and then be free to argue about the other issues separately, but within the right framework. For people trying to understand the mechanics, they would like to keep the religious opinions clearly distinct.
As for:
” But to your question, I’d say it’s a fundamental understanding. The term ‘essential component’ itself seems to miss the point of MMT?”
I’m confused, are you saying that to even pose the question is wrong? My assumption was that to assume it was an essential component would be missing the point MMT (as an equivalence of what was MoslerEconomics). There are others (MMT supporters) who would (and have quite emphatically) said otherwise. I don’t think I am misquoting them.
WARREN MOSLER Reply:
June 25th, 2012 at 11:59 pm
it might be an ‘essential component’ of a proposal or an agenda,
but I don’t see MMT as ‘having components’ as if it’s a proposal of some sort.
MMT isn’t a proposal per se.
Tom Hickey Reply:
June 26th, 2012 at 12:55 am
@Djp,
One could look at MMT as particular framework made up of fundamental understandings that give insight into specific aspects of the human condition from a particular angle. This is the way that Keynes looked at a “general theory” in economics v. a general theory in the natural sciences, which is about explanation and prediction. Because of the limitations of the subject matter of the social science they only explain very generally and they cannot predict precisely.
Moreover, Keynes regarded economics as “moral science” since it is a policy science. As a result Keynes thought that econometrics was barking up the wrong tree. And Keynes’s training was in math.
Yanis Varoufakis, a mathematical statistician before becoming an economist, has said something similar about the application of statistics in mainstream econ. Statistician often draw unwarranted conclusions about causation from sophisticated analysis of correlation. But different statistical approaches could be account for different causality. So its just using complicated math to argue to a conclusion.
In contrast, MMT is systems-oriented. It looks at how a system in constructed in terms of institutional arrangements both generally and specifically and sees how changes in flows result in changes in stocks, and how this affects the various aspects of the system and the system as whole. This is not physics, since human beings are involved, so it cannot predict precise outcomes in a time delineated fashion, the way the natural sciences do. But it does give powerful insight into what is possible and not possible (sectoral balance equation) and how different conditions will affect changes in stock and flow over time periods within those boundary conditions of the balances summing to zero. For example, all sectors cannot be in surplus. Something this important and obvious seems lost on many. So on one level it is trivial, but policy-wise it is huge.
Looking that the institutional structure of the EMU, MMT, following Wynne Godley’s lead in this, was able to warn that this structure would not work as anticipated. Knowing the institutional rules, too, MMT could make specific policy recommendations, like Mosler bonds. Again, the obvious seems to elude TPTB.
The MMT JG is like that, too. Start with the way the system operates. Then ask what is the difference is between a buffer stock of employed and buffer stock of unemployed wrt the key outcomes — production, employment and price stability — which is the Fed’s mandate that they are doing poorly at handling.
On one level this is no big deal since it is not hugely complicated or even hard to understand. A kid in HS can pick up the basic pretty fast. But on another level it is hugely powerful as tool for understanding economic conditions and how to formulate policy given one’s norms and policy objectives.
Djp Reply:
June 26th, 2012 at 10:07 pm
@Djp,
@Warren
For completeness, I will quote Tom:
“The MMT JG is an essential aspect of MMT as a macro theory and an overal policy proposal developed from it. ”
Now, perhaps Tom’s playing some semantic dodgeball here, but I think any gentleman would forgive me for interpreting this as saying that JG is an essential component of MMT.
I’m not really here to debate Tom, just to clarify why reasonable people can easily interpret many MMT proponents as saying that certain policies (not just policy options, and I’m not saying you, Warren, have said this) are essential to MMT.
I will also note for the casual observer, Tom doesn’t actually answer questions. Kind of odd. Thanks for the responses Tom, but it’s really hard to discuss something without some effort at concise answers to direct questions.
The quote is from a post at monetaryrealism dot com slash mmt-jg-medicare-mmt.
I certainly don’t agree with all of what Cullen says, but the fact that Beowulf is over there should add some credibility to the site for folks here.
Thanks for the responses Warren, as always it’s been very informative exploring MoslerEconomics.
WARREN MOSLER Reply:
June 27th, 2012 at 10:42 pm
if you understand mmt you understand that financially the jg is a viable option.
the next question is whether it fits your social agenda.
the choices are
unemployed buffer stock with no unemployment comp
unemployed buffer stock with unemployment comp
employed buffer stock
see ‘full employment and price stability’ on this website
Tom Hickey Reply:
June 27th, 2012 at 12:48 am
@Djp,
Djp, I gave pretty detailed reasons for saying that the MMT is an essential aspect of MMT macro theory at MNE and MMR, too, IIRC. Basically, the criteria generally agreed upon that assesses a macro theory is the way it deals with the big three, the trifecta of production, employment and price stability. This trifecta is also the core of the Fed’s congressional mandate. So there is not a lot of debate about this.
The trilemma of this trifecta is balancing the three factors, and heretofore it has been thought that doing so required a definition of full employment in such as way as to result in permanent idle resources as a buffer of unemployed as an inflation control. MMT resolves that with the MMT JG which doubles as a buffer of employed, achieving “loose” full employment with a job offer guarantee to all willing and able to work, and as a price anchor in that the per unit cost of unskilled labor is fixed at the wage floor.
No other macro theory can claim to resolve the trilemma without involving idle resources. Therefore, the MMT macro outcome is more effective at meeting the agreed upon policy goals that all macro theories address, and it does so more efficiently.
So this is not a policy prescription any more than any other macro assumption, since macro is a policy science, and as Keynes, said, a “moral science” as well. That is to say MMT as a macro theory provides a framework for policy formulation that meets the general policy criteria that have been laid down to specify effectiveness. Efficiency is an economic matter.
Good enough for a quick summary?
WARREN MOSLER Reply:
June 27th, 2012 at 10:44 pm
mmt’s primary contribution to the various jg concepts proposed over the decades is the idea that the deficit isn’t an operational obstacle.
ESM Reply:
June 27th, 2012 at 10:47 am
@Djp,
@Tom:
Although I am agnostic on the idea of a JG, I think it is wrong to argue that it is essential to MMT. MMT is a basic description of the monetary system plus some conclusions which follow logically. A JG may be a good idea, but it does not follow via application of strict logic.
From a purely practical point of view, using an hour of unskilled JG labor as a price anchor is problematic because 1) the value of an hour of labor varies widely even across unskilled workers; 2) the relationship between an hour of unskilled “make-work” and the value of other services and products is about as unclear as you can get; 3) since the JG might end up being mostly make-work, it’s not clear that there will be any material increase in production; 4) although Warren would like to define unemployment away by using a JG, there will still be people who want to work at a job commensurate with their skills and education who can’t find it.
The benefits of a JG are so speculative that it’s not possible to prove a priori that a JG creates a better price anchor than gold or oil or land or water or a CPI basket (although I’ll admit that gold seems like a stupid price anchor).
Since the economy has generally been run with chronic overcapacity for the last 60 years, it’s also not clear to me that using a CPI basket (which we’ve never seriously done) as an anchor would lead to significant levels of unemployment periodically.
WARREN MOSLER Reply:
June 27th, 2012 at 10:53 pm
the jg only has to be an equal price anchor to unemployment to make it preferable under current mandates of full employment and price stability.
and if you think its even marginally better than today’s unemployed buffer stock there’s no reason not to do it.
it doesn’t have to be a perfect price anchor, just better than unemployment. you don’t have to outrun the bear, etc.
Neil Wilson Reply:
June 27th, 2012 at 12:19 pm
@Djp,
“since the JG might end up being mostly make-work, it’s not clear that there will be any material increase in production;”
Ok, once more for the Queen and see if we can get through this time.
The *output* of the worker is an added bonus. Forget about that. It is not the important part of the effect.
The economic benefit comes from maintaining the individual ‘work-ready’ in that they can demonstrably be *seen* to be working in a manner that reduces the fear of hiring them as seen by hirers in the other sectors.
That reduces the risk, and therefore the cost, of hiring from that pool of workers *as the pool moves to exhaustion*. It is a better bet than a pool of people who may or may not be a good hire.
So JG is a perception effect. It demonstrates visibly who is, and who isn’t a good bet.
The aggregate demand effect comes from giving people money and getting them to spend it. That is what overcomes the paradox of productivity.
As that empties the labour pool you get an extra effect from the ‘pool of work ready labour’ who are effectively cheaper to hire than a pool of unemployed people. So you keep inflation capped for longer before you run into constraints and therefore can operate with a smaller ‘working pool’ more than you can a ‘non working pool’
On top of that it is a socially beneficial programme – allowing people to feel that they’ve done something for their money. Even if all they did was dig a hole and fill it back in again – hopefully while burying a cable at the same time.
People need to have something to do. Money on its own isn’t enough.
WARREN MOSLER Reply:
June 27th, 2012 at 10:56 pm
yes, and, again, it’s whether it’s any worse than current policy of an unemployed labor buffer stock
MamMoTh Reply:
June 27th, 2012 at 12:35 pm
@Djp,
If higher education is sometimes seen as being more about signalling than about acquiring useful skills, then Neil’s point about the JG providing a useful signal about a worker’s disposition to work should be taken as seriously.
WARREN MOSLER Reply:
June 27th, 2012 at 10:57 pm
again, is it worse than unemployment is all that matters with regards to whether it should be implemented
Tom Hickey Reply:
June 27th, 2012 at 1:30 pm
@Djp,
Not sure how Warren comes down on this but for Bill and Randy, MMT (Modern Monetary THEORY) is a macro theory built on an operational monetary description, institutionalist economics (analysis of institutional arrangements) and monetary theory (endogenous money, credit money, and Chartalism), which Warren launched with “Soft Currency Economics” and Randy elaborated in Understanding Modern Money.
The macro is chiefly built using Godley SFC modeling of sectoral balances (sectoral balance approach), Lerner’s functional finance, and Minskian analysis, e.g., of financial instability (the JG concept is Minskian). MMT macro also presupposes a lot of PKE, too. As Scott Fullwiler has said, MMT economists are sometimes (unfairly) criticized for ignoring a lot of things that PKE has already established and MMT brings along without revisiting.
WARREN MOSLER Reply:
June 27th, 2012 at 10:58 pm
not to forget mmt was developed independently of the prior knowledge which was unknown to me
Tom Hickey Reply:
June 27th, 2012 at 1:41 pm
@Djp,
Neil: “So JG is a perception effect. It demonstrates visibly who is, and who isn’t a good bet.”
People who have never dealt with unskilled labor don’t appreciate the value of a record of showing up regularly and showing up ready (sober enough) to work.
Having a job and a record is a big deal for employers due to the frictions involved with hires off the bottom.
Temp agencies play a role in this, and employers are willing to pay for the service they provide even though workers could be hired “off the street” cheaper. But “cheaper” doesn’t necessarily means “less expensive.”
The MMT JG would play a role that temp agencies are not doing. In fact, the JG could be paid for by govt, the work administered by non-profits, and and hiring out to private firms administered through temp agencies, which are doing this already, are set up for it and being used as a venue by business.
Most of the imagined problems are just that — imaginary.
ESM Reply:
June 27th, 2012 at 3:11 pm
@Djp,
@Neil:
I agree with those benefits. I was only listing some of the non-benefits, which might actually be addressed via other schemes.
For example, if somebody is working digging holes and filling them in, then they’re not going to have the time or energy to study rocket surgery. As you may have noticed, I’m generally skeptical of the efficacy of government-directed projects because of the misalignment of the the political or bureaucratic interest with the public interest. So I do expect that we’ll get a lot of hole-digging from a JG. As I’ve said before, it’s probably better than nothing, but it’s not obviously better than other things.
Unforgiven Reply:
June 27th, 2012 at 3:27 pm
@ESM,
Depends on “hang time” in the JG program before they transition to private industry. I think though, the aim of JG is to stabilize demand overall to the point where few would be in the program anyway.
Tom Hickey Reply:
June 27th, 2012 at 3:55 pm
@Djp,
@ ESM
1. The structure and other purposing of the JG as policy question involving strategy and tactic, rather than a macro one having to do with the BSE and price anchor to address employment and price stability. People of different political persuasions will look at the policy angle different, if the agree that the JG should be adopted as policy. But I agree that practically speaking digging holes and filling them in is not very creative and certainly a better program can be designed.
2. Randy has said that he expects the size of the JG buffer when at max counter-cyclically to still be limited in that if policy is based on MMT understanding about fiscal policy, then “good” deficits will prevail rather than “bad” deficits, i.e., fiscal policy will offset changing saving desire automatically and the JG will be a mop up operation that catches those falling through the cracks. This will largely be people at the bottom since underemployment forces actual involuntary unemployment down the qualifications scale.
Djp Reply:
June 27th, 2012 at 10:23 pm
@Djp,
@Tom
Tom, you have a way with words. Perhaps you can find a different way to say,
“MMT resolves that with the MMT JG “. A way that doesn’t imply that JG is an essential part of MMT. I think Warren states it very clearly when he notes that it is just a policy option, I don’t think he tends to say something akin to “MMT solves that issue with the JG.” To me the distinction is clear.
Also, I’ll note you still haven’t directly answered (yes, no) to (1-3). Again, I’m not here to pick nits (though perhaps NIT (negative income tax) would be a better, more easily implemented solution than JG), but it just seems odd. I guess in Philosophy that’s how it’s done — I’m more a “my answer’s yes, and here’s why” or “yes, but…” guy.
Djp Reply:
June 27th, 2012 at 10:41 pm
@Djp,
@ESM
@ Et al
“MMT is a basic description of the monetary system plus some conclusions which follow logically.”
That’s what I’d like to think as well, though it may be reasonable to revert to calling that MoslerEconomics.
“The benefits of a JG are so speculative that it’s not possible to prove a priori that a JG creates a better price anchor than gold or oil or land or water or a CPI basket (although I’ll admit that gold seems like a stupid price anchor).”
Agreed, except possibly about gold. ;)
I’ll put it out there again – since there are so many replies here — that you could get quite a bit more support for MMT and JG if the JG job was mining for gold. Satisfies JG fans and gold bugs. After all, Neil notes he’s not looking for JG to “produce” anything. At least this one produces a little gold, and I have to admit watching people scuba dive in the Baring Sea for six hours at a time to vacuum up a little gold gives me a little more faith in humanity — they’re certainly willing to go do some hard work.
But, overall I agree with the MMR folks and ESM that the JG is an enormous unknown, and likely would not work out well. I’d probably rather have a NIT (negative income tax).
Nevertheless, I think I can count on Neil’s support for the gold digging JG program. Has to be better than digging holes and filling them in, right?
WARREN MOSLER Reply:
June 27th, 2012 at 11:47 pm
jg only has to be better than unemployment to implement it at once.
then you can keep up the discussion as to whether going on some kind of gold standard or whatever might be preferable.
also, I don’t see the ‘enormous’ downside of my proposed $8/hr transition job?
if anyone even takes it they will mainly come from the pool of unemployed, right?
nor does that wage generate any aggregate demand to speak of.
The agg demand comes from the full payroll tax holiday.
So what’s the problem?
Tom Hickey Reply:
June 28th, 2012 at 12:04 am
@Djp,
Djp, “Tom, you have a way with words. Perhaps you can find a different way to say,
“MMT resolves that with the MMT JG “. A way that doesn’t imply that JG is an essential part of MMT.”
I am stating this more or less (more, I hope) as Bill Mitchell states it in his explication of macro in terms of MMT.
According to Keynes, macro is a policy science and as such a moral science.” That is, macro has normative assumptions. An “amoral” approach to macro such as some economists claim to adopt is itself a normative position.
If you take the MMT JG out of the MMT macro theory it is a weaker theory, since then the BSE is replaced by a BSUe, which implies accepting permanent involuntary employment unless you redefine it “voluntary” employment. See Paul Krugman, “The Great Depression was the Great Vacation” for a mockery of that.
RAndy and Bill may be more into this than Warren is since they are writing a textbook on macro from the MMT vantage.
Tom Hickey Reply:
June 28th, 2012 at 12:16 am
@Djp,
Warren: “mmt’s primary contribution to the various jg concepts proposed over the decades is the idea that the deficit isn’t an operational obstacle.”
Right, so the macro implication is that if there is no operational constraint and it is more efficient and effective it makes for a better macro theory as policy science.
What I am saying it is isn’t “just” a policy option, as many opponents claim. It is strongly recommended on the basis of a superior macro theory to justify its adoption.
Objections based on implementation are irrelevant at this stage of the argument. It’s a macro argument and the counter needs to be that it is either impossible operationally or will lead to greater inefficiency or be less effective than other approaches for some other reason, like being inflationary. Another macro counterargument is that has been lodged is that the MMT JG will adverse affects production and productivity.
The counterargument is also that there is no convincing evidence it will work and evidence suggesting it will not work, and also the objection that the simulations run to do not justify the claims derived from them.
So this is already a controversy being conducted at the level of macro theory.
WARREN MOSLER Reply:
June 28th, 2012 at 12:21 am
The way to support productivity is to make labor more expensive, as europe has demonstrated over the years and no one talks about.
Tom Hickey Reply:
June 28th, 2012 at 12:29 am
@Djp,
Djp, I should add Bill’s distinction for clarity. He says, correctly in my view, that an operational description of the monetary system is not a macro theory because a general description make no causal inferences or claims. When the description is interpreted causally, and causal claims are put forward it is no longer a description but an explanation, and useful explanations result in consequences that can be checked against events.
Social sciences are not predictive like natural sciences, nor do they lend themselves to experimental testing like natural sciences. But the general framework generates a way of looking at the world that is borne out by events, or not. Mainstream economics failed to foresee the GFC approaching or the breakdown of the EMU, calling the theory into question and, in fact, discrediting it. MMT foresaw both, giving it credence.
WARREN MOSLER Reply:
June 28th, 2012 at 10:05 am
agreed with Bill.
June 23rd, 2012 at 1:44 pm
FDO15 (June 23rd, 2012 at 2:40 am) asserts that according to Warren banks create their own reserves. This is a misinterpretation that is going around of what Warren means, and I am sure he will clear it up. Meanwhile, here is my understanding.
Warren has said that “loans create deposits and deposits create reserves.” The does NOT mean that banks “print reserves,” or enter them on the Fed spreadsheet, which is the only place they exist, since they have NO authority to do this and don’t have the password.
What it means is that when a bank issues loan and creates deposits putting them in need of reserves at the Fed and the bank neither has the needed reserves nor obtains them by borrowing, then the Fed loans the bank reserves as the lender of last resort (LLR) and charges the bank the discount rate aka “penalty rate.”
A bank not having sufficient excess reserves to cover its needs for settlement and the reserve requirement in its Fed account, and does not obtain them by borrowing on the interbank market, will automatically be covered by the Fed if the bank is solvent. This generates liquidity for the bank at a higher price than it would pay if it had done proper liquidity management.
Part of the Fed’s job description is providing liquidity to the banking system by acting as LLR as needed. This means that deposits can generate reserves by Fed action as LLR, but not “create” as in banks “printing” reserves themselves. Banks cannot create reserves in the same sense that the Fed can. Reserves come ONLY from the Fed entries on its accounting spreadsheet. They are ledger entries.
It’s too bad that this misunderstanding is proliferating, especially erroneously under Warren’s name, but unfortunately it is.
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FDO15 Reply:
June 23rd, 2012 at 1:58 pm
@Tom Hickey, First of all, this idea is only proliferating because Warren wrote this:
‘Warren Mosler said…
I believe you are all missing the point.
First, there is a distinction between fixed fx policy and floating fx policy.
With fixed fx lending is continuously reserve constrained and the interest rate is endogenous via competition for reserves.
With floating lending is never reserve constrained, as this particular institutional structure allows banks to create their own reserves.
that is, with floating fx/non convertible currency,
loans create deposits and reserves as a matter of accounting
any ‘needed’ reserves are, functionally, overdrafts in fed reserve accounts, and overdrafts are loans. so when the ‘need’ arises the deed is done. CB choice never enters into it. For the CB, it’s necessarily about price, and never quantity. I call it hard endogeneity and have been pointing this out for going on 20 years. ”
So the reason it’s “under Warren’s name” is because Warren wrote it. If he wants to retract that statement then he can do it. But his comments are correct and I can confirm it since I work at a bank and understand that this is how it actually works. If Warren wants to change his story now then be my guest. But he’ll be wrong if he chooses to do so.
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Tom Hickey Reply:
June 23rd, 2012 at 2:54 pm
@FDO15,
that is, with floating fx/non convertible currency, loans create deposits and reserves as a matter of accounting
any ‘needed’ reserves are, functionally, overdrafts in fed reserve accounts, and overdrafts are loans. so when the ‘need’ arises the deed is done. CB choice never enters into it. For the CB, it’s necessarily about price, and never quantity. I call it hard endogeneity and have been pointing this out for going on 20 years. ”
That is correct meaning but that overdraft is in reserves that the CB creates. The bank does not create the reserve with the overdraft. The Fed supplies the reserves a LLR and charges the penalty rate.
According to MMT both the stock and flow of inside and outside money are ultimately determine endogenously in that inside money result from customer demand for loans. It is the borrowers that “create” the money, as much as the creditors.
Outside money is also endogenously determine because the fiscal balance is determined by non-govt saving desire and economic conditions that affect revenue and fluctuations in the automatic stabilizers.
So you admit that banks have to get reserves from the Fed instead of “printing” them themselves? You also admit that the reserves provided in an overdraft are provided by the Fed? You aslo admit that the overdrafts are not free at the end of the period but interest is automatically applied by the Fed?
Where does MMT say that it is not the case? Warren is a banker, after all, is intimately familiar with this on a daily basis.
BYW, to the best of my knowledge all Post-Keynesians including Circuitists and Neo-Chartalists (MMT) subscribe to modern money being endogenous, with two types of money depending on mode of creation — “inside” and “outside” — both being denominated in the same unit of account, the currency, i.e., state money. This is not in dispute. The endogenous v. exogenous dispute historically is between Keynesians and monetarists. Monetarism is based on the false notion that money stock is controlled exogenously by the central bank. Post Keynesian assert at the money supply is determined endogenously by the changes in the demand for credit by creditworthy borrowers (inside money) and changes in the govt fiscal balance (outside money).
Bank reserves never enter non-govt per se. They are an accounting device at the cb for “keeping score,” as Warren says, and to provide liquidity for interbank settlement. Banks exchange reserves for vault cash to meet window demand, and cash is typically used by non-govt for spot settlement.
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WARREN MOSLER Reply:
June 24th, 2012 at 11:28 am
the overdraft is denominated in US dollars, and, functionally and for accounting purposes, *is* an extension of credit from the Fed when incurred.
Consider this. The idea of banks ‘needing’ reserves is often casually mentioned. Close examination shows ‘need’ comes after the overdraft is incurred. If there has been no transaction that incurs an overdrawn condition, there is no ‘need.’
y Reply:
June 23rd, 2012 at 2:02 pm
It’s a reasonably interesting argument, but at the end of the day it doesn’t seem to mean much.
My understanding is of the MMT view is that the overall money supply is endogenously determined, with the central bank setting the price of reserves and letting the quantity float. Correct me if I’m wrong.
Taking the view that “banks create reserves” doesn’t change this at all, as far as I can see. Nor does it change the range of government policy options in any way, or anything else.
Whichever side of the argument you take on this one, you still end up in the same place.
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FDO15 Reply:
June 23rd, 2012 at 2:09 pm
@y, The price of reserves has nothing to do with this argument. The simple fact of the matter is that the government has almost zero control over the quantity and price of private bank money. If you want to create some convoluted money monopolist argument out of this then be my guest, but you’re wrong. This is an oligopoly. And it’s an oligopoly that MMT despises and attacks persistently. But when it’s convenient to their mythology they call it a monopoly that serves public purpose.
If you can’t see that inconsistency then I can only conclude that MMTers are incapable of seeing past their outstretched arms.
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y Reply:
June 23rd, 2012 at 2:18 pm
I agree the government doesn’t control the quantity of overall commercial bank money or the rate that they charge people to borrow it. The central bank controls the ‘price’ of reserves and lets the quantity float. I’m pretty certain that’s MMT 101.
MMTers recommend reforming the banking sector (different approaches are advocated), setting the base rate to zero and using fiscal policy to maintain employment and control inflation. That’s perhaps MMT 102.
MMT 101 doesn’t appear to contradict MMT 102, though even if you agree with MMT 101 you might still have reasons for disagreeing with MMT 102.
FDO15 Reply:
June 23rd, 2012 at 2:25 pm
@FDO15, And MMT 10? is trying to create a relationship between reserves and bank money where there is none. So now is when you respond saying that payments must settle in reserves even though that’s not always true.
Tom Hickey Reply:
June 23rd, 2012 at 3:25 pm
@FDO15,
“The price of reserves has nothing to do with this argument. The simple fact of the matter is that the government has almost zero control over the quantity and price of private bank money.”
The FFR doesn’t affect the spread and the RR doesn’t affect bank cost, therefore what it passes on?
WARREN MOSLER Reply:
June 24th, 2012 at 11:34 am
seems you’ve never sat in on an FDIC bank examination.
y Reply:
June 23rd, 2012 at 2:12 pm
My view would be: banks don’t actually create reserves. However the central bank automatically creates reserves for banks when they need them, at a given interest rate. Presumably the process is automated, with no one pressing “yes” on a computer at the cb to authorise an overdraft. That’s one of the perks of being a member bank at the central bank.
If I get overdrawn at my bank, I wouldn’t say that I have created money in my account. Rather I’d say the bank gave me an automatic overdraft facility. i.e. they gave me an automatic short term loan (usually at a higher interest rate, as with the discount window).
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FDO15 Reply:
June 23rd, 2012 at 2:22 pm
@y, Either way, it doesn’t change the fact that banks create money independent of government and the fact that government has no control over price or quantity on new loans. If you want to say this is a monopoly because the government sets the price of reserves then be my guest.
WARREN MOSLER Reply:
June 24th, 2012 at 11:33 am
banks create bank deposits. and if you sat in on one of our periodic FDIC exams you might change your tune about the control exerted by govt. of price and quantity of new loans. and a lot more…
Unforgiven Reply:
June 23rd, 2012 at 2:57 pm
@FDO15,
Banks create encumbered money, not NFA’s. Are you saying there’s no difference between a Payday Loan and a welfare check? By and large?
WARREN MOSLER Reply:
June 24th, 2012 at 11:22 am
bank loans ‘create’ bank deposits, but recognize that the bank deposits are not the bank’s to use, they bank liabilities that ‘belong’ to the depositor.
Dan Kervick Reply:
June 24th, 2012 at 1:54 am
@y, Well the Fed certainly influences the price of commercial loans, by setting the price on reserves. The demand for credit and competitive conditions in the market for loans do the rest.
But this degree of bank freedom is purely a matter of Fed policy choice. The Fed has the legal authority to regulate the operating conditions in the Federal Reserve System as it sees fit. Endogeneity isn’t hard-wired into the nature of banking. It is only a feature of the current operating conditions, which have been chosen by the Fed as a policy choice.
FDO15 Reply:
June 24th, 2012 at 3:10 am
@Dan,
“But this degree of bank freedom is purely a matter of Fed policy choice.”
This is a pretty disingenuous comment coming from a group of economists who complain about the actions of private banks on a daily basis. The Fed has very little control over the actions of this oligopoly. You might be interested in changing that, but as I said before, that’s not the world we live in.
WARREN MOSLER Reply:
June 24th, 2012 at 11:54 am
show me where i’ve ‘complained about the actions of private banks’ thanks
Dan Kervick Reply:
June 24th, 2012 at 10:57 am
@y, I don’t understand what you mean FDO15. Do you reject the claim that the Fed sets the required reserve ratios? The lengths of the calculation and compliance periods? The other key rules that determine the operational framework in which banks work?
WARREN MOSLER Reply:
June 24th, 2012 at 11:42 am
regulation also extends to capital requirements, asset quality requirements, interest rate sensitivity requirements, earnings requirements, liquidity requirements, management requirements, etc. and all in great detail
MamMoTh Reply:
June 24th, 2012 at 9:56 pm
@FDO15,
it seems you only know the US banking system, and not even that well as to be lecturing about it
Tom Hickey Reply:
June 23rd, 2012 at 2:56 pm
@y,
“My understanding is of the MMT view is that the overall money supply is endogenously determined, with the central bank setting the price of reserves and letting the quantity float. Correct me if I’m wrong.”
Right.
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WARREN MOSLER Reply:
June 24th, 2012 at 11:37 am
yes, bank loans create bank deposits endogenously.
but that doesn’t mean there isn’t a govt. book a mile thick telling banks what they can and can’t do regarding lending.
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June 23rd, 2012 at 2:43 pm
“there is no money monopoly in the USA. It is an oligopoly.”
I don’t entirely disagree with you, or entirely disagree with the MMT view either. My overall assessment is that whether the monetary system is a monopoly in exactly the way MMTers say, or not, is for all intents and purposes ultimately unimportant – but that’s just my opinion.
If you disagree, could you explain whether you think your refutation of the MMT “money is a public monopoly” claim affects the relevance of their policy proposals, for example?
Thinking about your comment, I was wondering whether something like the Disney company might perhaps be a good analogy. Disney has a monopoly on its brand, and sets all the terms and conditions under which other companies can present, represent, fabricate, sell or reproduce its intellectual property and products. The overall structure is entirely shaped and determined by Disney, to the extent that it wants to shape and determine it. But within that structure individual producers, retailers etc have a great deal of autonomy over how much they can produce or sell, what price to sell at, for example.
If Disney wants to cancel a contract, it can. If it wants to impose restrictions on retailers or producers it can, etc. Also, if it wants to give companies making and distributing its branded products a free rein, it can. It sells retail and producer licences at a given price, and sets terms and conditions, but isn’t directly involved in every aspect of the wider business.
This strikes me as being quite close to the “money as a public monopoly” view taken by MMTers. Just my view though.
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FDO15 Reply:
June 23rd, 2012 at 3:01 pm
@y, your analogy is not quite right. Banks don’t just license government money. They create entirely new products, set price and determine how sales are made. A big part of MMT’s complains about the banking system has to do with the degree of freedom that banks have in setting the terms of selling new loans and repackaging these products however they want. MMT likes to complain about private banking and at the same time argue that private banking is just the issuance of government money. That’s an obvious contradiction.
The entire MMT paradigm is based on the necessity of money being a public monopoly. The policy ideas and the entire framework are based on the money monopoly. So if you don’t agree with the money monopoly then you’re on your first step to understanding how everything in MMT is wrong.
But I’ve discovered on different occasions that MMTers are a lot like a religious cult. Trying to convince you all that you’re wrong is a pointless endeavor so maybe I will just call it quits.
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Tom Hickey Reply:
June 23rd, 2012 at 3:27 pm
@FDO15,
“there is no money monopoly in the USA. It is an oligopoly.”
Counterfeit much :)
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y Reply:
June 23rd, 2012 at 3:27 pm
I thought the analogy made sense because banks do need a charter to operate as they do, and their money-creation activities are ultimately retricted to what they are permitted to do by the government. The Disney ‘brand’ in this case is the dollar. You need a licence to create it and in return for that privilege you have to conform to certain rules and regulations.
The point is that government always has the option to control banks more, or less. Inadequate regulation was probably a major factor in the financial crisis. From an MMT perspective, loose regulation and allowing banks to get up to all sorts is just not good policy. Thus the government should change its policy towards banks, reform the banking sector, and do more through fiscal policy.
For the government in this case, it’s ultimately a policy choice. So the question is always, which is the best policy?
You clearly disagree with MMT policy ideas, but for some reason you try to attack them in a really roundabout way by arguing about minor stuff.
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y Reply:
June 23rd, 2012 at 3:44 pm
“The entire MMT paradigm is based on the necessity of money being a public monopoly. The policy ideas and the entire framework are based on the money monopoly”
Is government spending ‘financially’ constrained? No.
Do current operational arrangements limit the government’s ability to spend? No.
Can the government control interest rates and bond yields? Yes.
Can the government bring about banking reform if it wants to? Yes.
Can the government “afford” to employ everyone without a job if it wants to? Yes.
Can the government use fiscal and or monetary policy to control inflation if it wants to? Yes.
Can the government therefore use fiscal policy to achieve “full employment and price stability”? According to MMT, yes.
Did I have to mention the word “monopoly” at any point above? No.
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FDO15 Reply:
June 23rd, 2012 at 5:01 pm
@y, One of my points is, you don’t need to use the flawed ideology called MMT to understand how the monetary system actually works, as you’ve just pointed out. So if MMT wants to change the past and eliminate the inaccurate money monopolist idea (which all of their work is based on) then they can have a go at that. But the result would be an entirely different framework.
So it sounds like more revisionist history is in store for MMTers.
WARREN MOSLER Reply:
June 24th, 2012 at 10:51 am
MTT is the description of how the monetary system actually works.
See ‘soft currency economics’ on this website.
y Reply:
June 23rd, 2012 at 5:40 pm
If you really disagree with the claim that the “monetary system is a monopoly” then fine. Put that issue to one side for a moment and move on. Mosler has stated that he thinks it is, and has explained why. You have disagreed for your own reasons. Ok. Mosler might be wrong, you might be wrong.
The thing is that even if you disagree with him on this point, it actually makes no difference to anything else in MMT, as I tried to demonstrate in a very simple and easy to understand way above.
So, if we can put this issue to one side for a while, do you actually have any substantive arguments that aren’t simply based on semantic disagreements, minor misunderstandings, your own political prejudices, and petty hatreds?
Tom Hickey Reply:
June 23rd, 2012 at 8:01 pm
@y,
y, I don’t think that either Warren or Randy would accept FDO15 framing as representing their contention, but we’ll have to wait for the response.
Lars Reply:
June 23rd, 2012 at 10:28 pm
@y,
FDO put this conversation quite succinctly. MMT is built on the principles he has torn down in this thread. If you remove these key parts (like the money monopolist) then you are using a different framework of understanding the monetary system.
I think even Austrian economists understand that the government can print as much money as it wants or that it could employ everyone. These are obvious facts that are not only understood by MMT. So your comments make little to no sense at all.
Unforgiven Reply:
June 23rd, 2012 at 11:27 pm
Lars,
FDO hasn’t torn down anything. He just has his pseudo-logical rants based on Frankenstein logic that’s about all he’s ever had. At least now he doesn’t congratulate himself after NEARLY EVERY post.
If Austrian economists understand that the the gov’t can print as much money as it wants, then they’ve been rather dishonest about communicating it.
I think you let the lutefisk ferment a bit long old boy. Your claims don’t advance your argument at all.
y Reply:
June 24th, 2012 at 8:19 am
Lars, you’re talking nonsense.
WARREN MOSLER Reply:
June 24th, 2012 at 11:46 am
but still not as bad as Romney and Obama…
WARREN MOSLER Reply:
June 24th, 2012 at 11:20 am
think of bank regulation as setting the ‘rules of engagement’ for the military.
govt can’t have just one person that does everything. it designates responsibilities to subordinates.
those subordinates include the legal system, military, irs, fed, treasury, fed member banks, etc. down the line.
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y Reply:
June 26th, 2012 at 5:24 am
However, banking and business interests do manage to ‘capture’ the government to a certain extent, by funding candidates’ election campaigns and lobby groups, for example. The whole system also favours and so encourages strands of economic and political thought which are more conducive to the interests of ‘capital’.
So it could be argued that, whilst government sets the rules, the government is controlled by business and finance. So they really set the rules to a great degree…
WARREN MOSLER Reply:
June 26th, 2012 at 8:39 am
true, but what he have today isn’t serving ‘capital’ very well. Seems ‘capital’ would be way better off with higher levels of growth and employment.
WARREN MOSLER Reply:
June 24th, 2012 at 11:30 am
: )
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y Reply:
June 26th, 2012 at 9:42 am
How about higher rates of interest and lower wages for workers, plus ‘hard money’ meaning ‘capital’ can get an additional easy benefit from deflation. That’s what many ‘capitalists’ seem to want. To get the whole combo at once they need government to slash its spending, then interest rates can rise and workers can be forced to accept lower wages.
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WARREN MOSLER Reply:
June 26th, 2012 at 7:05 pm
not my first choice
just my opinion
June 23rd, 2012 at 2:55 pm
“MMT 10? is trying to create a relationship between reserves and bank money where there is none.”
The mainstream view is that a higher base interest rate will discourage lending and slow the overall growth of credit, whereas a lower interest rate will lead to more credit creation.
MMTers argue against using interest rate changes to stimulate the economy or control inflation, and instead advocate setting the base rate to zero and using fiscal rather than monetary policy to regulate the economy. Monetary policy is said to have unpredictable distributional effects and other negative outcomes.
They make the point that a basic need for government money (reserves in this case) derives from the fact that people, businesses and banks have to transact with the government – i.e when paying taxes.
What’s the point you’re making regarding the relationship between reserves and bank money, and how is it relevant to the above? I don’t follow.
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FDO15 Reply:
June 23rd, 2012 at 3:05 pm
@y,
“Monetary policy is said to have unpredictable distributional effects and other negative outcomes.”
As if fiscal policy doesn’t have the same distributional and negative outcomes. You all are truly delusional. MMT is a dream to give the government more power. That’s all MMT wants. It’s progressive policy in a move towards a more socialist ideology.
You speak in contradictions and ideology that makes no coherent sense unless you are a “believer”.
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y Reply:
June 23rd, 2012 at 3:15 pm
“As if fiscal policy doesn’t have the same distributional and negative outcomes”
It might do. That’s a debate that’s actually worth having.
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Unforgiven Reply:
June 23rd, 2012 at 3:29 pm
@FDO15,
“As if fiscal policy doesn’t have the same distributional and negative outcomes.”
It has different distributional effect and outcomes. Different problems. You have a line on something that has none of that?
“MMT is a dream to give the government more power. That’s all MMT wants.”
Let the voters decide what size Gov’t they want. In any case, no need to spend more floor time on the debt ceiling.
“You speak in contradictions and ideology that makes no coherent sense unless you are a “believer”.”
You seemed to be having so much fun doing it yourself, we thought we’d give it a shot. (NOT)
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WARREN MOSLER Reply:
June 24th, 2012 at 11:02 am
MMT doesn’t ‘want’ anything. misses the point
WARREN MOSLER Reply:
June 24th, 2012 at 11:17 am
MMT doesn’t ‘want’ anything. that statement misses the point entirely.
it does analyze policy options.
and fiscal policy is necessarily/fundamentally coercive and distributional.
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WARREN MOSLER Reply:
June 24th, 2012 at 11:25 am
bank deposits are bank liabilities on the bank’s balance sheet, ‘owned’ by the depositor.
reserves are bank deposits at the Federal Reserve Bank that are liabilities of the Fed and ‘owned’ by the depositors, in this case fed member banks, foreign govts, federal agencies, etc.
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June 23rd, 2012 at 3:05 pm
FDO15 brings up an important point about the assertion of currency issuer as monopolist. There is a huge kerfuffle raging over this right now, so it would be helpful to get a definitive response from Warren, who, IIRC, said that this realization was his fundamental insight at the time of writing “Soft Currency Economics (see Mandatory Readings in the nav bar), which led to the subsequent development of MMT.
BTW, Warren, “Monopoly Money: The State as a Price Setter” in the mandatory readings return a 404 not found error. The link was likely broken when NEP changed their blog format to WordPress.
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y Reply:
June 23rd, 2012 at 3:12 pm
From what I remember “Monopoly Money: The State as a Price Setter” makes the claim that the government has a monopoly on ITS money, i.e. reserves, cash etc.
It doesn’t make the wider claim that money IS a public monopoly. That’s a claim made by Mosler and Wray.
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Tom Hickey Reply:
June 23rd, 2012 at 3:30 pm
@y,
“It doesn’t make the wider claim that money IS a public monopoly. That’s a claim made by Mosler and Wray.”
This is the contentious part and it needs to be clarified in terms of falsifiable assertions, since it is getting a lot of push back.
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y Reply:
June 23rd, 2012 at 6:33 pm
It doesn’t even matter whether people accept the “money is a public monopoly” idea or not. Some do, some don’t. Doesn’t change anything as far as I can see.
Some people seem to think you can make an argument that goes “there is no money monopolist, therefore there is no rationale for the JG”, as if that makes any sense whatsoever.
These people don’t even know how to construct basic logical, non-fallacious arguments. Quite extraordinary really.
WARREN MOSLER Reply:
June 24th, 2012 at 10:38 am
including what are considered serious academics.
Adam (ak) Reply:
June 23rd, 2012 at 6:56 pm
@Tom Hickey,
I am sorry but I think that this is totally irrelevant. Monopoly or no monopoly, price setter or whatever – we need to describe how the real system works and what can / cannot be done within that framework by different players.
The more deductive reasoning – the closer MMT drifts towards the Austrian School of Economics.
The interesting thing is that people can opt out from the legal framework imposed upon them – this is how currencies fail. In the 1950s during the Stalinist period there was a death penalty for possessing USD/gold in Poland (under Soviet influence/occupation).
A few people were executed so there was some demand…
Tom Hickey Reply:
June 23rd, 2012 at 8:15 pm
@Tom Hickey,
Adam (AK): “we need to describe how the real system works and what can / cannot be done within that framework by different players.”
Agree.
I would say that there are two descriptions needed. An articulated one that will likely be accessible only to experts, and a simplified explanation for ordinary folks that disabuses them of the myths.
I think all of us are working on this from different angles, and we have a way to go yet so that everyone agrees on the basic model. In monetary economics, the Circuitists and MMT’ers are converging more and more, for instance, but disagreements remain, perhaps more semantic than substantial.
I evernoted your previous comment about taking a systems approach, with which I am in general agreement, and I’ll “deep think” about it. Some of the engineers and programmers have already made useful contributions about meta-disciplinary systems modeling applied to this.
WARREN MOSLER Reply:
June 24th, 2012 at 11:01 am
The $US is a public monopoly. There are other options, such as a gold standard.
WARREN MOSLER Reply:
June 24th, 2012 at 11:15 am
Getting Michael on the link now, thanks.
The insight was that tsy securities inherently function to support interest rates, not to fund govt. spending.
that is, it’a all a big ‘reserve drain’ operation, as the fed calls it.
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June 23rd, 2012 at 4:01 pm
“MMT is a dream to give the government more power. That’s all MMT wants. It’s progressive policy in a move towards a more socialist ideology.”
Okay, I get it. Your frankly odd arguments are just about trying to find some way of backing up this basic point: you dislike anything which you suspect might be a bit progressive and “socialist” because it involves trying to use government to improve things.
Why not leave out all the roundabout nonsense and just get straight to it? make some real arguments about why you think government needs to be strictly limited etc etc.
Personally I agree with you to some extent: government power does need to be limited. I see nothing in MMT which suggests otherwise.
The point is, we have this social institution called money. The question is how to use it to achieve the best economic and social outcomes.
If you have, I don’t know, some austrian school or monetarist ideas about this then why not just put them forward so a proper debate can be had, rather than all this stuff?
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Dan Kervick Reply:
June 24th, 2012 at 2:30 am
@y, I agree with Y’s point above that this debate becomes arid, and bogs down in relatively insignificant semantic wrangles about the right to use certain terms in certain ways, if it is divorced from questions about policy goals and means. The whole point, to my mind, of trying to understand “how the system actually works” is to understand what kinds of steps would or would not be successful in bringing about certain debated changes.
Also, the monetary system is an ever-evolving set of complex human institutions. The “actual system” is in constant evolutionary flux. Once upon a time, for example, open market operations were a radical and unconventional, central bank innovation and emergency operation. Then they evolved into standard operating procedure.
The main reason for trying to understand the degrees, nature and institutional details of government control of the monetary system is to be able to predict the effects of different kinds of government policy choices, and what steps would be required to implement those choices.
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FDO15 Reply:
June 24th, 2012 at 3:23 am
@Dan Kervick, The problem with MMT is that words have specific meanings and when it’s convenient MMT just goes and changes the meanings of these words or terms. Terms like horizontal, monopoly, etc all have specific meanings in economics, but MMT just abuses them to make a myth appear like reality. The few academics who have taken the time to critique MMT have been quite vocal about this. Yet you continue to do it.
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y Reply:
June 24th, 2012 at 8:30 am
Warren has explained very clearly why he says that “the monetary system is a government monopoly”. He is very aware that banks can issue credit. The two do not contradict each other.
WARREN MOSLER Reply:
June 24th, 2012 at 11:52 am
show me where I do that, thanks
Djp Reply:
June 24th, 2012 at 10:15 pm
@FDO15,
I don’t think Warren does that, but I do believe many MMT’ers do.
Just as they imply that progressive means “in favor of progress”, or that only progressives believe in science — when really they believe in rhetoric.
Tom Hickey Reply:
June 24th, 2012 at 10:51 pm
@FDO15,
FDO15, some MMT’ers (not Warren, IIRC) use the vertical-horizontal, and exogenous-endogenous distinctions differently than they have been used historically. No doubt that this can result in confusion, even though MMT’ers may be careful to define their technical use operationally. Probably clearer and less ambiguous though to stick to precedent and use govt and non-govt, and inside v. outside instead.
“Sovereign” is also ambiguous. It is applied differently to US states and the nation.
WARREN MOSLER Reply:
June 24th, 2012 at 11:58 am
yes, for me the analysis is about ‘further purpose’
like why did US term rates fall after last summer’s downgrades, while rates in spain rose with their downgrades?
seems markets price in the difference between ‘self imposed constraints’ and external constraints?
etc.
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June 23rd, 2012 at 5:25 pm
The debate drifted. I would like to reassert the following set of statements:
1. Loans and deposits are created simultaneously by commercial banks,
2. Central bank supplies reserve funds to commercial banks to defend the target overnight interest rate,
3. Bank lending is capital constrained not reserve constrained,
4. The banking system is endogenously creating/destroying spending power, allowing agents to purchase products and services before they have earned money to pay for.
The core issue in the latter debate about banking is the lack of convincing visual models of how the whole system operates.
The only macro model I found is
http://econviz.org/macroeconomic-balance-sheet-visualizer/
Here is my hint to FDO15 (and Ramanan):
0. Please have a look at this paper: http://wwwm.htwk-leipzig.de/~m6bast/rvlmoney/UH-MonCreat.pdf
1. Draw a balance sheet of 2 commercial banks
2. Add the central bank on top of it
3. Populate these balance sheets with some data.
4. Now look at the behaviour of the whole system “AT THE MARGIN” in the following cases:
a) An agent taking a loan in bank 1 and paying another agent with an account in the same bank
b) the same but when an agent with an account in bank 2 is paid
c) the person who was credited in scenario a) withdraws cash
d) the person who had cash withdrawn deposits it in the same bank
5. Consider now the probabilities of these separate scenarios and the interaction with the central bank which has to defend the interest rate by supplying / withdrawing funds acting as bank reserves and calculate the expected value of monetary flows caused by the stochastic processes described as the scenarios above.
The following example of money multiplier:
http://www.econlib.org/library/Topics/College/margins.html
ignores the role of the central bank. Lending even in the US is capital constrained but not reserve constrained. This is how students are brainwashed on Econ101 – by introducing them to banking principles circa 1750.
What I outlined above is in my opinion the correct analytical framework. Someone needs to write an illustrated textbook showing step-by-step the transition from the micro model of lending to the macro model of money circulation between different groups of agents (the circular flow of money and the equation of sectoral balances).
It is irrelevant how much of individual bank deposits is guaranteed if we look at the behaviour of the system AT THE MARGIN. How many banks have folded in the US since 2008 in such a way that individual depositors lost their money? We don’t live in the 19th century – the era of free banking and periodic bank runs. For every practical purpose we can assume that deposit money is as good as government currency.
(To all fellow “deep thinkers” concerned about restoring sanity in our debate about the economy)
To understand the nature of money one has to look at the functioning of the whole system. Philosophising about money hierarchy, taxation giving value, buffer stocks and all the similar esoteric stuff only creates more confusion. A deductive proof doesn’t add any value if axioms cannot be agreed upon. It is precisely this pseudo-axiomatic approach what made neoclassical economics a pseudo-science – trying to replicate this dodgy methodology in the name of MMT is a recipe for an utter failure. “Normal” ordinary people get bored after reading the first sentence and they don’t really care – they will go and vote for the biggest austerian in the town because he/she can convince them that “the debt has to be repaid”.
Throw this intellectual garbage away! Think like computer system analysts do – build a description/model of the system bottom-up and only then draw any conclusions.
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WARREN MOSLER Reply:
June 24th, 2012 at 10:49 am
pretty good list.
i would say the CB ‘prices’ rather then ‘supplies’ reserves.
i’ve never put forth a ‘money hierarchy’ for fiat/floating fx. to me it’s always been relevant to fixed fx in showing ‘distance’ from the object of conversion
systems need ‘driving forces.’
for the dollar it’s taxation/taxing authority
1. govt desires to provision itself with real goods and services
2. govt. imposes a tax payable in a currency only it (and/or its designated agents) can originate.
3. The tax serves to create sellers of the real goods and services govt. desires
4. Govt spends its (otherwise worthless) currency to provision itself.
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hbl Reply:
June 25th, 2012 at 12:09 pm
@Adam (ak),
“Someone needs to write an illustrated textbook showing step-by-step the transition from the micro model of lending to the macro model of money circulation between different groups of agents”
You mention the Macroeconomic Balance Sheet Visualizer above, but in case you haven’t seen them there are other tools at http://econviz.org/ including a “How Loans Create Money (Deposits)” tutorial that addresses the basic “micro” banking model. I’ve been working on the followup tutorial covering the “macro” side of things — specificaly how central banks are involved in the commercial bank lending system. It’s not done yet, and it’s unlikely to have the degree of detail that seems to be under discussion in this comments section (or in textbooks!) so of course “real” textbook versions are welcome too!
“(the circular flow of money and the equation of sectoral balances).”
The Macroeconomic Circular Flow Visualizer at the link above is a first attempt at this, though the bank lending component is not directly integrated.
“Bank lending is capital constrained not reserve constrained,”
As I understand things, this is true at the micro level but not the macro level. At the macro level, I’d say “bank loans make possible the creation of sufficient capital to satisfy capital requirements”:
Step 1: Bank issues loan. Step 2: Borrower spends deposits on goods/services, transferring deposits to someone else. Step 3: Somewhere “downstream” (transactionally), the banking system entices depositor(s) to convert deposits into bank capital (at the current price of capital). (And yes there are other ways banks can get sufficient capital too, such as retained earnings, but I’m describing the “failsafe” scenario).
Thus from an economy-wide perspective, loans precede capital in the same general way that loans precede reserves, right?
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June 23rd, 2012 at 5:32 pm
This thread has been fun to follow. But the REAL fun will be when Warren chimes in with:
“bank ‘demand’ dep are gov ‘supply’ dep”
And then everyone will move on, both sides of the debate convincing themselves that’s what they were saying all along.
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Adam (ak) Reply:
June 23rd, 2012 at 5:54 pm
@Trixie,
You are wrong at least in my case, I do not belong to any cult. I would go much further – my “loyalty propensity” is close to zero and I don’t follow any intellectual authorities. The fact that Warren often has something relevant to say doesn’t blind me at all. You can see me seeding dissent all the time.
To me most of the anarchists and libertarians are blind and naive followers of their undereducated masters.
To me intellectual dissent is the true dimension of liberty – not babbling about “evil government” or “evil capitalists” or fixing the unfixable but liberating myself from toxic memes to make room for learning the truth whatever this word may mean.
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Trixie Reply:
June 23rd, 2012 at 6:17 pm
@Adam (ak),
Understood Adam. As for me, I am only slightly biased. The only “club” I belong to is the “Bill Mitchell has Cooties” one. Because that’s the most popular one.
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Lars Reply:
June 23rd, 2012 at 10:33 pm
@Adam (ak), MMT and all its followers are cult members who worship at the altar of Mosler. And now the religion is being proven false, the church is crumbling and the worshippers are starting to panic.
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Unforgiven Reply:
June 23rd, 2012 at 11:42 pm
@Lars,
And you cap it off the way you started. An emotional rant with no basis in logic. Just like some religious whacko.
WARREN MOSLER Reply:
June 24th, 2012 at 12:06 pm
or politician…???
do politicians troll???
;)
FDO15 Reply:
June 24th, 2012 at 3:14 am
@Lars, It’s a run on the bank of MMT as its worshippers realize their god is mortal!
WARREN MOSLER Reply:
June 24th, 2012 at 11:53 am
I’ve been writing this stuff for over 20 years now and I can’t recall any of it being refudiated.
Check out the mandatory readings and let me know what you think.
Art Patten Reply:
June 24th, 2012 at 9:25 am
@Lars,
“MMT and all its followers are cult members who worship at the altar of Mosler. And now the religion is being proven false, the church is crumbling and the worshippers are starting to panic.”
You know, now that you mention it, I realize I’ve been duped this whole time. I’ve met Warren and can say without reservation he is a self-absorbed, ego-driven sociopath along the lines of Hitler, Stalin, and L Ron Hubbard. MMT is not about others, it’s all about him. All he does is take, take, take and demand ongoing tribute from the true believers. I don’t know what he’ll ultimately charge me for the many times I’ve downloaded or shared the pdf version of 7DIF, and I shudder when I consider the possibilities. Thank God I was able to escape from the compound. There are still others trapped in St. Croix and countless souls bound and shackled in cyberspace. I’m going to hold a prayer vigil for all of them, starting today. (I still have plenty of Church of the Blessed Warren Mosler brand incense to use up.)
Lars, seriously — WTF?
WARREN MOSLER Reply:
June 24th, 2012 at 11:44 am
and don’t forget to keep the weekly contributions coming!!!
;)
WARREN MOSLER Reply:
June 24th, 2012 at 12:10 pm
hope it doesn’t cut into their tithing to me…
i’ve been hoping for over 20 years now someone would find it all wrong so I could get a life…
WARREN MOSLER Reply:
June 24th, 2012 at 10:39 am
same here…
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WARREN MOSLER Reply:
June 24th, 2012 at 10:41 am
:)
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Winslow R. Reply:
June 24th, 2012 at 9:38 pm
@WARREN MOSLER, Just like to say this is the only site that hasn’t restricted my comments ( except once when I pointed out a Fed official incorporated a post into his speech). I’ve had multiple posts deleted by Jude Wanniski, Brad Delong and Mark Thoma, people I admire in various ways, for minor transgressions.
Warren has once again proven himself to be thick skinned and quite capable of withstanding someone losing it in his living room. I’d like to see a more reasoned more respectable debate from Lars and FDO15. Lars especially is bordering on being a troll.
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ESM Reply:
June 27th, 2012 at 10:26 am
@Winslow R.,
Eh. I wouldn’t exactly give Warren kudos in this regard. In general, he’s pretty reasonable, but he has at times used his power of censorship arbitrarily and clumsily (e.g. bowdlerizing comments without attribution, or eliminating comments from a thread without notice). Seems to depend upon which side of the bed he woke up on.
I imagine he would do a better job if he had a better commenting system in place.
WARREN MOSLER Reply:
June 27th, 2012 at 10:48 pm
i’m not a fan of cheap shots so I look to edit them out.
yes, a better commenting system would be nice.
June 24th, 2012 at 8:41 am
All you two have is garbled nonsense and offensive rants.
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June 24th, 2012 at 9:56 am
As a novice and interested observer it seems there are slippery words and confusion on whatever principles there are. I personally have a hard time learning MMT as it doesn’t seem to be defined in a rigorous manner. I grew up learning geometry with postulates, theorems, definitions and proofs. Defining MMT rigorously would put everyone on the same track and help discussions.
On a side note, why does the government shut down banks?
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WARREN MOSLER Reply:
June 24th, 2012 at 11:43 am
failure to comply with what are called camels standards- capital, asset quality, management, earnings, liquidity, interest rate sensitivity
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y Reply:
June 25th, 2012 at 7:12 am
Which bits don’t you understand?
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y Reply:
June 25th, 2012 at 10:18 am
Warren,
“the fed allows it’s member banks- it’s designated agents- to ‘create’ reserve balances within the regulatory framework.
This framework includes reserve requirements as well as extensive regulation on what type of loans/assets are allowed and not allowed. So if a bank creates a loan/deposit/reserves it’s done so within the regulatory framework as a agent of government.”
- When you say the fed allows its member banks to ‘create’ reserve balances, do you mean the fed allows member banks to become ‘overdrawn’? Why do you put ‘create’ in speech marks?
Could you clarify specifically what you mean in detail when you say member banks ‘create’ reserve balances?
thanks!
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WARREN MOSLER Reply:
June 25th, 2012 at 10:52 am
Bank deposits are the accounting record of the liability associated with loans.
So when a bank lends you $100 they might at the same time enter the number ’100′ into your checking account.
But the loan didn’t do the entering of the 100 into your account per se. The 100 liability is the accounting record of the loan. liabilities are accounting records off assets, etc.
When you account for something you don’t exactly ‘create’ it the way the word ‘create’ is generally understood-
making something out of something else, etc.
What I mean by allowing banks to create reserves is that regulation allows banks to make loans and corresponding deposits that it will accept for payment of taxes recognizing that they are allowing that bank to incur a reserve deficiency in the case of reserve requirements. Additionally, when the Fed ‘clears a check’ it’s allowing the possibility of the account debited to be overdrawn which is also the possibility of a loan from the Fed.
June 25th, 2012 at 10:41 am
Warren,
“Look at how much the MMR guys have done to get the word out, for example. (And I’m still not sure they actually differ from what I say?)”
Unfortunately Cullen Roche (over at the MMR site) is the one coming up with the nonsense being spouted here by FDO15.
Perhaps you should have a word with Cullen to find out why he is spreading this nonsense. Impressionable people like FDO15 are clearly getting quite confused by it.
You asked FD015 “where are you getting this stuff?” The answer is he’s getting it from Cullen Roche over at MMR.
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WARREN MOSLER Reply:
June 25th, 2012 at 10:53 am
ok, good to know thanks.
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June 26th, 2012 at 9:18 pm
Warren: “I can’t recall any of it being refudiated.”
I hope that was intentional. Lucky for you no grizzly mamas in the tropics. :)
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WARREN MOSLER Reply:
June 27th, 2012 at 10:38 pm
;)
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