There has to be some way to highlight that Congress is the culprit. The President’s reluctance to admit that the executive is at the mercy of the legislative branch is understandable, especially since the majority party in the House is made up of people who need/want to be led, but viscerally object to being led by a Democrat.
I think what we’ve got, especially in the House, is a body of people who need to be led, but want to be perceived as powerful and in charge and have a need to be punitive to feel good. Since the recent election was just barely not a disaster, they’ll feel more inclined than ever to punish the electorate. The only growth they are after is in their own influence and power.
How to explain that? It needs to be spelled out.
Good presentation. Math is on her side, although I would disagree with her statement that we’re living below our means – sure, we have a large output gap, but we also have a huge trade deficit. In the short term she is right – we need to increase our budget deficits, but in the longer term we need to reduce our trade deficit and alter the distribution of income (much more than tax changes) so that saving desires are reduced and productive investment is increased. Of course I agree with her closing statement that it’s all about real resources.
I’ve read through your trade deficit chapter in the 7DIF and I’m thoroughly confused as to what reason any country would have for exporting anything to the US, or to any country in general that it runs a big trade surplus with.. there has to be some economic gain there.
I assume at the micro level most Chinese companies, for example, would exchange the dollars they get from their exports for yuan and just spend that domestically, and so the government just ends up with all the FX reserves? Maybe some major contracts the government have can be settled in dollars, etc.
“The dynamic function of international trade is to drain domestic currency circulation from import deficit countries and transfer it to ‘foreign savings’ in the central banks of foreign nations.”
Well said. This would seem to answer some of the “why’s?” being raised here. Certain people benefit from running trade surpluses.
“That will not resolve itself automatically by ‘market forces’. It has to be actively countered by the government sector offsetting the net-savings desires of the non-government sector.”
Nice…but there are risks to this, no? I’m thinking simmering unrest and anxiety in China, for example. At some point, their domestic consumers and wage earners will demand to share in the gains of others, as seems to be happening.
“Look again at the IEP report – just over $5 billion of $25 billion in total assets are at the Fed as official foreign currency reserves (and like you said the vast majority in higher yielding treasuries).”
You haven’t understood the MMT position then. I suggest more reading.
All MMT is saying is that the *government sector* should not reward holdings of *government sector* financial assets, and that it shouldn’t be policy to worry about them per se.
There are more important things to worry about – like making sure there are enough domestic jobs.
Foreign holdings of *private* financial assets are not a concern because the bankruptcy process can eliminate those savings. They don’t really factor into the analysis.
You have to be very careful not to confuse the gross figures with the “net savings’ position with the *government sector*” MMT is analysing.
‘ It is simply silly to state that there is no imbalance and that foreign parties have simply written off their proceeds from trade surpluses.’
Never said anything about writing off proceeds. You dreamt that up.
And there is no imbalance because the books balance. That is an accounting fact.
” Have you heard of state owned Chinese companies buying up natural resource based firms around the world?”
Once more. That is a gross individual position. MMT is talking about the net aggregate position. There is a bunch of work to get from one to the other.
Follow the transaction chain through to its logical extinction – which is that sellers need ultimately local currency to pay wages and taxes.
Local currency exchanges don’t happen by magic and in an export led economy you would quickly run out of circulation, which would cause export sales to cease.
The aggregate tendency in an export led economy is for the local central bank to support their local exporters by taking sound foreign financial assets and providing local currency to satisfy demand. That is after all the function of a ‘lender of last resort’.