Comments on: Soft Currency Economics

By: WARREN MOSLER

WARREN MOSLER — Sat, 28 Jan 2012 11:24:20 +0000

the point of the economy is consumption directly or indirectly, so the decision of the nature of the desired output to at some point consume is the driver.

the real cost of real capital is the real goods and services that go into producing the capital goods.

By: Erik V

Erik V — Sat, 28 Jan 2012 04:08:19 +0000

After reading this, there are some questions about saving and investment that come to mind.

1) Do you view a GDP composed of more investment and less consumption as a good or bad development? (I believe productivity growth comes from investment so I would have to say good.)

2) If more investment is good, what policies get us moving in that direction if increased saving may actually decrease investment?

3) Does the cost of capital matter at all in this theory for the level of investment? Don’t saving decisions, the tax code etc have an effect on the cost of debt and equity?

By: William

William — Sat, 07 Jan 2012 06:13:19 +0000

@Curious, I think this depends to what purpose the loan is put. If it is spent on productive purposes, inflation will not be a problem. But if it is spent on unproductive purposes or gambled away then I would think inflation could be a serious risk.

By: WARREN MOSLER

WARREN MOSLER — Sun, 09 Oct 2011 03:49:25 +0000

same as when the us states borrow to spend. a non issue for monetary policy

By: Luigi

Luigi — Sat, 08 Oct 2011 19:07:14 +0000

@Luigi, sorry, I haven't formulated very well my question. Deficit spending by member states, add (or shift?) reserves in the system, so they are in excess and so could potentially be a problem for the CB. ECB set the overnight like all CB, but there is a potential problem? or there is not the same relation between deficit-reserves-interest rates, typical of USA and others?

By: WARREN MOSLER

WARREN MOSLER — Sat, 08 Oct 2011 15:00:45 +0000

no, they set the overnight rate with the same tools all cb’s have

By: Luigi

Luigi — Sat, 08 Oct 2011 12:19:58 +0000

@WARREN MOSLER, Warren, deficit spending by member states in Europe, can create problem to ECB to set interest rates? I mean, excess reserves in the system that drive overnight rates below the central bank’s target etc

By: The Problem with the Deficit? It’s Not Big Enough | ValueWalk.com

The Problem with the Deficit? It’s Not Big Enough | ValueWalk.com — Wed, 05 Oct 2011 19:47:42 +0000

[...] The Federal Government is vastly different from any household, corporation, state government, and even some sovereign foreign governments, such as the European Union nations of Greece and Italy (Greece and Italy are currency users; they cannot issue their own currency.) When the U.S. Federal Government spends, it simply marks up accounts on computers–nothing more. If the amount it spends is more than the tax receipts it has collected, then the government is required to issue Treasury securities in an amount that corresponds to the deficit. Treasury securities represent nothing more than a savings account that pays interest at the Federal Reserve. For a complete overview of the U.S. Monetary System, please see this excellent, in-depth article by Warren Mosler. [...]

By: Tom Hickey

Tom Hickey — Tue, 13 Sep 2011 16:46:22 +0000

@John O'Connell, But when has that happened? All primitive societies, as far as I know, devloped hard currencies before they had formal governments. David Graeber, Debt:The First 5000 Years Book Description Publication Date: July 12, 2011 Before there was money, there was debt Every economics textbook says the same thing: Money was invented to replace onerous and complicated barter systems—to relieve ancient people from having to haul their goods to market. The problem with this version of history? There’s not a shred of evidence to support it. Here anthropologist David Graeber presents a stunning reversal of conventional wisdom. He shows that for more than 5,000 years, since the beginnings of the first agrarian empires, humans have used elaborate credit systems to buy and sell goods—that is, long before the invention of coins or cash. It is in this era, Graeber argues, that we also first encounter a society divided into debtors and creditors. Graeber shows that arguments about debt and debt forgiveness have been at the center of political debates from Italy to China, as well as sparking innumerable insurrections. He also brilliantly demonstrates that the language of the ancient works of law and religion (words like “guilt,” “sin,” and “redemption”) derive in large part from ancient debates about debt, and shape even our most basic ideas of right and wrong. We are still fighting these battles today without knowing it. Debt: The First 5,000 Years is a fascinating chronicle of this little known history—as well as how it has defined human history, and what it means for the credit crisis of the present day and the future of our economy. See also L. Randall Wray, Understanding Modern Money.

By: John O'Connell

John O'Connell — Tue, 13 Sep 2011 16:16:48 +0000

@WARREN MOSLER,

By “from inception”, do you mean that a government arises and issues fiat currency in a society that previously had no government and no currency? Like the baby-sitting co-op? I agree that in such a case the government must spend “first”, because the society had no currency at all prior to fiat.

But when has that happened? All primitive societies, as far as I know, devloped hard currencies before they had formal governments. If they transitioned to fiat currencies, they did it somewhat in the same way as the US, first issuing a convertible currency, and then eventually making it non-convertible (fiat). But when they went fiat, they already had a quite ample supply of currency in circulation, and that remained currency (money) and was accepted for tax payments.

Countries in the real world aren’t like the baby-sitting co-op, which had to issue a supply of scrip before the first baby was sat for.

I think your insistence on the use of “first” implies a time relationship that clearly does not exist, and is confusing, when applied to the activity of any single time period. It would be better for you to focus on CHANGES in money coming about only by the relationship of government spending and taxation, and allowing that taxes in one period can be paid using money that existed from prior periods (i.e., tax in April, spend in December).