Category Archives: MMT
Federal Reserve Interest Rates Should Be Near Zero Forever
Federal Reserve Interest Rates Should Be Near Zero Forever
By Warren Mosler
Kfw story from bill mitchell
The fiscal role of the KfW
By Bill Mitchell
New Economic Perspectives on the Government Budget, Deficits, and the National Debt – YouTube
Hussman view of equity valuation
What’s new here is somehow Hussman has picked on the idea that corporate profits fall as the federal deficit falls. He stops short of suggesting we need a higher federal deficit, of course.
After all his endless inane out of paradigm raving against federal deficits it might take him a few months to reverse course. ;)
Nor does he mention the well known Levy Profit Equation from maybe 75 years ago that shows same, or Wynne Godley’s work or any of the MMT sources that he no doubt perused regarding sector balances.
An Open Letter to the FOMC: Recognizing the Valuation Bubble In Equities
By John Hussman
Comments on Baker/Bernstein book
Seems there’s new full court press on for full employment by the headline left. And they lifted it directly out of what I’ve been posting and publishing at least since ‘Soft Currency Economics’ written in 1993, with editorial assistance by Art Laffer and Mark McNary. And even earlier Professor Bill Mitchell had been independently writing about and urging what he then called buffer stock employment, which he has continued to promote on his widely read blog as the Job Guarantee. In fact, throughout the later 1990’s we co authored and published numerous times on exactly this topic.
In 1996 with the urging and intellectual support of Professor Paul Davidson, I wrote ‘Full Employment and Price Stability’ that was published in the Journal of Post Keynesian Economics and gives a full outline of the current Baker/Bernstein proposal in full detail, including the debits and credits at the Fed that support it. And, at the same time, a supporting math model was published by Professor Pavlina Tcherneva.
In 1998 Professor Randall Wray, a student of Hyman Minsky and one of our original ‘MMT family’, published ‘Understanding Modern Money’ which again outlined the same proposal, which he called ‘the employer of last resort’ (ELR), a term believed to be first used by Professor Minsky.
In 2010, I published ‘The 7 Deadly Innocent Frauds of Economic Policy’ that again promotes an employed labor buffer stock policy, vs today’s policy of using an unemployed labor buffer stock. By that time I had begun framing it as a ‘transition job’ policy, to facilitate the transition from unemployment to private sector employment, recognizing that employers prefer to hire people already working. And directly to the point of this post, a few years ago I met with Dean Baker for at least two hours in his office, after he had read my book, discussing the fine points of the various proposals. Not to mention the continuous stream of research and publications on full employment and the transition job concept by UMKC Professors Mat Forstater and Stephanie Kelton, Professor Scott Fullwiler, and all the UMCK PhD alumni now teaching and publishing globally. Additionally, Professor Jan Kregel published a similar proposal for the euro zone.
I apologize in advance to everyone I’ve inadvertently omitted who have also worked to advance this proposal over the last 20 years.
So with this context please note the following from the new Baker/Bernstein book:
Page 73:
” The second policy idea is to launch a system of publicly funded jobs that can ramp up and down, expand and contract, as needed, in tandem with the business cycle. Under such a system the federal government, working through local intermediaries, would supply funds to subsidize hiring in the private sector as well as in important community services like education, child care, and recreation.”
Page 81:
“Thus, a transitional jobs program, which could offer extra services to hard to employ populations or simply provide a temporary public or subsidized private job to a long term unemployed person, would be a useful component of a strategy of publicly funded jobs. For the long term unemployed, it will be easier to find a permanent job if theyve already got a temporary one”
The promotional page can be found here.
The full book can be found here.
But don’t bother to read the text. It’s highly flawed and ‘out of paradigm’ throughout, and wouldn’t get anywhere near a passing grade in any UMKC classroom.
The only interesting part and the point of this post is the shameless lack of any attribution whatsoever to any of the above mentioned MMT economists for ideas and language ‘copied and pasted’, so to speak.
I recall the critical outcry when MLK was found out to have plagiarized some paper when he was in school and suspect in this case we’ll see the old double standard at work leaving this stone unturned.
Bulgaria Itinerary
Bulgaria fyi
AMI report
AMI keeps hitting new lows:
Prof. Joseph Huber from Martin Luther University in Germany gave an outstanding presentation of the New Currency Theory (NCT) which supports monetary reform, and compared this with his analysis of Modern Money Theory (MMT). Professor Huber found that MMT reflects banking doctrine much more than currency teachings, and concluded that to be supportive of monetary reform, any economic theory must break off the shackles of banking doctrine and adopt the new currency teachings for monetary sovereignty.
One of the highlights of the conference was at the gala dinner when Professor Huber was presented with the AMI Advancement of Monetary Science Award for his work. Professor Huber showed his modesty by being genuinely surprised to be given such an award, even though it is thoroughly deserved. Dr. Michael Kumhof and Prof. Kaoru Yamaguchi are the only other persons who have previously received this award.
Turkey’s Babacan Warns Of Financial Turmoil
Turkey’s Babacan Warns Of Financial TurmoilBy Yasemin Congar
August 27 (Al Monitor) — Emerging markets will soon find themselves operating in a new world order. Few people are as painfully aware of this as Turkey’s Deputy Premier Ali Babacan.
A soft-spoken politician whose key positions in three successive Justice and Development Party (AKP) governments included a two-year stint as foreign minister, Babacan is currently the highest-ranking cabinet member responsible for the economy.
Needless to say, he was all ears when US Federal Reserve Chairman Ben Bernanke suggested on May 22 before the US Congress that it could begin to downsize its $85 billion-per-month bond-buying program.
Babacan had seen that coming. He warned Turkey repeatedly against overspending in 2012 — even at the risk of displeasing Prime Minister Recep Tayyip Erdogan — because he knew cheap loans would soon grow scarce.
Loans in lira are at whatever the CB wants them to be.
Indeed, the United States is getting ready to curtail the stimulus that has injected cash into emerging markets for the last four years.
QE isn’t about cash going anywhere, including not going to EM.
What they got was portfolio shifting that caused indifference rates to change.
Stocks plummeted at the news and national currencies fell against the dollar, with India, Brazil and Turkey all registering substantial losses.
Again, portfolio shifts reversing causing indifference levels to reverse.
Still, answering questions on live television on May 23, Babacan was as cool-headed as ever. First, he reminded the viewers that the European Central Bank and Bank of Japan would follow suit, thus making the impact of the Fed’s exit even stronger on Turkey. Then he said, “If they carry out these operations in an orderly and coordinated fashion, we will ride it out.”
Hope so. They need to focus on domestic full employment.
As Babacan would surely have known, that is a big if. Despite a recent call for coordination by the International Monetary Fund’s managing director, Christine Lagarde, sell-offs in emerging markets do not seem to be a major concern for the architects of the taper plan.
“We only have a mandate to concern ourselves with the interest of the United States,” Dennis Lockhart, president of the Atlanta Fed, told Bloomberg TV. “Other countries simply have to take that as a reality and adjust to us if that’s something important for their economies.”
In fact, adjustment is not a question of choice here. Emerging economies will have to find a way to continue funding growth and paying off debt without the liquidity infusion. It won’t be easy.
Can’t be easier. Lira liquidity for their banking system is always infinite.
It’s just a matter of the CB pricing it. I’d suggest a Japan like 0% policy and a fiscal deficit large enough to allow for full employment.
The looming exodus of cash and higher borrowing costs have already caused permanent damage in Turkey. The lira weakened dramatically on Aug. 23, with the dollar surpassing two liras for the first time in history.
That was not what caused the decline.
The decline was from portfolio managers changing their indifference levels between the lira and the dollar or euro, for example.
Turkey’s Central Bank dipped into its reserves, but a $350 million sale of foreign exchange reserves failed to calm the market.
A mistake. No reason to buy their own currency with $ reserves, which should only be used for ’emergency imports’, such as during wartime. All the intervention did was support monied interests shifting portfolios.
Babacan, for his part, has been referring to Bernanke’s May 22 speech as a turning point. The global economic crisis has entered a new phase since that day, he said. “We’ll all see the spillover effects and new faces of the crisis in the coming months.”
What they will mostly see is the effects of their policy responses if they keep doing what they’ve been doing.
He did not stop there. In his signature straight-shooting manner, he also signaled a downward revision. “It should not be surprising for Turkey to revise its growth rate below 4%. … We set our annual exports target at $158 million, but it looks difficult to reach this target as well.”
Which opens the door for a tax cut/spending increase/fiscal adjustment to sustain output and employment.
A politician who seldom walks and talks like a politician, Babacan has been a maverick of sorts in the government. He entered politics in 2001 when he joined Erdogan and others to found the AKP. At the time, he was a 34-year-old with a degree from the Kellogg School of Management and work experience as a financial consultant in Chicago. In 2002, he was appointed the state minister for economy and became the youngest member of the cabinet.
Today, Babacan still has the boyish looks that earned him the nickname “baby face,” and he still exhibits a distaste for populism.
Guess he doesn’t support high levels of employment. In that case they are doing the right thing.
The most significant feature of Turkey’s recent economic success is fiscal discipline, and no one in the government has been a stronger supporter of that than Babacan.
Yikes! Kellogg school turns out flakes… :(
Around this time last year, when a fellow cabinet member, Economy Minister Zafer Caglayan — equally hardworking, yet keener on instant gratification — criticized the Central Bank’s tight monetary policy, Babacan slammed him.
“We do not have the luxury of pressing the brakes,” Caglayan had said. Babacan’s response: “In foggy weather, the driver should not listen to those telling him to press the gas pedal.”
The weather is clear, the driver is blind.
In what came to be known as the “gas-break dispute,” Erdogan threw his weight behind Caglayan and criticized the statutorily independent Central Bank for keeping interest rates too high.
Agreed!
Last week, the Central Bank hiked its overnight lending rate for the second month in a row by 50 basis points to 7.75%. Erdogan and Caglayan watched quietly this time, hoping the raise would help prevent the lira from sliding further. It did not.
Of course not. It makes it weaker via the govt spewing out more in lira interest payments to the economy.
As Babacan’s proverbial fog is slowly lifting to reveal a slippery slope, I can’t help but wonder if he feels vindicated by the turn of events. Probably not, since the risk that awaits Turkey now is worse than a taper tantrum, and Babacan must know just how bad it can get.
The Fed’s decision exposed Turkey’s vulnerability.
Yes, ignorance.
Described by economist Erinc Yeldan as “a gradually deflating balloon, subject to erratic and irregular whims of the markets,” Turkey’s speculative growth over the last four years has been financed by running a large current account deficit, which in turn was funded with hot money that is no longer readily available.
Nonsensical doubletalk.
As Standard Bank analyst Timothy Ash pointed out last week, “It is a bit hard to recommend [buying the lira or entering] bond positions while inflation remains elevated, and the current account is still supersized at $55-60 billion, with that huge external financing requirement.”
Or, it’s hard selling the dollar or euro with their intense deflationary/contractionary policies…
Estimated at $205 billion, or a quarter of Turkey’s gross domestic product (GDP), the external financing requirement is huge, indeed.
There is no such thing.
“A more extreme measure of vulnerability would add the $140 billion of foreign-held bonds and shares,” Hugo Dixon wrote in his Reuters blog. “If this tries to flee, the lira could plunge.”
Huh???
Babacan admits that “Turkey might feel the negative effects of the Fed’s policy shift a bit higher than others … due to our already higher current account deficit.”
Turkey’s reliance on hot money to turn over its short-term external debt, which has been increasing more rapidly than the national income, is only the tip of the iceberg. What makes Turkey’s robust growth rates of 9% in 2010 and 8.5% in 2011 unrepeatable might be the disappearance of cheap loans. However, the real reason behind the unsustainability of such growth is structural.
Growth can be readily sustained with lira budget deficits and a 0 rate policy would help with price stability as well.
From insufficient capital accumulation and a low savings ratio to poor labor efficiency, the Turkish economy suffers chronic ills that can only be cured through radical reforms, including a major overhaul of the education system.
Education is good, but unemployment is the evidence the deficit is too small.
Again, Babacan knows it. Earlier this year, he commented on the government’s plan to increase the GDP per capita to $25,000 in 2023 by pointing out an anomaly:
“No other country in the world with an average education of only 6.5 years has a per capita income of $10,500. And no country with such an education level ever had an average income of $25,000. Without solving our education problem, our 2023 targets will remain a dream.”
Some say ignorance is bliss. Listening to Babacan makes me think they may be right. After 11 years, being part of a government that failed to do what you know should have been done cannot be much fun.