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> What is so Bad about the Defict?!?!, And why is everyone afraid of it?
brinn
post Nov 5 2010, 02:41 AM
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It seems that the U.S. and much of Europe has become obsessed with deficits, debt reduction and austerity. The question for debate is simple:

What do you see as the negative economic effects of persistent deficits?
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akaCG
post Jan 20 2015, 04:31 AM
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QUOTE(JohnfrmCleveland @ Jan 19 2015, 10:30 PM) *
...
... the amount of money that the government creates is small in comparison to the amount of money that banks create. ...
...

Banks don't create money. They create ... loans/credit lines/etc..

Learn the difference, please.

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JohnfrmCleveland
post Jan 20 2015, 05:32 AM
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QUOTE(akaCG @ Jan 19 2015, 11:31 PM) *
QUOTE(JohnfrmCleveland @ Jan 19 2015, 10:30 PM) *
...
... the amount of money that the government creates is small in comparison to the amount of money that banks create. ...
...

Banks don't create money. They create ... loans/credit lines/etc..

Learn the difference, please.


I've developed a better understanding of this stuff over the past couple of years. I know that, in the past, I've said pretty much the same thing that you just said. It's not completely incorrect, but I do think that the difference is not nearly as great as I used to believe. So I have refined my position.

When they create loans, banks create the same dollars as the government does. Dollars are fungible. When banks create loans, the dollars they create are real - you can spend them, and you can go to the ATM and get a bunch of government-printed banknotes with your loan proceeds. The only difference is, who holds the corresponding liability. When the government creates dollars, they keep the liability, and those dollars enter the economy free and clear. When banks create loans, the corresponding liability remains in the economy. So the government can create net dollars, while banks cannot. But bank money still counts in M1, M2, etc.

And banks really do create those loans (and those dollars) out of thin air, rather than moving around previously existing dollars. Here is a good paper on the subject:

Can banks individually create money out of nothing? — The theories and the empirical evidence


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brinn
post Jan 20 2015, 08:53 PM
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QUOTE(Gray Seal @ Jan 18 2015, 11:23 AM) *
Not seeing there is a shortage of everything is not understanding basic economics. Capital comes from savings. How much capital there is available is determined by savings.


Grey Seal,

Bank lending is NOT determined by levels of savings. Your assumption above, known in economics as "Loanable Funds Theory", is factually and demonstrably incorrect. The Bank of England, which operates a fiat currency economy very similar to the US, has recently published a paper dismissing this myth. Link provided below:

QUOTE(Bank of England)
In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood: the principal way is through commercial banks making loans. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.

The reality of how money is created today differs from the description found in some economics textbooks:
• Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits.
• In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits.


Bank of England - Quarterly Bulletin 2014 Q1 - Money Creation in the Modern Economy

All of this has been already discussed in the main body of the thread and even hardcore Austrians like Leder have already conceded that loanable funds is not how bank lending works. This is mostly why I stopped responding to this thread as I've provided hard evidence to support my positions yet others cling to intuition and gut feelings. How do you debate against gut feelings?!?!


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Ted
post Jan 21 2015, 01:02 AM
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QUOTE(JohnfrmCleveland @ Jan 19 2015, 10:30 PM) *
QUOTE(Ted @ Jan 19 2015, 10:02 PM) *
QUOTE
GS
I think I get it. Here my entire life I thought counterfeiters were bad people because they were creating money out of thin air. It was not that. It was because they were not keeping a ledger showing this as a debt. If you want to print some money up be sure to keep a ledger. Charge yourself some interest on that debt, too. Be sure to pay it back episodically. Print up some money; including enough to pay the interest. Creating magic money is not a crime if you keep the proper accounting going. The debt? Not a problem. The books are balanced.



Sure until your currency devalues or is destroyed by inflation. the saying "there is no free lunch" is perfect for MMT which promises just that.

so this is why the Dems - as usual resort to the ol standby TAX and Spend and we will hera it in the SOU address. Of course its also a 2016 election ploy but that's a detail....


Ted, the amount of money that the government creates is small in comparison to the amount of money that banks create. And banks create money based on the demand for loans, so the amount is sort of self-adjusting. The amount of money in play is fine, and it certainly isn't causing inflation.

its not the amount its the method. banks dont print money they borrow it and "sell" it at interest.

here is some reading for you.

http://azizonomics.com/2013/01/02/why-mode...overnment-debt/

QUOTE
Analyzing MMT

The main base for all of MMT of course is that a sovereign nation can always issue as much of its own currency as it wants. It has no solvency risk as long as debt is denominated in its own currency.

There are two issues already present here at this seemingly correct and normally undisputed base of MMT; and once this base is shaky, so is everything else built on top of it. As MMT itself indicates, the above is true only in a fiat currency regime that has a free floating exchange rate.

MMTers also continuously state that they are simply explaining the modern realities, not necessarily advocating this system but explaining its “operational realities”. They grant (without much sincerity) that there may be better systems, but given the current system (let’s say in the US), this is how it works, and thus this is what we should probably do.

Well the fiat system is not so fiat, and the free float is not so free-floating. Today, Canada is the closest nation to a true free floating exchange rate, becoming so in 1998 when it stopped interfering with it. The UK and others intervene much more frequently, and the US has (openly) intervened 8 times in 1995, only twice from then until 2007, and who knows how many times or to what extent since then as the worldwide financial crisis took hold, and subsequent massive Obama deficits unfolded. Though a bit dated due to these recent events, Reinhart provides a great look at how saying you are a free floating exchange rate is different than being one.

So, apparently to many countries, a true float still seems very scary, and thus caring about their exchange rate, the limitless ability to issue fiat currency that MMT believe countries have is not really there.

To make the point even stronger, one must ask, why do they (MMT people) care if a debt is denominated in its own currency or not? Whatever the exchange rate is, surely a country can print whatever amount of their own currency is needed to buy the foreign currency required to pay back the debt. Admittedly, it’s an extra step, and as the exchange rate rises, it can be an ever increasing amount of your own currency that is needed, but so what? Since a country has no solvency risk on its own currency, it has no limit on how much it produces in order to buy the foreign currency. Right?

Mosler himself writes:

MMT does point out, however, that debt denominated in a foreign currency certainly is a fiscal risk to governments, since the indebted government cannot create foreign currency. In this case the only way the government can sustainably repay its foreign debt is to ensure that its currency is continually and highly demanded by foreigners over the period that it wishes to repay the debt – an exchange rate collapse would potentially multiply the debt many times over asymptotically, making it impossible to repay.
For almost the same reasons, domestic debt is a fiscal risk as well. Or put another away, the cash that the government needs is always for some purpose, usually to buy goods and services from the real economy, or even if it is to give to a sector of the population (take welfare payments, or benefits to the elderly, etc for example), you want the people of that sector to be able to buy real goods and services with the money from the economy. If your money is not worth anything, it cannot perform that task any better than it can buy foreign currency to pay back your foreign denominated debt. You always need your currency to buy other things…otherwise it has no use as a currency, so if MMT recognizes that buying foreign capital with your currency can be an issue (if you owe too much of it), likewise buying anything else with it can be an issue as well. If you want federal workers to to be willing to work for salaries in your currency (the value of which are inescapably linked to foreign exchange rates as people need and want to import things), your currency has to be worth something.

MMT might respond to this that domestically, there will always be a demand for the currency due to taxes (which you can raise), and though this certainly has an effect, it also has its limits. No one will work at a 100% tax rate, and at any rate less than that, they will work only if that difference holds enough value to them to be worthwhile.

In any event, modern countries are currently far from truly free-floating. Besides actively intervening in foreign exchange markets, since central banks constantly intervene in other ways by creating and removing currency from the system (whether their goals are price stability, interest rates,stimulus, etc), this also naturally affects currency exchange rates.

As far as the fiatness of the modern fiat systems, MMT also glosses over some real important caveats. If one notices, MMT always talks about the “government”, or the “sovereign” issuer of currency. There is hardly ever a mention of the “Fed” or the “Treasury”, or anything more specific like that, and its imperative for their theory to hold any water.

Countries do not Simply print Money

Modern countries today to not simply “print” money, physically nor electronically as Mosler would have us believe. The Federal Reserve, which is not even an agency of the government, but rather a quasi private banking cartel, is the entity that can do much of the magic MMT touts. Creating and destroying money out of and into thin air. But the Federal Reserve is not the same as the federal government, the Treasury, nor the same as the Treasury’s account at the Federal Reserve.

As the Fed’s own page on the subject states:

No. The term “printing money” often refers to a situation in which the central bank is effectively financing the deficit of the federal government on a permanent basis by issuing large amounts of currency. This situation does not exist in the United States. Global demand for Treasury securities has remained strong, and the Treasury has been able to finance large deficits without difficulty.
And this is why the US must borrow in order to have deficits. The Treasury does not simply print money to spend, nor does the Fed directly lend to the Treasury. The Treasury must sell Treasury securities to the public in order to finance its deficits. If the public stops wanting dollars or those Treasury securities, that would be a real problem.

http://www.the-lighthouse.net/debunking-mo...nding-it-first/


QUOTE
It’s time to put the smackdown on Modern Monetary Theory (or MMT for short).

To be blunt, MMT is fatally flawed, and someone needs to address those flaws head on. (That is the conclusion of yours truly after investigating in recent months.)


http://www.mercenarytrader.com/2010/12/wee...ary-theory-mmt/


http://pragcap.com/wp-content/uploads/2014...tary-Theory.pdf

I will say it again - Its a fairy tale from people who think we can spend with no consequences. But as we know Obama has the answer and we will hear it tonight - TAX TAX TAX and SPEND.....
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brinn
post Jan 21 2015, 01:35 AM
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QUOTE(Ted @ Jan 20 2015, 08:02 PM) *
QUOTE(JohnfrmCleveland @ Jan 19 2015, 10:30 PM) *
QUOTE(Ted @ Jan 19 2015, 10:02 PM) *
QUOTE
GS
I think I get it. Here my entire life I thought counterfeiters were bad people because they were creating money out of thin air. It was not that. It was because they were not keeping a ledger showing this as a debt. If you want to print some money up be sure to keep a ledger. Charge yourself some interest on that debt, too. Be sure to pay it back episodically. Print up some money; including enough to pay the interest. Creating magic money is not a crime if you keep the proper accounting going. The debt? Not a problem. The books are balanced.



Sure until your currency devalues or is destroyed by inflation. the saying "there is no free lunch" is perfect for MMT which promises just that.

so this is why the Dems - as usual resort to the ol standby TAX and Spend and we will hera it in the SOU address. Of course its also a 2016 election ploy but that's a detail....


Ted, the amount of money that the government creates is small in comparison to the amount of money that banks create. And banks create money based on the demand for loans, so the amount is sort of self-adjusting. The amount of money in play is fine, and it certainly isn't causing inflation.

its not the amount its the method. banks dont print money they borrow it and "sell" it at interest.

here is some reading for you.

http://azizonomics.com/2013/01/02/why-mode...overnment-debt/

QUOTE
Analyzing MMT

The main base for all of MMT of course is that a sovereign nation can always issue as much of its own currency as it wants. It has no solvency risk as long as debt is denominated in its own currency.

There are two issues already present here at this seemingly correct and normally undisputed base of MMT; and once this base is shaky, so is everything else built on top of it. As MMT itself indicates, the above is true only in a fiat currency regime that has a free floating exchange rate.

MMTers also continuously state that they are simply explaining the modern realities, not necessarily advocating this system but explaining its “operational realities”. They grant (without much sincerity) that there may be better systems, but given the current system (let’s say in the US), this is how it works, and thus this is what we should probably do.

Well the fiat system is not so fiat, and the free float is not so free-floating. Today, Canada is the closest nation to a true free floating exchange rate, becoming so in 1998 when it stopped interfering with it. The UK and others intervene much more frequently, and the US has (openly) intervened 8 times in 1995, only twice from then until 2007, and who knows how many times or to what extent since then as the worldwide financial crisis took hold, and subsequent massive Obama deficits unfolded. Though a bit dated due to these recent events, Reinhart provides a great look at how saying you are a free floating exchange rate is different than being one.

So, apparently to many countries, a true float still seems very scary, and thus caring about their exchange rate, the limitless ability to issue fiat currency that MMT believe countries have is not really there.

To make the point even stronger, one must ask, why do they (MMT people) care if a debt is denominated in its own currency or not? Whatever the exchange rate is, surely a country can print whatever amount of their own currency is needed to buy the foreign currency required to pay back the debt. Admittedly, it’s an extra step, and as the exchange rate rises, it can be an ever increasing amount of your own currency that is needed, but so what? Since a country has no solvency risk on its own currency, it has no limit on how much it produces in order to buy the foreign currency. Right?

Mosler himself writes:

MMT does point out, however, that debt denominated in a foreign currency certainly is a fiscal risk to governments, since the indebted government cannot create foreign currency. In this case the only way the government can sustainably repay its foreign debt is to ensure that its currency is continually and highly demanded by foreigners over the period that it wishes to repay the debt – an exchange rate collapse would potentially multiply the debt many times over asymptotically, making it impossible to repay.
For almost the same reasons, domestic debt is a fiscal risk as well. Or put another away, the cash that the government needs is always for some purpose, usually to buy goods and services from the real economy, or even if it is to give to a sector of the population (take welfare payments, or benefits to the elderly, etc for example), you want the people of that sector to be able to buy real goods and services with the money from the economy. If your money is not worth anything, it cannot perform that task any better than it can buy foreign currency to pay back your foreign denominated debt. You always need your currency to buy other things…otherwise it has no use as a currency, so if MMT recognizes that buying foreign capital with your currency can be an issue (if you owe too much of it), likewise buying anything else with it can be an issue as well. If you want federal workers to to be willing to work for salaries in your currency (the value of which are inescapably linked to foreign exchange rates as people need and want to import things), your currency has to be worth something.

MMT might respond to this that domestically, there will always be a demand for the currency due to taxes (which you can raise), and though this certainly has an effect, it also has its limits. No one will work at a 100% tax rate, and at any rate less than that, they will work only if that difference holds enough value to them to be worthwhile.

In any event, modern countries are currently far from truly free-floating. Besides actively intervening in foreign exchange markets, since central banks constantly intervene in other ways by creating and removing currency from the system (whether their goals are price stability, interest rates,stimulus, etc), this also naturally affects currency exchange rates.

As far as the fiatness of the modern fiat systems, MMT also glosses over some real important caveats. If one notices, MMT always talks about the “government”, or the “sovereign” issuer of currency. There is hardly ever a mention of the “Fed” or the “Treasury”, or anything more specific like that, and its imperative for their theory to hold any water.

Countries do not Simply print Money

Modern countries today to not simply “print” money, physically nor electronically as Mosler would have us believe. The Federal Reserve, which is not even an agency of the government, but rather a quasi private banking cartel, is the entity that can do much of the magic MMT touts. Creating and destroying money out of and into thin air. But the Federal Reserve is not the same as the federal government, the Treasury, nor the same as the Treasury’s account at the Federal Reserve.

As the Fed’s own page on the subject states:

No. The term “printing money” often refers to a situation in which the central bank is effectively financing the deficit of the federal government on a permanent basis by issuing large amounts of currency. This situation does not exist in the United States. Global demand for Treasury securities has remained strong, and the Treasury has been able to finance large deficits without difficulty.
And this is why the US must borrow in order to have deficits. The Treasury does not simply print money to spend, nor does the Fed directly lend to the Treasury. The Treasury must sell Treasury securities to the public in order to finance its deficits. If the public stops wanting dollars or those Treasury securities, that would be a real problem.

http://www.the-lighthouse.net/debunking-mo...nding-it-first/


QUOTE
It’s time to put the smackdown on Modern Monetary Theory (or MMT for short).

To be blunt, MMT is fatally flawed, and someone needs to address those flaws head on. (That is the conclusion of yours truly after investigating in recent months.)


http://www.mercenarytrader.com/2010/12/wee...ary-theory-mmt/


http://pragcap.com/wp-content/uploads/2014...tary-Theory.pdf

I will say it again - Its a fairy tale from people who think we can spend with no consequences. But as we know Obama has the answer and we will hear it tonight - TAX TAX TAX and SPEND.....


Ted,

You really should be more discerning in the links that your scattershot googling produces. Cullen Roche is an ex-MMTer who essentially has some slight disagreements regarding policy choices that some MMTers advocate. This from your link...

QUOTE(Cullen Roche)
Neochartalism, also known as Modern Monetary Theory (MMT) is an interesting and relatively new arm of Post-Keynesian Economics (PKE) that has developed in recent decades and has become quite popular in the last few years largely on the internet. As an arm of PKE there is much that is correct within MMT, but there are also some newer contributions made by the “neochartalists” that render the theory flawed and inapplicable to the modern monetary system. Although I find that MMT is incomplete, it is important to note that their description of the monetary system is, in my view, superior to the neoclassical models that tend to dominate modern economic discourse. I hope this critique will be viewed as a constructive criticism and not an attack on MMT.


If you can't even be bothered to understand the content of your own so-called, rebuttals; rebuttals that quite ironically support the economic concepts that I've been talking about for 100+ pages, than I can see why you won't take the time to understand anything I've been saying here.


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JohnfrmCleveland
post Jan 21 2015, 02:05 AM
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QUOTE(Ted @ Jan 20 2015, 08:02 PM) *
here is some reading for you.


Sorry, Ted. You don't get to crib off somebody else's work, then raise your hand in class. I'd be willing to bet that you didn't read all of those articles, let alone understand their points. I've already done my reading. Now it's your turn.

Understand their arguments and put them in your own words, and I'll answer them. And there is an answer for any of their criticisms.
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Ted
post Jan 21 2015, 03:22 AM
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QUOTE(JohnfrmCleveland @ Jan 20 2015, 09:05 PM) *
QUOTE(Ted @ Jan 20 2015, 08:02 PM) *
here is some reading for you.


Sorry, Ted. You don't get to crib off somebody else's work, then raise your hand in class. I'd be willing to bet that you didn't read all of those articles, let alone understand their points. I've already done my reading. Now it's your turn.

Understand their arguments and put them in your own words, and I'll answer them. And there is an answer for any of their criticisms.

actually I read more than 1/2 - did you. Of course not

I go back to basics and reality despite all the other flaws - tell me you could limit the Congress if deficits had no meaning to stop spending - LOL laugh.gif - last year the Treasury collected more taxes than EVER and we are still spending more and your buddy wants to raise taxes AGAIN...LOL

and tell me who defines "full employment" and what country would match its currency to the $$ if we started just printing em up...

there is a reason JC , that no central bank or solvent government does this MMT wet dream

This post has been edited by Ted: Jan 21 2015, 03:23 AM
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JohnfrmCleveland
post Jan 21 2015, 03:30 AM
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QUOTE(Ted @ Jan 20 2015, 10:22 PM) *
QUOTE(JohnfrmCleveland @ Jan 20 2015, 09:05 PM) *
QUOTE(Ted @ Jan 20 2015, 08:02 PM) *
here is some reading for you.


Sorry, Ted. You don't get to crib off somebody else's work, then raise your hand in class. I'd be willing to bet that you didn't read all of those articles, let alone understand their points. I've already done my reading. Now it's your turn.

Understand their arguments and put them in your own words, and I'll answer them. And there is an answer for any of their criticisms.

actually I read more than 1/2 - did you. Of course not



I have read Aziz' critiques long ago, and I have read a lot of Cullen's articles, which said the same things. The second guy was just an idiot who doesn't understand MMT any better than you do.

Put their arguments in your own words - meaning, demonstrate that you understand where they are coming from, instead of just parroting what you hear - and I will respond. The thing is, Ted, that you have been doing and saying the same things for four years on this thread, and you don't listen to the responses. Responding to that kind of opposition is a huge waste of time, and I'm not going to waste more time until I see that you have bothered to learn this stuff.
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akaCG
post Jan 21 2015, 03:32 AM
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QUOTE(brinn @ Jan 20 2015, 08:35 PM) *
...
... Cullen Roche is an ex-MMTer who essentially has some slight disagreements regarding policy choices that some MMTers advocate. ...
...

From the Roche paper in question (just two paragraphs below the 1 paragraph "Introduction" section that you quoted in your reply to "Ted"; bolding and coloring mine):
QUOTE
...
To understand why MMT does not currently apply to the modern monetary system in the USA it is best to understand how they design a government centric view of the money system in
much the same way that all other neoclassical economists do. In this paper, I will show how MMT designs a reserve centric or state centric view of the money system when the reality is that we have an almost purely endogenous or private bank controlled money system. The following figure will help in summarizing the following argument and understanding why MMT’s foundation is fundamentally flawed and inapplicable to the modern monetary system.
...

The page that immediately follows the above paragraph, and which is comprised of a table with two columns ("The MMT Monetary System" and "The Actual Monetary System") running in a point-by-point-comparison fashion, is also well worth a looksee.

"[S]ome slight disagreements regarding policy choices" is (to use a polite term) inaccurate as a description of the degree/nature of Mr. Roche's criticism(s) of MMT.

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JohnfrmCleveland
post Jan 21 2015, 04:45 AM
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QUOTE(akaCG @ Jan 20 2015, 10:32 PM) *
QUOTE(brinn @ Jan 20 2015, 08:35 PM) *
...
... Cullen Roche is an ex-MMTer who essentially has some slight disagreements regarding policy choices that some MMTers advocate. ...
...


"[S]ome slight disagreements regarding policy choices" is (to use a polite term) inaccurate as a description of the degree/nature of Mr. Roche's criticism(s) of MMT.


Cullen had a bit of a falling out (online fight) with the Big Guys of MMT a few years back. As he already had a pretty big online presence, he formed his own sect, took some compatriots into his camp, and set about trying to distinguish his "new" system (MMR) from MMT. In doing so, he took some liberties when defining MMT. Like anybody trying to draw distinctions, he exaggerated his opponents' positions. If you asked him, he would eventually admit that nothing the MMT camp is saying is incorrect - his MMR is based on it, after all. He just puts his emphasis on horizontal money, which is no surprise, because that's his field. Anyway, that's probably only interesting to MMT/MMR guys.

Looking at his list of complaints, some of them are outright mischaracterizations, and some are merely matters of perspective. Horizontal money, for instance, is recognized as money. Whether or not the Fed is part of the government - always open to interpretation, but it doesn't really say anything about MMT. Private purpose v. public purpose, etc. Brinn was right, these are quibbles.
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brinn
post Jan 21 2015, 12:29 PM
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QUOTE(akaCG @ Jan 20 2015, 10:32 PM) *
QUOTE(brinn @ Jan 20 2015, 08:35 PM) *
...
... Cullen Roche is an ex-MMTer who essentially has some slight disagreements regarding policy choices that some MMTers advocate. ...
...

From the Roche paper in question (just two paragraphs below the 1 paragraph "Introduction" section that you quoted in your reply to "Ted"; bolding and coloring mine):
QUOTE
...
To understand why MMT does not currently apply to the modern monetary system in the USA it is best to understand how they design a government centric view of the money system in
much the same way that all other neoclassical economists do. In this paper, I will show how MMT designs a reserve centric or state centric view of the money system when the reality is that we have an almost purely endogenous or private bank controlled money system. The following figure will help in summarizing the following argument and understanding why MMT’s foundation is fundamentally flawed and inapplicable to the modern monetary system.
...

The page that immediately follows the above paragraph, and which is comprised of a table with two columns ("The MMT Monetary System" and "The Actual Monetary System") running in a point-by-point-comparison fashion, is also well worth a looksee.

"[S]ome slight disagreements regarding policy choices" is (to use a polite term) inaccurate as a description of the degree/nature of Mr. Roche's criticism(s) of MMT.


I read Roche's Blog "Pragmatic Capitalism" nearly every day. I'm very familiar with his views. His views, known as Monetary Realism or MR can be basically summarized as MMT with a focus on current institutional limitations. He understands how a fiat economy functions but he chooses to focus how the current institutional arrangements in the US limit policy choices i.e. the US is currently required by law to issue bonds to cover deficit spending.

From Cullen's SSRN paper entitled Understanding the Modern Monetary System

QUOTE
Monetary Realism is based on the following principles:
• The primary role of “money” is to serve as a means of payment. Money can take many forms, but in the modern money system the final means of payment comes
primarily from within the private banking system in the form of bank deposits. In other words, the dominant form of money in the modern monetary system is issued
almost entirely by the private banking system.

• The monetary system exists primarily for private purpose in order to create a system for efficient exchange of goods and services. The private sector plays the lead role in helping to advance the well-being of the society in which money is used.

• In many market based systems such as the USA, the money supply is essentially privatized and controlled by private banks that compete to create loans which create
deposits (money). Contrary to popular opinion, governments in such a system do not directly control the money supply or create most of the money.

• The public sector (the government) plays a facilitating role in helping to regulate and manage the infrastructure within which the money system operates. If properly
utilized the government can be an extremely powerful tool in helping to stabilize and create efficiencies within the money system.

• The Federal Reserve (the central bank in the USA) and the government have a symbiotic relationship and together are issuers of the currency to the monetary
system. Currency, or what MR refers to as “outside money” (because it comes from outside the private sector), accounts for bank reserves, cash notes and coins. In
addition to the Fed, who issues bank reserves, the US Treasury is the other issuer of outside money in the form of cash and coins. Households, businesses and state
governments are users of public sector supplied currency and also private bank issued monies (i.e. bank deposits or inside money because it comes from inside the
private sector).

• The private banking sector issues bank deposits (“inside money”) and the public sector issues coins, paper cash and bank reserves (“outside money”). Nowadays most
means of payment involving private agents are transacted in bank deposits and, as such, the ins and outs of “inside money” are vital to understanding how the modern
monetary system functions. While the private sector component of the monetary system takes center stage in the daily business of market exchanges and economic
progress, the public sector also plays an important role.

• As the issuer of currency, the government has no solvency constraint as there might be for a household or business. In this regard, one must be careful comparing the federal government to a household because the federal government has no solvency constraint (i.e., there’s no such thing as the federal government “running out of
money” as it can always call on the banks and the Federal Reserve to serve as agents of the government to create money for its own spending needs). Households, on the other hand, have a very real solvency constraint as they can quite literally “run out of money”.


• The federal government’s true constraint is never solvency, but inflation. The government must manage its policies so as to avoid imposing undue harm on the
populace via mismanagement of the money supply or via inefficient use of government taxing/spending.


• Government serves as a facilitating feature within the monetary system. While government assists in the economic process it is ultimately the private sector that is
the primary driver of innovation, productivity and economic growth. It is the private sector that primarily propels increases in living standards with its activities being the
most important factor in giving value and viability to fiat money. But it is helpful to view government as a tool available for public purpose where appropriate.

• Money can serve many purposes, but is most commonly used as a means of payment and a record of account. There are many different instruments and items that can
serve as “money-like” things within a monetary system, but the dominant form of money in most modern money systems are bank deposits since they are the most
common form of money for means of payment. Understanding the “scale of moneyness” (discussed later) is crucial in understanding this important point.

• Because the money supply is mostly privatized and is created by banks in the form of loans (debt) it is crucial to understand the central role that banking plays in the
money system and how the stability of the private banking system is central to achieving economic stability and prosperity.


Do you agree with Roche's arguments akaCG, or do you feel that merely contradicting something I've stated is sufficient rebuttal? Do you want to engage the arguments on a deeper level or are you satisfied pointing out minor technical inconsistencies? If you're merely here to oppose for the sake of opposition than why not just critique my spelling and grammar?
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Gray Seal
post Jan 21 2015, 05:32 PM
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QUOTE(Gray Seal)
Not seeing there is a shortage of everything is not understanding basic economics. Capital comes from savings. How much capital there is available is determined by savings.
QUOTE(brinn)
Bank lending is NOT determined by levels of savings. Your assumption above, known in economics as "Loanable Funds Theory", is factually and demonstrably incorrect.

All of this has been already discussed in the main body of the thread and even hardcore Austrians like Leder have already conceded that loanable funds is not how bank lending works. This is mostly why I stopped responding to this thread as I've provided hard evidence to support my positions yet others cling to intuition and gut feelings. How do you debate against gut feelings?!?!

I was not clear with my statements. Those statements without a framework can be interpreted multiple ways. My statements were on how economics should be functioning. You are correct that economics is not functioning very well presently. It is not even a position but a fact that banks are operating this way. Banks, as well as governments, are creating magic money. It is a poor system prone to creating inequities in wealth while destabilizing markets. The function of money is damaged with the creation of magic money which hinders the use of money in markets. Magic money is unfair and dishonorable.

With MMT there is no shortage of money. It demonstrates that current worldwide monetary policies violate a basic need for fair and sensible money. Static money supplies allow money to function well as a conveyor of value and retaining value in an convenient way.
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akaCG
post Jan 22 2015, 12:45 AM
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QUOTE(brinn @ Jan 21 2015, 07:29 AM) *
...
Do you agree with Roche's arguments akaCG, ...
...

I agree with Mr. Roche's assessment that "MMT’s foundation is fundamentally flawed and inapplicable to the modern monetary system."

Furthermore, I agree with the following description of the MMT school of thought and its adherents that he provides on his "Cheat Sheet for Understanding the Different Schools of Economics" page (bolding and italics in the original; bracketed comment mine):
QUOTE
...
Mission Statement – There is no economic problem that fiscal policy can’t solve.
...
General view of the economy – Capitalism is naturally flawed and can only operate at full capacity if the government is used to permanently fill any demand shortages that exist.
...
What they love – Job guarantees and telling you how little you know about economics.

What they hate – That the mainstream won’t take them seriously.
...
Political Associations – Liberals, extremist liberals and socialists. [e.g. Sen. Bernie Sanders]

Preferred form of communication – Aggressive and very active commenting on any blog comment section usually reminding the author that they “just don’t understand MMT” or the economy.

...

Link: http://pragcap.com/a-cheat-sheet-for-under...ls-of-economics

ps:
Earlier, "JfC" referred to Cullen Roche as having "formed his own sect". That reminded me of this Monty Python bit: https://www.youtube.com/watch?v=gb_qHP7VaZE

ps2:
To be fair, the "Austrians" have had quite a bit of that sort of thing going on as well, what with the squabbles between the Hayek and Mises "sects".

ps3:
All of which reminded me of an old joke:

I was walking across a bridge one day, and I saw a man standing on the edge, about to jump off. So I ran over and said, "Stop! Don't do it!"
He said, "Why shouldn't I?"
I said, "Well, there's so much to live for!"
He said, "Like what?"
I said, "Well, are you religious or atheist?"
He said, "Religious."
I said, "Me too! Are your Christian or Buddhist?"
He said, "Christian."
I said, "Me too! Are you Catholic or Protestant?"
He said, "Protestant."
I said, "Me too! Are your Episcopalian or Baptist?
He said, "Baptist!"
I said, "Wow! Me too! Are your Baptist Church of God or Baptist Church of the Lord?
He said, Baptist Church of God!"
I said, "Me too! Are your Original Baptist Church of God or are you Reformed Baptist Church of God?"
He said, "Reformed Baptist Church of God!"
I said, "Me too! Are you Reformed Baptist Church of God, Reformation of 1879, or Reformed Baptist Church of God, Reformation of 1915?"
He said, "Reformed Baptist Church of God, Reformation of 1915!"
I said, "Die, heretic scum!" and pushed him off.


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Ted
post Jan 23 2015, 02:44 AM
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Yes the problem with MMT in general and probably the reason liberals like it is its an economic model where the "government" pulls all the levers and is even LOL w00t.gif the Employer of last resort>>..........REALLY the Government????!!!

and when you start to ask MMT folks "how it would actually work and be managed" they all run back to their formulas and talk more about what is the definition of "savings" is.....

as above this economy is driven by the Private Sector and not government.

and after 6 years we have seen
government" with 4 TRILLION $$$ and 5 years just start to get us passed this recession they made...

so anyone who thinks this "theory" will work - please tell me exactly how - so I can laugh... whistling.gif

This post has been edited by Ted: Jan 23 2015, 02:45 AM
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Hobbes
post Jan 25 2015, 09:18 PM
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QUOTE(brinn @ Jan 21 2015, 07:29 AM) *
I read Roche's Blog "Pragmatic Capitalism" nearly every day. I'm very familiar with his views. His views, known as Monetary Realism or MR can be basically summarized as MMT with a focus on current institutional limitations. He understands how a fiat economy functions but he chooses to focus how the current institutional arrangements in the US limit policy choices i.e. the US is currently required by law to issue bonds to cover deficit spending.


Thanks, Brinn. This summarizes my point on MMT. I do think it poses an issue in actually applying MMT in today's environment, but am open to discussion on that (which JfC initiated above). It does seem to pose a limitation that is very relevant.

From Cullen's SSRN paper entitled Understanding the Modern Monetary System

QUOTE
Monetary Realism is based on the following principles: ....


Brinn (and JfC) do you disagree with those principles? I gather, John, that your stance would be that they aren't inherently different than MMT?
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JohnfrmCleveland
post Jan 26 2015, 01:37 AM
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QUOTE(Hobbes @ Jan 25 2015, 04:18 PM) *
QUOTE(brinn @ Jan 21 2015, 07:29 AM) *
I read Roche's Blog "Pragmatic Capitalism" nearly every day. I'm very familiar with his views. His views, known as Monetary Realism or MR can be basically summarized as MMT with a focus on current institutional limitations. He understands how a fiat economy functions but he chooses to focus how the current institutional arrangements in the US limit policy choices i.e. the US is currently required by law to issue bonds to cover deficit spending.


Thanks, Brinn. This summarizes my point on MMT. I do think it poses an issue in actually applying MMT in today's environment, but am open to discussion on that (which JfC initiated above). It does seem to pose a limitation that is very relevant.

From Cullen's SSRN paper entitled Understanding the Modern Monetary System

QUOTE
Monetary Realism is based on the following principles: ....


Brinn (and JfC) do you disagree with those principles? I gather, John, that your stance would be that they aren't inherently different than MMT?


That would indeed be my stance, Hobbes. Cullen just focuses on the economy, while the guys he has a beef with (I really think it's more personal than substantial) focus on public policy (unemployment, the job guarantee, etc.). But MMR is certainly not incompatible with MMT. It's the same thing, really, but maybe without the policies applied.

What, exactly, is the institutional limitation(s) that you think is relevant?
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Hobbes
post Jan 27 2015, 01:23 PM
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QUOTE(JohnfrmCleveland @ Jan 25 2015, 08:37 PM) *
That would indeed be my stance, Hobbes. Cullen just focuses on the economy, while the guys he has a beef with (I really think it's more personal than substantial) focus on public policy (unemployment, the job guarantee, etc.). But MMR is certainly not incompatible with MMT. It's the same thing, really, but maybe without the policies applied.

What, exactly, is the institutional limitation(s) that you think is relevant?


The one Brinn mentioned, which you and I have been discussing: " He understands how a fiat economy functions but he chooses to focus how the current institutional arrangements in the US limit policy choices i.e. the US is currently required by law to issue bonds to cover deficit spending"


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JohnfrmCleveland
post Jan 27 2015, 08:25 PM
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QUOTE(Hobbes @ Jan 27 2015, 08:23 AM) *
QUOTE(JohnfrmCleveland @ Jan 25 2015, 08:37 PM) *
That would indeed be my stance, Hobbes. Cullen just focuses on the economy, while the guys he has a beef with (I really think it's more personal than substantial) focus on public policy (unemployment, the job guarantee, etc.). But MMR is certainly not incompatible with MMT. It's the same thing, really, but maybe without the policies applied.

What, exactly, is the institutional limitation(s) that you think is relevant?


The one Brinn mentioned, which you and I have been discussing: " He understands how a fiat economy functions but he chooses to focus how the current institutional arrangements in the US limit policy choices i.e. the US is currently required by law to issue bonds to cover deficit spending"


Well, our use of bonds hasn't been terribly limiting. The real policy benefit of foregoing bonds would simply be to keep people from wetting their pants about the "national debt," and how we are ever going to climb out of that hole. Bonds aren't a problem. Our policy choices are mostly limited by politics - people don't understand, but they still vote, so you have to cater to them, even if they are ignorant of the facts.
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