This is Modern Monetary Theory:
http://www.nakedcapitalism.com/2012/03/bill-black-re-occupy-greece.html
http://krugman.blogs.nytimes.com/?s=MMT
Take the second one.
MMT
1-15 of 15 Results
Academic Debate, Real Consequences (Wonkish)
Zero lower bound debates meet harsh reality.
MMT, Again
Still wrong.
Franc Thoughts on Long-Run Fiscal Issues
Yes, there are limits. No, they’re not relevant right now.
Algorithms
The Al Gore problem isn’t about Al Gore.
What Are Taxes For?
Hint: they’re to pay for stuff.
A Further Note On Deficits and the Printing Press
Capital market access matters.
Another Kind of Financial Fragility
Ego trumps money.
The Sorrow And The Self-Pity
A distressing press conference.
The Oil Spill Is Obama’s Fault
What the talk-show hosts will be saying soon.
Trying to Cure What Ailes Us
Roger and me.
Limbaugh to Times reporter: drop dead
Always good to remember what we’re dealing with.
Hey, Mister Postman
Why has the Post Office become a byword for “something bad”?
Speechless
Bill O’Reilly explaining that of course America has lower life expectancy than Canada — we have 10 times as many people, so we have 10 times as many deaths. I need a drink.
Why PFFS may go pfft
Are private fee-for-service plans under Medicare Advantage really that bad? Yes. Good explanation of what really went down in the Senate here. Consider this an open thread for today’s column. Update: I’m seeing a number of comments to the effect that Ted Kennedy is getting private-sector healthcare, and is therefore a hypocrite — I suspect [...]
Signs of desperation
This represents a level of misunderstanding that has to be deliberate: Enough already. Nobody believes Reagan is a bigot. That is, of course, not the question. Reagan’s personal attitude is of no consequence. The question is whether he deliberately appealed to bigots, as a political tactic. And he did.
MMT, Again
In a way, I really should not spend time debating the Modern Monetary Theory guys. They’re on my side in current policy debates, and it’s unlikely that they’ll ever have the kind of real — and really bad — influence that the Austrians have lately acquired. But I really don’t feel like getting right back to textbook revision, so here’s another shot.
First of all, yes, I have read various MMT manifestos — this one
( http://pragcap.com/resources/understanding-modern-monetary-system )
is fairly clear as they go. I do dislike the style — the claims that fundamental principles of logic lead to a worldview that only fools would fail to understand has a sort of eerie resemblance to John Galt’s speech in Atlas Shrugged — but that shouldn’t matter.
But I do get the premise that modern governments able to issue fiat money can’t go bankrupt, never mind whether investors are willing to buy their bonds. And it sounds right if you look at it from a certain angle. But it isn’t.
Let’s have a more or less concrete example. Suppose that at some future date — a date at which private demand for funds has revived, so that there are lending opportunities — the US government has committed itself to spending equal to 27 percent of GDP, while the tax laws only lead to 17 percent of GDP in revenues. And consider what happens in that case under two scenarios. In the first, investors believe that the government will eventually raise revenue and/or cut spending, and are willing to lend enough to cover the deficit. In the second, for whatever reason, investors refuse to buy US bonds.
The second case poses no problem, say the MMTers, or at least no worse problem than the first: the US government can simply issue money, crediting it to banks, to pay its bills.
But what happens next?
We’re assuming that there are lending opportunities out there, so the banks won’t leave their newly acquired reserves sitting idle; they’ll convert them into currency, which they lend to individuals. So the government indeed ends up financing itself by printing money, getting the private sector to accept pieces of green paper in return for goods and services. And I think the MMTers agree that this would lead to inflation; I’m not clear on whether they realize that a deficit financed by money issue is more inflationary than a deficit financed by bond issue.
For it is. And in my hypothetical example, it would be quite likely that the money-financed deficit would lead to hyperinflation.
The point is that there are limits to the amount of real resources that you can extract through seigniorage. When people expect inflation, they become reluctant to hold cash, which drive prices up and means that the government has to print more money to extract a given amount of real resources, which means higher inflation, etc.. Do the math, and it becomes clear that any attempt to extract too much from seigniorage — more than a few percent of GDP, probably — leads to an infinite upward spiral in inflation. In effect, the currency is destroyed. This would not happen, even with the same deficit, if the government can still sell bonds.
The point is that under normal, non-liquidity-trap conditions, the direct effects of the deficit on aggregate demand are by no means the whole story; it matters whether the government can issue bonds or has to rely on the printing press. And while it may literally be true that a government with its own currency can’t go bankrupt, it can destroy that currency if it loses fiscal credibility.
Now, I am not predicting hyperinflation for the US — I am not Peter Schiff! Most of our current deficit is cyclical, and even in the long run a modest return of political rationality would make the budget issue eminently solvable. But the MMT people are just wrong in believing that the only question you need to ask about the budget deficit is whether it supplies the right amount of aggregate demand; financeability matters too, even with fiat money.
OK, I have no illusions that this will convince anyone in this area. (Can you imagine John Galt admitting that he was wrong?) But I thought I should put it down."
http://pragcap.com/resources/understanding-modern-monetary-system
The executive summary:
First of all, yes, I have read various MMT manifestos — this one
( http://pragcap.com/resources/understanding-modern-monetary-system )
is fairly clear as they go. I do dislike the style — the claims that fundamental principles of logic lead to a worldview that only fools would fail to understand has a sort of eerie resemblance to John Galt’s speech in Atlas Shrugged — but that shouldn’t matter.
But I do get the premise that modern governments able to issue fiat money can’t go bankrupt, never mind whether investors are willing to buy their bonds. And it sounds right if you look at it from a certain angle. But it isn’t.
Let’s have a more or less concrete example. Suppose that at some future date — a date at which private demand for funds has revived, so that there are lending opportunities — the US government has committed itself to spending equal to 27 percent of GDP, while the tax laws only lead to 17 percent of GDP in revenues. And consider what happens in that case under two scenarios. In the first, investors believe that the government will eventually raise revenue and/or cut spending, and are willing to lend enough to cover the deficit. In the second, for whatever reason, investors refuse to buy US bonds.
The second case poses no problem, say the MMTers, or at least no worse problem than the first: the US government can simply issue money, crediting it to banks, to pay its bills.
But what happens next?
We’re assuming that there are lending opportunities out there, so the banks won’t leave their newly acquired reserves sitting idle; they’ll convert them into currency, which they lend to individuals. So the government indeed ends up financing itself by printing money, getting the private sector to accept pieces of green paper in return for goods and services. And I think the MMTers agree that this would lead to inflation; I’m not clear on whether they realize that a deficit financed by money issue is more inflationary than a deficit financed by bond issue.
For it is. And in my hypothetical example, it would be quite likely that the money-financed deficit would lead to hyperinflation.
The point is that there are limits to the amount of real resources that you can extract through seigniorage. When people expect inflation, they become reluctant to hold cash, which drive prices up and means that the government has to print more money to extract a given amount of real resources, which means higher inflation, etc.. Do the math, and it becomes clear that any attempt to extract too much from seigniorage — more than a few percent of GDP, probably — leads to an infinite upward spiral in inflation. In effect, the currency is destroyed. This would not happen, even with the same deficit, if the government can still sell bonds.
The point is that under normal, non-liquidity-trap conditions, the direct effects of the deficit on aggregate demand are by no means the whole story; it matters whether the government can issue bonds or has to rely on the printing press. And while it may literally be true that a government with its own currency can’t go bankrupt, it can destroy that currency if it loses fiscal credibility.
Now, I am not predicting hyperinflation for the US — I am not Peter Schiff! Most of our current deficit is cyclical, and even in the long run a modest return of political rationality would make the budget issue eminently solvable. But the MMT people are just wrong in believing that the only question you need to ask about the budget deficit is whether it supplies the right amount of aggregate demand; financeability matters too, even with fiat money.
OK, I have no illusions that this will convince anyone in this area. (Can you imagine John Galt admitting that he was wrong?) But I thought I should put it down."
http://pragcap.com/resources/understanding-modern-monetary-system
The executive summary:
"Overview
Modern Monetary Realism
Modern Monetary Realism (MMR) is a description of the monetary system applicable to nations who are autonomous issuers of their currency. Modern Monetary Realism describes how a government creates, destroys and utilizes its monetary unit and also how the private sector utilizes the state’s monetary unit for its own benefit.
Modern Monetary Realism is based on the following principles of an autonomous currency issuer:
- The Federal government is the issuer of net new financial assets to the monetary system. Households, businesses and state governments are users of the currency. While banks can create credit they cannot create net new financial assets (all bank loans result in the creation of an asset and a liability).
- As the issuer of the currency, there is no solvency constraint as there might be for a household, state or business. In this regard, one must be careful comparing the federal government to a household because the federal government has no solvency constraint (ie, there’s no such thing as the federal government “running out of money” that it can create at will). Households, on the other hand, have a very real solvency constraint.
- As the issuer of the currency, the federal government’s true constraint is never solvency, but inflation. The government must manage the money supply so as to avoid imposing undue harm on the populace via mismanagement of the money supply.
- The modern floating exchange rate system helps to maintain equilibrium and flexibility in the global economy.
- The currency unit created by the state via deficit spending can only be extinguished by payment of taxes. Therefore, a modern monetary system can best be thought of as a system of debits and credits where government deficit spending credits the private sector and payment of taxes debits the private sector. One might think of deficits as “printing money” and taxes as “unprinting money”.
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