[Rugoz]

Also, there is no limit on the money that banks can loan. Banks are not lending the money they get from depositors. Banks create new money when they make loans. This is why the Fed. Res. Bank can't control the money supply. I read recently that the Fed. has given up even trying to control the money supply and now just wants to control interest rates. But, I may be remembering wrong.

Ever heard of the fed funds rate? That's what the FED uses to "control" bank lending. The monetary base is adjusted accordingly. More importantly, banks are constrained in their lending by capital requirements. They can expand their balance sheet at will (and create money in the process), but if somebody defaults on a loan, the asset side shrinks along with their equity capital. You want to make sure banks don't run out of equity such that they have to pay for their losses (and don't go bankrupt).

If we are lucky we will hit 10% above 2007 in 2020. That is growth of 0.4% per year—compared to the yardstick of 2.0% per year that we were reasonably expecting back in 2007.

What is that even supposed to mean, "reasonably expecting back in 2007"? Potential growth can only be determined ex post, expectations 10 years ago are irrelevant. Pretending that potential growth in the 2010s must be equal to potential growth in the 1930s is equally preposterous. Shit article by an idiot.

[Steve_American]

Rugoz,
I can say that Economics is NOT a science because it can't test; what would have happened if Pres. Obama had tripled the Recovery Act funding and ignored the resulting deficit?

FDR did a lot better digging the nation out of the Great Depression than Obama did digging the nation out of the Great Recession. The graph makes that point obvious. Obama had to deal with a Repud Congress that wanted him to fail [they, literally, said so]. To make Obama fail they had to make the nation suffer. This is what kind of people they are.

The Repuds use the inexact nature of Economics to game the nation. To hurt the people while enriching the already rich.
The Party of Lincoln who famously said "Gov. of the People, by the People, and for the People" now are the Party for the Insanely Rich.

I think that MMT is the Economics of the future, for the people of America [and by extension for the people of every other nation with its own fiat currency]. Of course, the Repuds today would use MMT to use deficit spending to funnel money into the overseas bank accounts of the Insanely Rich. So, it is a good this they don't realize the truth.

[Rugoz]

Rugoz,
I can say that Economics is NOT a science because it can't test; what would have happened if Pres. Obama had tripled the Recovery Act funding and ignored the resulting deficit?

FDR did a lot better digging the nation out of the Great Depression than Obama did digging the nation out of the Great Recession. The graph makes that point obvious. Obama had to deal with a Repud Congress that wanted him to fail [they, literally, said so]. To make Obama fail they had to make the nation suffer. This is what kind of people they are.

The graph makes one things obvious: The Great Depression was far more severe and the long-term effects on growth thust almost certainly more negative. Besides, Hoover was president in 1929 and it is common knowledge that the response by politicians and the FED was shit.

I suppose Obama could have done better, but compared to the response in the Eurozone it was pretty great.

I think that MMT is the Economics of the future...

The baby seal is now on my plate.

[Steve_American]

Rugoz wrote: "The graph makes one things obvious: The Great Depression was far more severe and the long-term effects on growth thust almost certainly more negative. Besides, Hoover was president in 1929 and it is common knowledge that the response by politicians and the FED was shit.

I suppose Obama could have done better, but compared to the response in the Eurozone it was pretty great."

- - - -- - - - - - - - - -

1] You can see in the graph that the 1st 4 years of the Depression the line goes down. Three of those years were under Hoover. the FDR took over and the line starts up.
2] I don't see your point. If the Depression caused more damage to the economy than the Recession then why is the recovery automatically faster. Off the top of my head I would have predicted the opposite. I.e., more damage then a slower recovery.
3] Obama did better than the Eurozone. Many economists would say that this was because the nations there have to use the euro. They don't have their own fiat currency. So, they can't deficit spend as easily. Instead Europe, incl. UK, used 'austerity. Many economists [MMTers and others] would say that austerity made it worse not better. MMTers specifically predicted that austerity would cut their GDP and this would cut tax revenues and not improve the ratio of deficit-spending/GDP much if any. It would not solve the problem of a slow economy.

[Reaper]

Wow. Venezuela issues their own currency. So does Argentina. Check out their inflation numbers some time to see what happens when currency issuers decide that debt doesn’t matter.

[Potemkin]

Wow. Venezuela issues their own currency. So does Argentina. Check out their inflation numbers some time to see what happens when currency issuers decide that debt doesn’t matter.

The point is that the American dollar is a de facto global currency - in effect, the US is the currency issuer for the entire global economy. Other national governments can go bankrupt, but the US government cannot. This is why any attempt to supplant the US dollar as the de facto global currency (e.g., by Saddam Hussein or by Colonel Gaddafi) is met with fire and fury. It is like the sinning against the Holy Spirit - the one sin which can never be forgiven.

[Steve_American]

Reaper wrote:
Wow. Venezuela issues their own currency. So does Argentina. Check out their inflation numbers some time to see what happens when currency issuers decide that debt doesn’t matter.

- - - - - - - - - - - - - - - -

There are actually 3 requirements that MMTers list before they give the go ahead.
1] The currency must be fiat.
2] The nation can only borrow in its own currency.
3] The nation must float its currency against all others.

And MMT does say that inflation is the real world check on out of control deficit spending. Note MMT does not require there to be any borrowing. Pres. Lincoln spent newly printed greenbacks in to the Civil War economy. He also borrowed. MMT says the US Gov. could again just create dollars with computer key strokes and spend them.

[Reaper]

The point is that the American dollar is a de facto global currency - in effect, the US is the currency issuer for the entire global economy. Other national governments can go bankrupt, but the US government cannot. This is why any attempt to supplant the US dollar as the de facto global currency (e.g., by Saddam Hussein or by Colonel Gaddafi) is met with fire and fury. It is like the sinning against the Holy Spirit - the one sin which can never be forgiven.

No, actually, any nation that issues their own currency, and borrows in that same currency, can avoid bankruptcy by inflating their debt away. The Dollar being the reserve currency doesn’t have anything to do with it. That simply adds an additional measure of demand for dollars, and dollar denominated assets. It doesn’t make US borrowing ability limitless and it doesn’t preclude inflation.

The Dollar was the reserve currency in the 1970’s too and the US had inflation that they couldn’t get under control until they purposely put the economy into recession with huge interest rates.

[Reaper]

Reaper wrote:
Wow. Venezuela issues their own currency. So does Argentina. Check out their inflation numbers some time to see what happens when currency issuers decide that debt doesn’t matter.

- - - - - - - - - - - - - - - -

There are actually 3 requirements that MMTers list before they give the go ahead.
1] The currency must be fiat.
2] The nation can only borrow in its own currency.
3] The nation must float its currency against all others.

And MMT does say that inflation is the real world check on out of control deficit spending. Note MMT does not require there to be any borrowing. Pres. Lincoln spent newly printed greenbacks in to the Civil War economy. He also borrowed. MMT says the US Gov. could again just create dollars with computer key strokes and spend them.

No shit? Inflation is the real world check on nations simply using an ever expanding money supply to pay their bills? Adam Smith could have told you that in the 1770’s.

[Reaper]

Debt service is not funded by tax revenue. Government spending is not funded by tax revenue. See TAXES FOR REVENUE ARE OBSOLETE (1946) by Beardsley Ruml, Chairman of the Federal Reserve Bank of New York.



Debt service costs the US taxpayer literally nothing. The currency-issuer has an unlimited number of dollars at its disposal; it doesn't need your taxes to "fund" its spending. Debt service, like all government spending, is funded by dollars created by the currency-issuer itself. It is operationally impossible for the currency-issuer (as opposed to the currency-user) to ever run out of dollars.



That's good for the Chinese, but it doesn't affect the US economy in any major way.



Can you specify how this will occur (in terms of real world monetary operations)?

What an absurd post. Why does any government even collect taxes if it “doesn’t need your taxes to fund spending”.

[Crantag]

What an absurd post. Why does any government even collect taxes if it “doesn’t need your taxes to fund spending”.

Thank you, sir.

But these people are a lost cause. They are fully captive of their delusion. That's why they are so smug.

[Rugoz]

The point is that the American dollar is a de facto global currency - in effect, the US is the currency issuer for the entire global economy.

Not really.

Other national governments can go bankrupt, but the US government cannot.

That's not entirely accurate. Only to the extent it can force its people to use use its currency. Under hyperinflation that may become difficult.

This is why any attempt to supplant the US dollar as the de facto global currency (e.g., by Saddam Hussein or by Colonel Gaddafi) is met with fire and fury.

Jeez, not that again. In what currency Saddam and Gaddafi sell their oil is completely irrelevant. Here's a good summary:

Even if all oil were sold for dollars, it would be a very small factor in the international demand for dollars, as can be seen with a bit of simple arithmetic. World oil production is a bit under 90 million barrels a day. If two-thirds of this oil is sold across national borders, then it implies a daily oil trade of 60 million barrels. If all of this oil is sold in dollars, then it means that oil consumers would have to collectively hold $4.2 billion to cover their daily oil tab.

By comparison, China alone holds more than $1 trillion in currency reserves, more than 200 times the transaction demand for oil. In other words, if China reduced its holdings of dollars by just 0.5 percent, it would have more impact on the demand for dollars than if all oil exporters suddenly stopped accepting dollars for their oil.

http://foreignpolicy.com/2009/10/07/deb ... onspiracy/

I don't see your point. If the Depression caused more damage to the economy than the Recession then why is the recovery automatically faster. Off the top of my head I would have predicted the opposite. I.e., more damage then a slower recovery.

The graph doesn't show the deviation from trend GDP, it shows the absolute deviation from the start of the crisis. There's per se no reason trend GDP (potential growth) should be the same in the 1930s as in the 2010s.

[Steve_American]

Reaper wrote: "The Dollar was the reserve currency in the 1970’s too and the US had inflation that they couldn’t get under control until they purposely put the economy into recession with huge interest rates."

Reaper also wrote: "What an absurd post. Why does any government even collect taxes if it “doesn’t need your taxes to fund spending”."

- - - - - - - - - - - - - - - - - - - -

Reaper, I lived thru that whole era. I remember it different. Carter lost to Reagan because the economy was still not doing well. Stagflation was a thing. That is, slow growth, high unemployment and high interest rates. Reagan came in and cut taxes and increased spending. He quadrupled the national debt in his 8 years, it went from $1T to $4T, more or less. Yet inflation was not a problem. Can you explain that? A huge deficit and low inflation under Reagan. Your theory seems to predict that that level of deficit spending would cause high inflation.
. . So, my theory is that the inflation was caused by OPEC reducing production of and increasing the price of OIL. Then because oil is in everything, this forces businessmen to raise their prices. Then the Fed. increased interest rates and the price of everything the businessman buys to facilitate his production [of whatever he makes] has gone up. So, he has to raise his prices again. OPEC raised prices several times.
. . All these factors are why there was inflation. It was not Gov. deficits. The efforts of the Fed. just caused more inflation. It wasn't until Reagan started up the "printing presses" that the economy started to pick up again. It helped that OPEC didn't/couldn't raise oil prices any more.
. . But, I'm just a layman and it is possible I'm wrong. [So, Crantag, I'm not that smug.]

2] I have said this many times here. The US Gov. must collect taxes to ---
. . . a] To give the dollar any value. If there were no taxes or if the taxes could be paid in euros then the value of the dollar would drop like a stone.
. . . b] To suck some (or enough) dollars out of the economy so there isn't high inflation. This is necessary.

These 2 reasons are why there has to be taxes at the US Gov. level. At the state level, states are dollar *users* and they must get them with taxes before they can spend them.

[Steve_American]

Rugoz wrote: "The graph doesn't show the deviation from trend GDP, it shows the absolute deviation from the start of the crisis. There's per se no reason trend GDP (potential growth) should be the same in the 1930s as in the 2010s."

- - - - - - - - - - -

Rugoz, that may be true. I am not aware of any one predicting that economic growth must be less now than in the 30s. The rate of growth of labor productivity is just as high as it was then.
. . . I theorize that the problem is that the American people have less to spend because the rich have sucked up a higher share of the GDP. The rich can't spend all their income so less gets spent. Spending is what drives the growth in the GDP. One person's spending adds to another person's income [by definition]. The rich park their wealth while the mass of Americans would spend almost all their income even if it were 50% greater. Less growth in spending equals less growth in the GDP.

US Gov. deficits are what you could call "the spending of last resort". If the economy is slow then the only way to increase the GDP is for the Gov. to spend in a way that lets the dollars it spends mostly flow to the mass of the people and not just to big banks [like QE does].

[Reaper]

Reaper wrote: "The Dollar was the reserve currency in the 1970’s too and the US had inflation that they couldn’t get under control until they purposely put the economy into recession with huge interest rates."

Reaper also wrote: "What an absurd post. Why does any government even collect taxes if it “doesn’t need your taxes to fund spending”."

- - - - - - - - - - - - - - - - - - - -

Reaper, I lived thru that whole era. I remember it different. Carter lost to Reagan because the economy was still not doing well. Stagflation was a thing. That is, slow growth, high unemployment and high interest rates. Reagan came in and cut taxes and increased spending. He quadrupled the national debt in his 8 years, it went from $1T to $4T, more or less. Yet inflation was not a problem. Can you explain that? A huge deficit and low inflation under Reagan. Your theory seems to predict that that level of deficit spending would cause high inflation.
. . So, my theory is that the inflation was caused by OPEC reducing production of and increasing the price of OIL. Then because oil is in everything, this forces businessmen to raise their prices. Then the Fed. increased interest rates and the price of everything the businessman buys to facilitate his production [of whatever he makes] has gone up. So, he has to raise his prices again. OPEC raised prices several times.
. . All these factors are why there was inflation. It was not Gov. deficits. The efforts of the Fed. just caused more inflation. It wasn't until Reagan started up the "printing presses" that the economy started to pick up again. It helped that OPEC didn't/couldn't raise oil prices any more.
. . But, I'm just a layman and it is possible I'm wrong. [So, Crantag, I'm not that smug.]

2] I have said this many times here. The US Gov. must collect taxes to ---
. . . a] To give the dollar any value. If there were no taxes or if the taxes could be paid in euros then the value of the dollar would drop like a stone.
. . . b] To suck some (or enough) dollars out of the economy so there isn't high inflation. This is necessary.

These 2 reasons are why there has to be taxes at the US Gov. level. At the state level, states are dollar *users* and they must get them with taxes before they can spend them.

It’s right in the name for fuck’s sake! StagFLATION! Stagnant growth with high inflation. How you remember it is irrelevant. I deal in reality. You seem to want to re-write history to fit your political views. I couldn’t care less about whether you liked Carter or Reagan more. The fact is that the US had high inflation in the late 70’s, while the Dollar was the reserve currency, so the theory that the latter precludes the former can now be dropped.

As for the rest of that drivel.... I’m not even going to try to unpack that ball of tin foil. The fact is that modern economies tax to spend and a (more or less) independent central bank controls monetary policy to maintain stable price levels. The US, for example, spends at the federal level, via the treasury. Are you aware that the treasury has no role in money creation? They have nothing to do with the creation of money, and as such, no access to printed money to use in leu of taxes.

[Steve_American]

Reaper,
I should have been more clear.
Yes, I agree. The status of the dollar as the world's reserve currency has little to do with anything we are talking about here.
My point was to disagree with your point that a Recession caused by high interest rates is what solved the inflation problem.
The inflation was in the 70s as you said. It wasn't in the 80s while Reagan was spending like a drunken sailor.
Therefore, we need a theory that explains why there was little inflation in the 80s.
As to me rewriting history, maybe it is you who remember it wrong.
Your last paragraph is the heart of our disagreement. You hold fast to the old gold standard sort of Economics that is still the standard model. I OTOH am looking at MMT as a maybe better theory of Economics. A theory for the new situation we find ourselves in now that we are off the gold standard.
Economics is not a science. Macroeconomics can't prove much of anything. It makes some definitions [like the 3 sector definition] but beyond that it is all a matter of opinion. You make it sound as if what you wrote in that last paragraph in gospel truth. Some of it can be changed by Congress writing a law. So, it isn't a law of Economics.

[Hong Wu]

Some people seem to be conflating a balanced budget with the federal government no longer selling bonds. This is silly since a balanced budget merely means that the bonds are being paid off, not that bonds are no longer being sold...

[Reaper]

US inflation by year:

1979-11.3%
1980-13.5%
1981-10.3%
1982-6.1%
1983-3.2%

US recession started in July of ‘81 and ended in November of ‘82.

I’m well aware that central banking isn’t a rule or law of economics as you say. I’m simply trying to explain, to somebody who doesn’t understand, that governments DO NOT pay their bills with printed money or they end up with hyper-inflation ala Venezuela.

[Steve_American]

Hung Wo wrote: "Some people seem to be conflating a balanced budget with the federal government no longer selling bonds. This is silly since a balanced budget merely means that the bonds are being paid off, not that bonds are no longer being sold."

- - - - - - - - -- - - -

If I may clarify that for you ---
A balanced Federal budget means that all new bond sales are just rolling over old bonds that had to be paid off. To do this the Gov. must sell new bonds.
If the Gov. has a surplus then some of the old bonds are paid off with dollars of the surplus.
And, if the Gov. has a deficit then it must* sell more bonds than just enough to roll over the old bonds.

.* . Note: . MMT claims that it is not really necessary to sell bonds. For example, it is now illegal for the Fed. Res. to buy bonds (but there is a way to get around this); if this law was changed, then it would be a lot like 'printing money'.

Reaper,
The Gov. printed money in the Civil War. That is now old technology. These days, the Gov. mostly makes payments by using key strokes on a computer to credit somebody's bank account. "Printing money" is now just a figure of speech. I used it that way. I assumed you knew enough to read it that way. Since you freely insult me I can say, why didn't you know that? Every knowledgeable person knows that.

Also, thanks for the info about inflation. It is interesting. But, does it explain why all the tax cuts and spending by Reagan didn't cause inflation to start again? I don't think it does. [MMT claims the idea that deficits cause inflation is wrong as long as there is not real *full* employment.]

So, I ask you again to try to explain why Reagan's deficits didn't cause inflation.

[Reaper]

Hung Wo wrote: "Some people seem to be conflating a balanced budget with the federal government no longer selling bonds. This is silly since a balanced budget merely means that the bonds are being paid off, not that bonds are no longer being sold."

- - - - - - - - -- - - -

If I may clarify that for you ---
A balanced Federal budget means that all new bond sales are just rolling over old bonds that had to be paid off. To do this the Gov. must sell new bonds.
If the Gov. has a surplus then some of the old bonds are paid off with dollars of the surplus.
And, if the Gov. has a deficit then it must* sell more bonds than just enough to roll over the old bonds.

.* . Note: . MMT claims that it is not really necessary to sell bonds. For example, it is now illegal for the Fed. Res. to buy bonds (but there is a way to get around this); if this law was changed, then it would be a lot like 'printing money'.

Reaper,
The Gov. printed money in the Civil War. That is now old technology. These days, the Gov. mostly makes payments by using key strokes on a computer to credit somebody's bank account. "Printing money" is now just a figure of speech. I used it that way. I assumed you knew enough to read it that way. Since you freely insult me I can say, why didn't you know that? Every knowledgeable person knows that.

Also, thanks for the info about inflation. It is interesting. But, does it explain why all the tax cuts and spending by Reagan didn't cause inflation to start again? I don't think it does. [MMT claims the idea that deficits cause inflation is wrong as long as there is not real *full* employment.]

So, I ask you again to try to explain why Reagan's deficits didn't cause inflation.

I also use the term “printing money” or “printed money” to reference money creation in general. At what point did you think otherwise? The treasury does, in fact, transfer lots of money electronically. But that is money they have received from taxes or borrowing. Not money they create. That seems to be the part we are talking past each other on. Call it whatever you like but using money to pay the government’s bills, that isn’t raised from the existing money supply, will lead to inflation. There have been countless examples throughout history. Some still ongoing.

I’m not entirely sure what the connection is with the deficit spending in the 1980’s that you keep bringing up. There wasn’t inflation because the money supply wasn’t expanded faster than real economic growth I would assume. Deficits and government spending are fiscal issues, not monetary, and shouldn’t really impact inflation. We don’t need a theory to explain why something works exactly as it should.