MMT says that by definition having a Federal surplus is forcing the Public Sector to be in deficit. - Politics Forum.org | PoFo

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#14910991
Dr. Stephanie Kelton is an economics professor. She is in the MMT school of economics.
She says that the Sector Balance sheet theory of economics is (by definition) true. And, it says that all the economists who want the Fed. Gov. to eliminate the deficit and run a surplus are (by definition) wanting the US GDP to grow less or even stop growing.

Remember, the US always has a negative balance of payments [this means it has a positive current account balance of the same amount].
She explains the above statement by showing that all Gov. spending must become income for someone and almost all of it will therefore add to the GDP. This is either directly when the Gov. buys some thing from a company, or indirectly, when the person who is paid the money (a retired person maybe) spends it on any thing or any service.

So, she claims that (by definition) calling for "reducing the deficit" is also calling for "reducing the growth of the GDP". [She doesn't say directly that this would not be true if the US had a large positive balance of payments surplus, but this is true. If I understand the theory correctly. And also it may explain why in the 19th Cent. the US may have had GDP growth while having a Gov. surplus. Also, if there was lot of gold being mined in the 19th Cent. This also would allow GDP growth along with a surplus.]

Links: [I hope they work]
https://cas2.umkc.edu/economics/.../Ful ... %20MMT.pdf


#14911565
Yes, people who want to eliminate the budget deficit are huge morons who say things like, "The USPS isn't profitable!" when it's a public service and not a for-profit enterprise.

Reducing the deficit to $0 would also be immensely moronic since it's a function of how much we owe to Federal bond holders. China owning our debt is not a terrible thing; they are directly invested in the continued economic health of AMERICA and its ability to pay premiums and interest on fed notes.
#14911578
SpecialOlympian wrote:Yes, people who want to eliminate the budget deficit are huge morons who say things like, "The USPS isn't profitable!" when it's a public service and not a for-profit enterprise.

Reducing the deficit to $0 would also be immensely moronic since it's a function of how much we owe to Federal bond holders. China owning our debt is not a terrible thing; they are directly invested in the continued economic health of AMERICA and its ability to pay premiums and interest on fed notes.


Amusingly, if the proposed ConCon manages to pass a balanced budget amendment, it would mean an instant and permanent Great Depression. The US elites are literally stupid enough to take a shotgun, and blast their cash cow into oblivion.
#14911580
Pure fantasy. Debt service is funded by tax revenue (that's the basis of debt extension), is growing exponentially, and is now the third highest expenditure. It costs the US taxpayers upwards of $17 billion a day now (last time I checked, probably old data.) The system is already rupturing. China and others have for years been moving away from US Tresuries. The dollar's status based on exhorbitant privilege, is already being subverted. Runaway inflation is the US future. Look forward to paying double in real terms for everything you buy.
#14911595
Crantag wrote:China and others have for years been moving away from US Tresuries. The dollar's status based on exhorbitant privilege, is already being subverted. Runaway inflation is the US future. Look forward to paying double in real terms for everything you buy.


No. Wrong. 100% wrong.

First, let's review this graph.

Image

Looks to me that China, like lots of people, ran to US Treasury Notes during the crash. This sudden buying spree drove down interest rates on T-Notes to historic lows.

There is a dip in 2016. What terrible calamity could have fallen AMERICA?

Image

Oh, the interest rate went up. And suddenly bonds issued at historical inflation lows with historically low interests weren't so attractive. Yet buying continues through 2017, driving up Chinese holdings of US Treasury Notes.

This chart is going to continue spiking as the Fed slowly ramps up interest rates. Fluctuations are going to happen, and anyone with a long term bond portfolio should seriously consider shortening their duration, but to say AMERICAN bonds are rapidly being sold off is ridiculous. Unless there was some massive market sell I didn't hear about. Oh, I did, because the interest rate went up and the Bond Department tells me this shit.
#14911597
Crantag wrote:Debt service is funded by tax revenue


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.

...third highest expenditure. It costs the US taxpayers upwards of $17 billion a day now...


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.

China and others have for years been moving away from US Tresuries.


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

The dollar's status based on exhorbitant privilege, is already being subverted. Runaway inflation is the US future. Look forward to paying double in real terms for everything you buy.


Can you specify how this will occur (in terms of real world monetary operations)?
#14911603
Crantag,
This prediction, that high inflation is just around the corner, has been around for decades and still has not materialized.
Here in this thread you simply assert that Dr. Kelton is wrong, and don't provide any evidence to support that assertion.

MMT says high inflation never will materialize. At least not until there is a shortage of all the important resources.

It is often said that inflation is "Too much money, chasing too few goods." It might be better said as "Money, chasing too few goods or resources." That is, there is always money around and people need to buy certain goods or resources. So if there is a shortage of goods and/or resources then their price will rise; no matter how much money there is in the system.
. . The first (wrong) statement has not come to pass yet for the 35 years since Reagan began the current 'borrow and spend' policy of the US Gov. Why? MMT says this is because more economic activity creates more goods and services that the new money can buy until you reach full employment [note: not low unemployment that is called 'full employment, but rather most everyone in the nation of working age has a full time job]. New things like Iphones, etc. are created that soak up the new money.

And again I point out that you, Crantag, are not (it seems) worried about private debt creating inflation, only Fed. Gov. debt. Which is strange because some economists [Dr. Steve Keen] believe that it is private debt that hurts the economy from time to time; and the US Gov. debt has not hurt the economy yet. And because Gov. debt is what allows the people to *all* save and buy foreign products without taking dollars from some other part of the economy which does or must hurt that part of the economy. OTOH, the US Gov. can run a surplus only by sucking the savings out of the economy. Savings like the bonds held by insurance comp., so they will have dollars to pay off policies if there is a big crisis and many losses (and therefore claims) at the same time. Why do you want to take those bonds away from the insurance comp.?

The fantasy you refer to is that servicing the debt can be done with newly created money. MMT says it can and the US Gov. has been doing so for decades; you say it can't [and don't explain why it has been able to do so for decades now].
MMT says that it makes no difference that the Treasury can't sell Bonds to the Fed. Res. Bank because the US can sell them to a commercial bank with the understanding that the Fed. Res. will buy them tomorrow for sure for sure. This has happened. IIRC.

MMT says that it makes no difference if the Fed. Gov. just spends into the economy or sells bonds. If you don't want the Gov. to pay interest then it can just spend into the economy.

As for the future --- I see a very bleak future. But, not because of Gov. debt. I see the end of civilization coming from a lack of resources [like clean water, top soil, fish in the sea, mineral ores, energy, etc.] and a rise in population and pollution [of which CO2 leading to warming is just 1 example]. The shit may or will hit the fan in about 50 years [+/- 20 years]. The world reached "peak oil" about 13 years ago, for example.
Last edited by Steve_American on 06 May 2018 03:51, edited 1 time in total.
#14911636
quetzalcoatl wrote:it doesn't need your taxes to "fund" its spending.


I pay my taxes now to China. Because that's where I now live and work.

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

The dollar is propped up by international demand for dollars.

The dollar has benefited from persistent demand due to the absence of alternatives to the dollar for international settlement. A prominent example is with respect to oil purchases.

I have sort of always had this sneaking suspicion that the European Monetary Union was motivated to a not insignificant extent by a desire to both get away from the dollar internally in the Euro zone, and to present an alternative to the dollar for purposes of international trade in the longer term. The latter situation proved abortive, and the former was attended by all sorts of unforeseen consequences.

The Chinese are moving to conduct trade in Yuan. They already conduct a significant amount of trade through bilateral trade agreements. They just opened a Yuan denominated oil futures market. Russia is the largest supplier of oil to China, and it is purchased using Yuan, by way of the bilateral pact between Russia and China. With the new oil futures, China is looking to move substantially into the Middle East oil zone, using Yuan denominated exchange.

China is engaged in a long-term strategy to make the Yuan convertible. This is lauded by neoliberals the world over. Less talked about is the fact that these moves are a critical to the emergence of the Yuan as an international competitor to the dollar.

China is as usual playing a long game here. Another component of this long game is improving the domestic economic climate, in the aim of making it more appealing to international moneyed interests to park their cash in China. This is indeed proceeding at breakneck pace. I believe China's enormous internal development practices are in part a component of this. It won't happen tomorrow. But in historic terms, things have moved and continue to move very quickly with respect to China. 10 years from now is almost unforeseeable. What I do foresee is continued success on the part of China, and this will ultimately have consequences for the US monetary hegemony.
#14911913
Crantag,
Did you maybe think that his "your" in his question was a 3rd person you?
You sidestepped the question with that answer.
So, I'll rephrase it. Do you realize that the US Gov. does not need to collect taxes from American taxpayers before it can spend?

To the 2nd and much bigger reply to the question, "Can you elaborate on why you think hyper inflation is coming in the US?"

Your reply did not include any sourced evidence. But, I'll just assume your statements of facts that you know are true.
OK, the US dollar has been soaked up by overseas nations and comp. for decades now. I suppose to some extent this has made a difference in the inflation rate in the US. How much is anyone's guess.
Yes, MMTers had predicted 20 years ago that the euro would be a problem when there was a crisis. Dr. Mosller in particular has a youtube video that covers this. IIRC in it he points out that a MAJOR PROBLEM with the system set up was that --- the banks in each nation would be regulated by each nation separately and the deposits would be guaranteed by each nation separately too. This made sense because the EU as a whole did not want to be on the hook if a nation failed to keep its banks from doing stupid things. OK, fine. BUT, each nation can't pay off depositors if many banks fail all at once because each nation can't print euros to make the payments. And in a crisis each nation has other problems all at the same time requiring euros to solve them. This means that depositors do not have confidence in their banks and so bank runs are much, much more likely.
. . A 2nd point he made in the video, IIRC, was that --- in the US poor states get more Fed. Gov. spending inside them than do rich states. This happens because their Senators make sure it happens. In the EU OTOH, this is not so. There is no system to give free money to poor nations so they can keep their trade balance in balance. Instead, the rich nations [like Germany] suck money out of the poor nations using trade. And there is nothing the poor nations can do about it. They can't change their exchange rate or impose import duties, etc.

So, yes there were unforeseen [by most observers] effects that were going to come to a head when the next crisis came along.

I can't really comment on your points about China.
#14911915
You are all confused. He was trying to personalize my remark while dismissing my 'concern'.

It's not worth arguing over that. Suffice to say I don't agree.

It is really upsidedown world wherein I am the contrarian for questioning the permanance of the US ability to create money out of nothing. The China situation is the entire point. Ignorance is not a retort. Admission and acceptance of ignorance is sufficient self-dismissal.

I said nothing which demanded being sorced.
#14911916
Crantag wrote:It is really upsidedown world wherein I am the contrarian for questioning the permanance of the US ability to create money out of nothing.

The US has a fiat currency, so obviously it can continue to create money out of nothing. The only question is, will this new money be worth anything? So long as the real economy can continue to generate sufficient goods and services for its population's needs, then the answer is 'yes'. It's the real, material economy which matters, not bits of paper with green ink on them or numbers in a computer. Those can be changed more or less at will, to serve the needs of the real economy. What do you think 'Quantitative Easing' was?
#14911943
Potemkin wrote:The US has a fiat currency, so obviously it can continue to create money out of nothing. The only question is, will this new money be worth anything? So long as the real economy can continue to generate sufficient goods and services for its population's needs, then the answer is 'yes'. It's the real, material economy which matters, not bits of paper with green ink on them or numbers in a computer. Those can be changed more or less at will, to serve the needs of the real economy. What do you think 'Quantitative Easing' was?

You seemed to miss the word 'permanence', and also miss my implied meaning.

The US currency is backed by debt. This is a trick which was learned from the Bank of England. Back in the 17th Century, the Bank of England established a currency the value of which was based on a 20,000 pound loan to the King.

One man's debt is another man's asset. It's a double-sided coin.

The system which prevails now is based on the exorbitant privilege of the dollar. The present system is about 44 years old. It won't be around in another 44, that's my prediction.

Quantitative easing refers to the monetary policy of printing money in the aim of effecting a rise in inflation as a matter of deliberate policy. It had been my impression that the concept was invented by the Japanese (ryouteki kanwa). A quick Google search reveals this from Investopedia.
Even the invention of quantitative easing is shrouded in controversy. Some give credit to economist John Maynard Keynes for developing the concept; some cite the Bank of Japan for implementing it; others cite economist Richard Werner, who coined the term.


Of course, it would on the face seem like a fancy word for currency debasement, which is as old as currency, perhaps. Although what is unique about it is the monetary policy component.

Helicopter Ben [Bernenke] is one famous proponent of it.
#14911961
Crantag wrote:You seemed to miss the word 'permanence', and also miss my implied meaning.

"In the long run, we're all dead." - John Maynard Keynes.

The US currency is backed by debt. This is a trick which was learned from the Bank of England. Back in the 17th Century, the Bank of England established a currency the value of which was based on a 20,000 pound loan to the King.

One man's debt is another man's asset. It's a double-sided coin.

The system which prevails now is based on the exorbitant privilege of the dollar. The present system is about 44 years old. It won't be around in another 44, that's my prediction.

I'm inclined to agree with you. But so what? Nothing lasts forever. And predicting the demise of the current order of things is rather pointless if you will or can say nothing about what you think will or should replace it.

Quantitative easing refers to the monetary policy of printing money in the aim of effecting a rise in inflation as a matter of deliberate policy. It had been my impression that the concept was invented by the Japanese (ryouteki kanwa). A quick Google search reveals this from Investopedia.


Of course, it would on the face seem like a fancy word for currency debasement, which is as old as currency, perhaps. Although what is unique about it is the monetary policy component.

Helicopter Ben [Bernenke] is one famous proponent of it.

I'm aware of all this, but my point is that QE seems to have actually worked, without producing the hyperinflation which all the lolbertarians were predicting would happen. And it seems to have worked precisely because the MMT theorists seem to be correct in their analysis of money in a post-Bretton-Woods global economy.

QE is indeed a form of currency debasement, but as soon as you take your currency off the Gold Standard and make it free-floating with respect to all goods and services, then you have already debased the currency. But so long as there is a monopoly issuer of the currency, all is well. They can just print as much or as little of the currency as they need (or, more properly speaking, as the real economy needs). As the MMT theorists put it, don't balance the budget, balance the economy. Money is just an accounting device, of no significance in and of itself. The currency is already utterly and irretrievably debased, and according to the MMT theorists that's a good thing. It is, in fact, a liberation.
#14911966
Potemkin wrote:"In the long run, we're all dead." - John Maynard Keynes.


Nice job with the misquote. And it's cliche time, to boot!

As it were, I hate cliche time.

Potemkin wrote:I'm inclined to agree with you. But so what? Nothing lasts forever. And predicting the demise of the current order of things is rather pointless if you will or can say nothing about what you think will or should replace it.

You triggered my reaction impulse before I even read on to this. So, that was even an extra gratuitous cliched misquote.

Potemkin wrote:I'm aware of all this, but my point is that QE seems to have actually worked, without producing the hyperinflation which all the lolbertarians were predicting would happen. And it seems to have worked precisely because the MMT theorists seem to be correct in their analysis of money in a post-Bretton-Woods global economy.


It's my opinion that quantitative easing has never worked as well as its proponents presumed it would.

Of course it works some, but a prevailing monetarist presumption, going all the way back to the Banking vs Currency (proto-monetarists) School debates of 17th Century England, has been the supposition by the one camp that the ability to effect the condition of the currency was more significant than they presume. I'm fumbling for an analogy. Let me say, it is kind of like the policy of the Americans in the Vietnam War to bomb the Ho Chi Minh Trail in the effort to disrupt supply. They did disrupt supply, but the miscalculated the quantity of goods that would still get through. Why? Because the Vietnamese were using bicycles to cart goods, whereas the American strategists thought the were packing the goods on their backs.

For a more money-based illustration, when the government seeks to contract the money supply, people horde money. When the government seeks to expand the money base, people become more prone to barter. Each of these things occur on the basis of sound economic principles. Hording occurs in advance of a foreseeable appreciation of the currency. Barter is the opposite.

Contemporary economic systems are much more complex than this, but the principles still attain. The government does have a lot of ability to influence norms, but this ability is not all-pervasive.

I don't think that runaway inflation has been a serious prediction for most serious observers, but the possibility of it occurring at sometime given certain conditions has been a consistently sounded alarm by some.
#14912021
Steve_American wrote:So, she claims that (by definition) calling for "reducing the deficit" is also calling for "reducing the growth of the GDP".


That is not generally true. Right now would be the time to reduce the deficit without reducing real GDP growth (Trump does the opposite of course). Clinton did it successfully in the 90s.

SpecialOlympian wrote:Yes, people who want to eliminate the budget deficit are huge morons who say things like, "The USPS isn't profitable!" when it's a public service and not a for-profit enterprise.

Reducing the deficit to $0 would also be immensely moronic since it's a function of how much we owe to Federal bond holders. China owning our debt is not a terrible thing; they are directly invested in the continued economic health of AMERICA and its ability to pay premiums and interest on fed notes.


I don't think much of an argument can be made against limiting the structural deficit, given that taxation is always distortionary (unless you have a preference for future taxation over current taxation). The tricky part is to separate the structural from the cyclical deficit in real time. That requires a real time estimate of potential GDP, which is notoriously difficult. Still, deficit rules can be useful given the general incompetence of politicians.

Crantag wrote:Pure fantasy. Debt service is funded by tax revenue (that's the basis of debt extension), is growing exponentially, and is now the third highest expenditure. It costs the US taxpayers upwards of $17 billion a day now (last time I checked, probably old data.)


$17bn a day would be $6.2trillion a year, it's nowhere near that much. It currently stands at 1.35% of GDP.

Steve_American wrote:This prediction, that high inflation is just around the corner, has been around for decades and still has not materialized.


We haven't seen high inflation in a few decades because central banks are pretty good at keeping inflation in check, which is their job by the way.
#14912022
Good to see Crantag has taken the torch from Igor. Let's see if he eventually goes down the same slow descent into insanity as Igor did. :lol: :lol: :lol: :lol: :lol: :lol:

On a serious note.

I agree it's not required to close the deficit to 0 (so long as the economy continues to grow). However, you don't want it to get too large either, which I think is the larger danger right now.
#14912251
At Rugoz,

"Steve_American wrote:
So, she claims that (by definition) calling for "reducing the deficit" is also calling for "reducing the growth of the GDP". "

Rugoz wrote,
"That is not generally true. Right now would be the time to reduce the deficit without reducing real GDP growth (Trump does the opposite of course). Clinton did it successfully in the 90s."

No, Rugoz, you are 100% wrong in the part I put in bold. Every dollar the US Gov. spends is included in the GDP. And if it is spent a few more times before it is 'parked' somewhere, then it adds that number of times itself more. If I can assume that every dollar spent by the Gov. is spent 4 more times before it is parked, then a $200B reduction in the deficit will reduce the GDP by $1T. At least if I understand reality right.

The effect may be hidden by other effects. In the late 90s under Pres. Clinton; the public sector was on a borrowing binge. This in effect financed the surplus. That is, the public sector was borrowing from banks the money the Gov. called the surplus. This could not go on, clearly, at least, to me. So, the GDP was still growing. The growth was all borrowed dollars being repeatedly spent.
#14912265
Steve_American wrote:No, Rugoz, you are 100% wrong in the part I put in bold. Every dollar the US Gov. spends is included in the GDP. And if it is spent a few more times before it is 'parked' somewhere, then it adds that number of times itself more. If I can assume that every dollar spent by the Gov. is spent 4 more times before it is parked, then a $200B reduction in the deficit will reduce the GDP by $1T. At least if I understand reality right.


Right now the FED is raising interest rates. This will act as a brake on real and particularly nominal GDP growth (nominal = real + inflation). The same could be done by the government instead by implementing counter-cyclical fiscal policy (reducing the deficit in the process). Trump does the opposite.

Even if we ignore the presence of a central bank, the claim that reducing the deficit reduces real GDP growth is only generally true in the short-term, not in the long-term.

Crantag wrote:1.35% of GDP is $25 billion. Per year.


Nice try but it's more like $250bn.

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