[Puffer Fish]

7] If the UK Gov. pays the BOE the interest on the 'bonds' it holds, then the BOE will take out a small cut less than 2% and give the rest back to the UK Gov. Why on earth would the Gov. risk the economy to avoid paying interest that it will get back soon. And the 2% is money it can create. Think of aa perfect counterfeiter, who makes perfect $100 bills. Why would he ever fail to make a payment.

Then you get inflation. It is paid for in inflation. There is no free lunch in economics.

Of course your "MMT" ideology seems to believe there is.

[Puffer Fish]

I will try to explain it to you this way. If the Central Bank wants to buy someone's farm for a year and then sell it back on the market, that money competes with other buyers who might have wanted to do the same. It will devalue the purchasing power of the currency, and in fact even push the price of that farm up a little bit. Then, later, when the Central Bank sells back the farm, money is removed from circulation. The money mostly deflates back down to the level it was before, but this also means the Central Bank will not get as much money as they originally paid. The difference in what the Central Bank lost is reflected in the profit that should have been made on the farm. So the Central Bank needs to collect a profit on that farm to have as much money at the end as they paid out, if they are to prevent any end inflation outcome.

Of course it is pointless and results in no final overall change if the Central Bank buys a farm from a farmer, at a slightly inflated price, collects the profits from that farm, and then sells the farm back to the farmer. The Central Bank ends up with the total same amount of money it paid for the farm. The farmer ends up with his original farm.

The point is that the Central Bank can issue new currency and buy up assets, without that leading to permanent inflation, but only so long as the Central Bank collects a normal market rate of return on those assets.

But obviously when the Central Bank is trying to enact monetary policies, such as lowering interest rates, it does not do this. It buys assets for more than they are worth, and so permanently loses money. Money is released into the economy that the Central Bank cannot pull back (not with the assets it just bought, not without depleting the assets it holds). There is permanent inflation.

[Steve_American]

I think that's your "free money" mentality, wanting something for nothing.

You are incorrect. In a normal situation, at least in the private sector, the banks will recover back all the money they loaned, as an aggregate. Yes, there will inevitably be some loans that will default, but that is what interest rates are for, to cover the risk.

Unless you are referring to constantly looking into the future. But as I explained, that is sort of like a pyramid scheme. Similar to how government pensions are set up. Promising money (and wealth) now that will come from the future.

[edit: I think I may have responded to your quote out of context, getting two of your posts confused)

What I wrote was:

PF, there are 3 conditions in an economy like ours in terms of banks making loans.
1] The total amount each year of new loans is very close to the total repayments.
2] The total of all loans is more than the repayments.
3] The total of loans is less than the repayments.

You should have been able to add the "each year" to case #2 and #3.

So, yes, I was assuming that the future would be like the past. Therefore, it is [was] totally possible for banks to lend more in every year than they collect in repayments. But, only for a while. When a recession starts the opposite of case #3 begins.

I was arguing that people don't do what you assert that they do and prepare for the recession. They just don't. Even the rich often get caught off guard. They just don't care because they buy up assets at panic prices that offsets their losses, to some extent.

I was not arguing that this system of bank loans makes the boom sustainable. I believe that we have a boom and bust economy because of this banking system. The busts are recessions and are the parallel to the debt crisis that you predict will occur because of the national debts (in many nations).
I point out that the UK has not had a debt crisis of the sort that you predict for 323 years,

When the climate crisis stops economic and population growth, there will be a crisis. The Gov. will use its ability to create dollars or Pounds to help deal with the crisis. But, 2 things.
1] The crisis would happen even if the US or UK had no national debt. The size of the debt has nothing to do with the climate crisis.
2] The climate crisis will be terrible. We have waited too long to act to reduce the burning of fossil fuels.

IMHO, even MMT economists should be creating an economic theory for the future when there can be no economic growth, and likely will see the GDP fall as a huge part of the population dies from the climate crisis. In the general case in the future, there can be no economic growth for a hundred years as the environment gets a new normal. If we have growth it will certainly kill the environment and that will kill humanity off.
__________________________________.___________________________

I see that you, PF, didn't respond to the 2nd part of my post.

The part about [add with edit -- about PF'f claim that (not if)] if people with more savings spend more because they have those savings.
Or as I see it, people with equal after tax incomes save more if they have more savings because they like to save. With equal incomes if they save more, they must mathematically spend less.
.

[Puffer Fish]

I see that you, PF, didn't respond to the 2nd part of my post.

Well, you can't expect me to respond to every part of such a long post when there are so many posts.

I see that you, PF, didn't respond to the 2nd part of my post.

The part about if people with more savings spend more because they have those savings.
Or as I see it, people with equal after tax incomes save more if they have more savings because they like to save. With equal incomes if they save more, they must mathematically spend less.

I am not sure how that is relevant or fits into your argument.
(I do not disagree with the statements you made which I just quoted)

[Steve_American]

Then you get inflation. It is paid for in inflation. There is no free lunch in economics.

Of course your "MMT" ideology seems to believe there is.

Here again, you are just asserting that there will always be inflation in that situation.

Assertions are not proofs. At best they are arguing form a position of authority.

I assert that your theory is logically flawed because the logic uses false premises to prove its conclusions. If I'm right, this makes your gut feeling worthless.
_____________________________.________________________________________

Here you assert that there will be inflation. OK, But, how much inflation will there be?

As long as it is under 2% then most economists will not care, because the central banks target 2% inflation as the ideal situation.
________________________________._______________________________________

BTW -- MMTers also assert that the central banks should never increase interest rates to fight inflation. They should keep the interest rate low. This also has the effect of making the total interest paid on the national debt low. Warren Mosler goes further, and asserts that the interest rate should be set at zero on the bonds. To make this work the Bank of Japan has an interest rate on bank reserves that is -0.1%, note it's negative. This makes buying bonds at a zero interest rate pay because that way banks avoid "paying" the negative rate.

Waren Mosler asserts that paying interest on Gov. bonds amounts to a UBI paid only to people and corps with a lot of money. So, "Universal" is misleading.

From the internat =>

Under this policy, the BOJ charges a negative interest rate of -0.1% on excess reserves held by commercial banks at the central bank. Feb 18, 2023 BE

Japan's Negative Interest Rates - The Marshall Society

.

[Puffer Fish]

Here again, you are just asserting that there will always be inflation in that situation.

Assertions are not proofs.

Do you think the Central Bank can create money, loan it out to collect an interest rate, and then take the original money out of commission, keeping the profit, without that creating any inflation for anyone else?

I know that may be a lot to think about, but think about it.

I think there's something about that which sounds counterintuitive, like it can't be right. And I think it is wrong.
But to take a look at the math to show exactly how it cannot be right is a little more complicated.

So I will start you off thinking about this intuitively.

Let's apply logic and reasoning to think about how this would theoretically work.

[Puffer Fish]

BTW -- MMTers also assert that the central banks should never increase interest rates to fight inflation. They should keep the interest rate low.

That sounds like the opposite of mainstream economic theory.

This also has the effect of making the total interest paid on the national debt low.

True, but it requires the central bank to buy lots of that debt - for less than the going price would be in the free market.
Many people argue that this has the effect of "monetizing the debt" (essentially converting debt into inflation).

(We can agree that to lower interest rates, the central bank has to buy debt at less than the going market price?)

This inflation is ultimately going to put pressure on interest rates to rise.

[Puffer Fish]

Warren Mosler goes further, and asserts that the interest rate should be set at zero on the bonds. To make this work the Bank of Japan has an interest rate on bank reserves that is -0.1%, note it's negative. This makes buying bonds at a zero interest rate pay because that way banks avoid "paying" the negative rate.

It depends on the situation. I believe Japan was a special case, because of their big real estate bubble pop which caused a strong deflationary pressure. The central bank was trying to prevent deflation, which is easy enough, you just create an inflationary effect to counter it. So the central bank could hold down interest rates without that causing visible inflation.

Normally to bring interest rates down to 0% the central bank has to lend out a tremendous amount of money, combined with buying practically most of the government debt.
Japan again was a special case. Due to the decade of economic crisis, people were reluctant to borrow money even for free. There was a lack of economic growth, little area to expand or invest in. Japanese are very thrifty, especially during economic crisis, try not to avoid borrowing money.
Due to the circumstance, the Japanese central bank was able to hold interest rates down to 0% without it costing too much. Indeed the chairman of the board of the central bank was very surprised both at how easy it was to do, and the fact that it did not seem to have much effect on increasing borrowing or investment. They didn't just suddenly decide to go to zero, they gradually kept lowing the interest rates and looking what the economic response was.

I think part of the issue too was there was so much debt out there, people were repaying the debt. They were already in lots of debt so didn't want to take on more debt.

There are numerous ways in which Japan was and is a special circumstance, so we need to be careful drawing conclusions from that.

It's of course much easier to lower interest rates if there is going to be strong resistance to any increase in borrowing.

And when the real estate prices are going down (in inflation adjusted terms), the people are going to be reluctant to borrow money to invest it in real estate, even at 0% interest. In normal circumstances people could get free profit from that, so there would be a push to borrow money and buy real estate, but not in this case.

[Steve_American]

Do you think the Central Bank can create money, loan it out to collect an interest rate, and then take the original money out of commission, keeping the profit, without that creating any inflation for anyone else?

I know that may be a lot to think about, but think about it.

I think there's something about that which sounds counterintuitive, like it can't be right. And I think it is wrong.
But to take a look at the math to show exactly how it cannot be right is a little more complicated.

So I will start you off thinking about this intuitively.

Let's apply logic and reasoning to think about how this would theoretically work.

Three posts in 20 min. I can't keep up.

PF, the only time I'm aware of that the Fed (a typical central bank) lends out money is in the overnight interbank market where a bank that can't meet its reserve requirement and can't borrow from another bank, borrows from the Fed.

Can you explain what you are referring to in the part above that is highlighted?

Then I can reply to the other posts.
.

[late]

Steve_American just doesn't believe it is a problem and seems to think a country can get into practically all the debt they want it does not have to matter.

Most economists are somewhere between you and Steve.

But the Right has done most of the damage over the last 40 years..