Inflation and hyperinflation are gotten wrong by Mainstream economic theory too. - Politics Forum.org | PoFo

Wandering the information superhighway, he came upon the last refuge of civilization, PoFo, the only forum on the internet ...

"It's the economy, stupid!"

Moderator: PoFo Economics & Capitalism Mods

Forum rules: No one line posts please.
#15106640
The current Mainstream theories of economics are based on assumptions not observations of economic history. Many of these assumptions are false. It is claimed that they are good enough, but the predictions based on them are always wrong. Therefore, they are not *good enough*.

Inflation like the one in the 1970s is caused by a shortage of something that people must buy, something like oil or food. Historically, it doesn't matter how much money there is, if the crop fails then food prices rise. No money needs to be added for the price of food to rise when the harvest is 50% of normal.

Hyperinflation is only possible if the Gov. keeps adding/printing money to buy something that is in short supply. In the 20s Germany did this to buy gold that they had to buy to pay the Allies the reparations they demanded. In Zimbabwe the Gov. was buying food when the harvest was too small.
. . . If you will stop and think about it, it is obvious that Hyperinflation is only possible if the Gov. keeps printing bigger and bigger money (Marks) bills.
. . . So, hyperinflation is always a choice of the Gov.. To avoid it all the gov. needs to do is stop printing bigger bills.

The doom sayers will tell you that if the US Gov. keeps running a deficit than someday the hammer will fall and you will see hyperinflation. They are just trying to scare you.

The facts are different.
1] In 1981 when Reagan became Pres. the national debt was right at $1T. Now it is over $25T. Almost all of that debt is the result of actions take by the Repub and Repud Party leaders. They passed and signed the budgets that added to the debt. Their predictions that tax cuts for the job creators would pay for themselves never actually did. They always added to the deficit and then the debt.
2] At this point with $25T in bonds and several $T in cash and bank deposits there is plenty of dollars in the world to have a lot of inflation if there is a shortage of something people must buy, or maybe even hyperinflation.
3] The trigger will be a shortage. It will NOT be a decision by some rich people to destroy the value of the dollars that they currently hold. They are rich because they have a lot of dollars and therefore they don't want their dollars to become valueless.

The UK, aka England, has had a national debt since 1694, i.e. for 325 years. The size of the debt in pounds has kept going up. The ratio of debt/GDP has gone down because of population growth and wealth growth which has made the GDP get bigger. There has also been some inflation, BUT experts want there to be inflation of around 2%/yr. That is the target rate for almost all central banks in the world. This has been so for decades. Today (before the covid crisis) inflation was between -1% and 1% in most nations.

Japan has a debt/GDP ratio of 240%, or so. This is over double the point at which experts expect to see a crash. In the EU the treaty sets the max. debt/GDP ratio at 60%. 240% is 4 times 60%. And still Japan can sell all the bonds it wants to sell.
. . . Also, the Bank of Japan holds about 40% of the Japanese bonds that exist. Experts will tell you that it is very much like printing money when the central bank hold the nations bonds. So, the BoJ holds 40% of the bonds and the debt/GDP ratio is 240%, and yet this is not causing any problems. Inflation is around 0%, the yen is strong, bond sales are over subscribed, etc.

The fact is that savings by people, comp. or foreigners takes dollars out of the market and banks don't lend them back into the market (they create new dollars with every loan). Taking dollars out of the market by taxation or by saving them reduces someone's income, and then someone else's income, etc. This process reduces the GDP measured. If the gov. does NOT replace the dollars saved (by everyone) then the people need to borrow from banks enough to replace it to maintain the GDP with spending. Spending equals income. This increase in private debt is far less sustainable than rolling the Gov. national debt over (forever).
. . . Very soon the people can't make the next payment on their debt and this causes the banks to reduce lending and this starts a recession. This happens because loans are always spent and all spending adds to the GDP. Less lending => less spending => less GDP => recession or depression.
. . . Historically, the best way to end a recession is to start a war, because war requires massive deficit spending, It is pointed out that FDR didn't end the Depression, WWII did. This is true. IIRC, FDR balanced the budget in 1937or8, what this shows me is that FDR didn't have a big enough deficit. That only the excuse of war made it possible to pass budgets with large *enough* deficits to end the Depression.

Central banks target inflation rates of 2%, therefore inflation is "good". At least at the 2% level. So, don't be scared by the word inflation.

Actually, now that the world is off the gold standard, the national debt is also "good". Why? Because it can be rolled over forever, and because it represents assets that the people and comp. own. The people who have those assets don't want their assets to be taxed away, NO not theirs.
. . . When you think about it some facts add up.
1] You can't pay *off* your debt with money you have borrowed, the Gov. can't do it either.
2] The Gov. can't tax $25T from the poor people or the middle class either, because they don't have $25T.
3] The rich have the bonds but they will not let the Gov. tax $25T from them to pay themselves off. The Gov. might as well default on all the bonds, it is the same thing.
4] This leaves us 3 choices.
. . . a] Roll the debt over forever, by borrowing to pay the bonds as they come due.
. . . b] Have the Gov. create digital dollars and use them to pay off the bonds as they come due.
. . . c] Have the Fed. Res. buy the bonds that must be sold to pay other bonds as they come due. Because the Fed. Res. pays the Treasury 97% of its revenues, the Gov. can sustain this forever, with no problem. If the bonds are sold to the Fed. pay at a 1% rate then the actual rate is 0.003% after the Fed. gives 97% back to the Treasury.

Summery
The US national debt can *not* be paid off in the way the experts imply. Creating digital dollars is the only way to do it and it might cause inflation but can't cause higher taxes or spending cuts.
The national debt doesn't need to be paid off.
Deficits are good because they let the GDP grow without the growth of unsustainable private debt.
Inflation will happen when there are shortages of food or oil no matter how much money the Gov. is creating or not creating.
Hyperinflation will *only* happen if the Gov. chooses to make it happen.
.
#15106730
Rapid Money Supply Growth Does Not Cause Inflation

"Monetarist theory, which came to dominate economic thinking in the 1980s and the decades that followed, holds that rapid money supply growth is the cause of inflation. The theory, however, fails an actual test of the available evidence. In our review of 47 countries, generally from 1960 forward, we found that more often than not high inflation does not follow rapid money supply growth, and in contrast to this, high inflation has occurred frequently when it has not been preceded by rapid money supply growth.

To analyze the issue, we developed a database of 47 countries that together constitute 91 percent of global GDP and looked at each episode of rapid money supply growth to see if it was followed by high inflation. In the majority of cases, it was not. In fact, the opposite was true - a large percentage of the cases of high inflation were not preceded by high money supply growth. These 47 countries all rank within the top 70 largest economies as measured by GDP and include each of the top 20 countries."

https://evonomics.com/moneysupply/
#15106841
There is not (nor can be) a causal relationship between sovereign debt and inflation. I've never seen monetarists put forth a plausible mechanism that would relate one to the other.

Aside from this, inflation can't be characterized adequately by a single quantifier. Different goods, commodities, and services are subject to different, and sometimes opposing, forces - and price trends can follow different paths as well. Also, different income levels are affected quite differently by inflation. The single mom working at a supermarket is far more affected by an increase in the price of milk than her gated community counterpoint. Wage stagnation has staggered the bottom half of the population and made them far more susceptible to price increases in basic goods.

Monetary manipulation in the form of QE pumps up the value of financial assets, but doesn't help people with minimal (or negative) net worth. This is why the modern state concentrates its efforts on the financial sector, and minimizes fiscal action that would most directly aid its citizens.

We truly do live in a plutocracy.

Steve_American wrote:...Hyperinflation will *only* happen if the Gov. chooses to make it happen.


Overall, a great analysis of inflation and hyperinflation. I might slightly modify your last statement though. Hyperinflation is the signal of a radical breakdown in political stability. Government leaders don't necessarily choose this suicidal path - they stumble into it out of ignorance or delusion.
#15106852
quetzalcoatl wrote:Overall, a great analysis of inflation and hyperinflation. I might slightly modify your last statement though. Hyperinflation is the signal of a radical breakdown in political stability. Government leaders don't necessarily choose this suicidal path - they stumble into it out of ignorance or delusion.

I meant 'choose' as in the Gov. chooses to allow it to continue by printing ever larger paper money bills.
Yes, the gov. stumbles into it out of ignorance or delusion. But then it chooses to facilitate it. It could choose to do something different when it sees hyperinflation start.
#15106880
There are 2 potential causes for inflation. A supply shock, e.g. an increase in the price of imported goods, or excess demand. The government can cause both, but usually only has an interest in doing the latter, i.e. to spend a lot and tax little. How that affects the money supply depends largely on the reaction of the central bank. If it does nothing, interest rates rise and crowd out private investment somewhat. If it wants to prevent inflation, it will increase interest rates even more. If it wants to help the government, it will keep interest rates constant. All by buying/selling bonds, hereby increasing/decreasing the money supply.

Given that increases of the money supply of developed countries in the past decades were mostly reactions to a lack of demand, and hence didn't create excess demand, it's not surprising that they didn't cause inflation.
#15106954
Rugoz wrote:...Given that increases of the money supply of developed countries in the past decades were mostly reactions to a lack of demand, and hence didn't create excess demand, it's not surprising that they didn't cause inflation.


Increases in the money supply haven't stimulated demand in the past half century. The reason is that in a demand-constrained economy only a fiscal stimulus is capable of breaking the spending logjam in the private sector. Even direct payments to individuals have a lag effect before they begin to stimulate demand. If individuals are debt-burdened or behind in rent, whatever resources they have will go to de-levering first.

Once you pass these hurdles, there are still more checks on inflation. The demand must first drive up capacity utilization before available goods can be bid up. If labor market is slack, firms will face no pressure to raise wages.

During the Great Depression, anthropologists noted that a deep-seated deflation psychology took root in the population: a strong reluctance to spend, to borrow, or to hire new workers. This wasn't a fleeting effect. It took a large scale war to displace this mode of thinking. We've adapted in an analogous way to a half-century of demand suppression, stagnant wages, and general precarity. We haven't yet had full deflation, but we've had an economy always at the bleeding edge of contraction.
#15107005
Rugoz wrote:There are 2 potential causes for inflation. A supply shock, e.g. an increase in the price of imported goods, or excess demand. The government can cause both, but usually only has an interest in doing the latter, i.e. to spend a lot and tax little. How that affects the money supply depends largely on the reaction of the central bank. If it does nothing, interest rates rise and crowd out private investment somewhat. If it wants to prevent inflation, it will increase interest rates even more. If it wants to help the government, it will keep interest rates constant. All by buying/selling bonds, hereby increasing/decreasing the money supply.

Given that increases of the money supply of developed countries in the past decades were mostly reactions to a lack of demand, and hence didn't create excess demand, it's not surprising that they didn't cause inflation.

This is all based on the assumptions of Mainstream economists, that are mostly false.
He doesn't talk about deficit spending, he talks about increases in the money supply. The money supply actually increases in 2 ways. 1] The Gov. deficit spending. and 2] banks making loans. Banks create money out of thin air with every loan they make. This money is soon spent and joins all the other money in the economy. However, it is linked to a repayment contract. Therefore, there is no net increase in financial assets of the nation. In the current fiat money era deficit spending is not functionally linked to a repayment contract. The bond sold (needed only with current laws) will be redeemed with money from selling a new bond (or maybe with newly created money, which the Gov. can do at any time). So, private debt is temporary. The borrower must keep making payments. This will soon cause a recession when too many borrowers can't make their next payment, so banks slow lending, which reduces spending, and spending is always someone's income, so it reduces income which reduces GDP growth. When the growth is slowed enough to make it negative a recession has started.
. . . I don't know, but it seems to me that it is unlikely that banks can make enough loans to cause inflation.
. . . So, where he mentions "growth in the money supply" he means deficit spending.

His "excess demand" can be met in 2 ways. 1] Comp. can increase output to sell more stuff or services. or 2] Comp. can raise prices which leads to inflation. Competition is assumed to make #1 happen because some other comp. B does it and so comp. A can't raise its prices because comp. B is sucking up the excess demand.

Actually, there is a third way to have inflation. It is for much of the market to have been captured by 1 or a few comp. that then have a monopoly or that then cooperate and just keep raising prices. This way is common now.

He spoke of supply shocks and missed the most common one. A drop in supply. The inflation of the 70s started when OPEC imposed a partial embargo on oil exports to the West. There were lines at gas stations going around the block. Gas was sold on alternate days based on your license plate num. being odd or even. Then OPEC raised its price at least once and likely a few times.
. . . There is little doubt the the Arab leaders of OPEC were economic conservatives. They didn't like it that the world had done off the gold standard just a few years before. No doubt they feared inflation because the dollar was not backed with gold. They were mad because the West supported Israel in the recent war. So, they embargoed oil to the West. This reduction in supply then caused the inflation the OPEC leaders feared, so they raised their price in tune with the inflation, this caused more inflation, etc., etc. The Fed. and other central banks fought the inflation with interest rate hikes. This was a huge mistake because it was impossible for comp. to avoid increasing the price they charged for their product when their costs were going up because oil was in energy, plastic, transportation, etc. (basically everything). The resulting Stagflation did not stop OPEC from raising its prices because it didn't stop inflation. It just caused unemployment, pain, etc. Perhaps, the Fed. should have not fought the unstoppable inflation and have the State Dept. instead lean on OPEC to stop raising the price of oil. [Being very creative, I would now suggest that (then) the US Gov. secretly sell bonds to the Fed. and secretly give the money to the OPEC nations as a bribe to stop raising the price of oil. A billion or 2 would be enough. Pocket change for the US Gov. now.]
. . . In my OP my supply shock was a crop failure because these have been fairly common in history. So, we have a lot of examples to look at.
. . . One of my Profs. in college pointed out that the recorded inflation of late Roman times was likely the result of the playing out of the mines in Spain that produced the metal ore (incl. gold) that the Empire needed to make metal. If an alternate source could not be found the likely result would be an increase in the price of metal goods, including gold.
. . . Another book pointed out that the top soil of the Empire was being washed into the sea. That you could see this in the declining production of farms in Italy, then Sicily, then N. Africa, etc. Only Egypt kept producing because of the Nile floods, but Egypt was in the Eastern Empire, so Egyptian grain prices rose. And all grain prices rose. So, the Roman Gov. had inflation in both food and metal, incl. gold. It is possible that it reacted by debasing the gold coins. Therefore, debasing the coins was the result of inflation and not the cause. [We now know something the older historians didn't know. Namely, that money does not need to be gold or backed by gold, it can be valueless paper and work just fine for decades. Maybe the Romans knew this also, from their experiences with tokens that became money in Pompeii. My source is a youtube video about Pompeii and Dr. Warren Mosler.]

He talks about interest rates rising if the central bank does nothing in the face of inflation. And this crowds out investment. So, we are back to the Gov. deficits crowd out investment claim. At least it's implied. OTOH, do comp. want to invest to increase production in the face of the uncertainty of inflation? Interest rates rise because the banks want a real return that is more than their expected future inflation projections. I don't think the Fed. can stop this by buying or selling US bonds. Obviously, it can make it worse by raising interest rates which is what the Fed. did in the 70s.

His last point that, excess demand has not been created in *developed* nations because deficit spending has just partially replaced too little demand caused by a lack of wage growth, is true as far as it goes.
. . . I would add that QE is paid to rich people and the corps. they own. It is not paid to the mass of the people. The other cause of the deficits is tax cuts for the rich. The rich don't spend money from either of these sources. They invest it in stocks and real estate, where there has been high inflation. And the rise in rents that is a result of that inflation has squeezed the poor greatly for 2 decades. This is one of the causes of the lack of demand for other things.
#15107266
quetzalcoatl wrote:Increases in the money supply haven't stimulated demand in the past half century. The reason is that in a demand-constrained economy only a fiscal stimulus is capable of breaking the spending logjam in the private sector. Even direct payments to individuals have a lag effect before they begin to stimulate demand. If individuals are debt-burdened or behind in rent, whatever resources they have will go to de-levering first.


Central banks set interest rates. The money supply increase/decrease is a byproduct of that policy. Lower/higher interest rates will encourage/discourage investment and consumption (which together with government spending form aggregate demand), all things equal. Granted, discouraging arguably works better than encouraging. Not least because there's no zero lower bound. Imagine you get 10% real interest on your reserves. That would make most investment immediately unprofitable. That's not to say that demand isn't generally a more important restriction to businesses than financing (according to surveys, depending on the sector).

Needless to say we would also need to differentiate between narrow and broad money (i.e. M1-M4) if we're talking about the relationship of inflation and money.

quetzalcoatl wrote:We haven't yet had full deflation, but we've had an economy always at the bleeding edge of contraction.


That is the secular stagnation argument, that the natural rate of interest is negative (but cannot become negative for obvious reasons).
#15107270
Steve_American wrote:This is all based on the assumptions of Mainstream economists, that are mostly false.


You are simply not qualified to make such a claim.

Steve_American wrote:His "excess demand" can be met in 2 ways. 1] Comp. can increase output to sell more stuff or services. or 2] Comp. can raise prices which leads to inflation. Competition is assumed to make #1 happen because some other comp. B does it and so comp. A can't raise its prices because comp. B is sucking up the excess demand.


Companies cannot increase output if they're restricted in labor or technical capacity. That's the definition of excess demand, that output cannot increase, hence prices increase.

Steve_American wrote:Actually, there is a third way to have inflation. It is for much of the market to have been captured by 1 or a few comp. that then have a monopoly or that then cooperate and just keep raising prices. This way is common now.


All kinds of micro level things can affect price development, but we're interested in the macro level.

Steve_American wrote:He spoke of supply shocks and missed the most common one. A drop in supply.


For the US this meant an increase in the price of imported oil.

Steve_American wrote:He talks about interest rates rising if the central bank does nothing in the face of inflation. And this crowds out investment. So, we are back to the Gov. deficits crowd out investment claim.


Increased government spending increases the supply of bonds, hereby increasing interest rates, all things equal. That's not debatable, it's observable every day. It's how central banks manipulate interest rates.

Steve_American wrote:This is one of the causes of the lack of demand for other things.


Market power is a good explanation, at least for the US.
http://pages.stern.nyu.edu/~tphilipp/papers/Q_ZLB.pdf
#15107272
Rugoz wrote:
Central banks set interest rates. The money supply increase/decrease is a byproduct of that policy. Lower/higher interest rates will encourage/discourage investment and consumption (which together with government spending form aggregate demand), all things equal. Granted, discouraging arguably works better than encouraging. Not least because there's no zero lower bound. Imagine you get 10% real interest on your reserves. That would make most investment immediately unprofitable. That's not to say that demand isn't generally a more important restriction to businesses than financing (according to surveys, depending on the sector).

Needless to say we would also need to differentiate between narrow and broad money (i.e. M1-M4) if we're talking about the relationship of inflation and money.

I'm no expert, so I may be wrong, but you seem confused.
I thought there is a lower bound at zero % interest.
MMT thinks that neither encouraging the economy and discouraging the economy by moving interest rates works very well at all.
It is kind of like the problems Gov. have getting private industry to hire people compared to how easy it is to have the Gov. just hire the people. If the Gov. wants to increase the money supply it can deficit spend (with or without the Fed. buying the bonds if any are being sold) and that will certainly increase the money supply compared to the central bank moving the interest rate around to 'get' more hiring or less spending.
IMHO, Neo-liberals love bank lending because the rich own the banks and make profits off every loan. Therefore, they don't like the Gov. to deficit spend because that makes bank lending less necessary.

Rugoz wrote:That is the secular stagnation argument, that the natural rate of interest is negative (but cannot become negative for obvious reasons).

But, you just said, "there's no zero lower bound."
Here it seems like you're saying the is a zero lower bound.

I don't think the "natural rate of interest" is accepted by MMT. It is another of those conclusions that are the result of false assumptions.
.
#15107333
@Steve_American

May be. There is a valid argument to be made that inflation can be caused by many factors and the factor that you are trying to disprove is valid in SOME situations. I am not sure how scientific is it but increase in salaries seems to drive inflation up also.

From that perspective, get a 0% uneployment rate and the inflation will pick up along with salaries. Which is a double whammy on the debt to gdp ratio.
#15107536
JohnRawls wrote:@Steve_American

May be. There is a valid argument to be made that inflation can be caused by many factors and the factor that you are trying to disprove is valid in SOME situations. I am not sure how scientific is it but increase in salaries seems to drive inflation up also.

From that perspective, get a 0% unemployment rate and the inflation will pick up along with salaries. Which is a double whammy on the debt to gdp ratio.

John, when has a nation ever had 0% or even 0.1% unemployment?
. . . I said the central banks want inflation of around 2%, because almost every one thinks this is good. In this sense I should have always said "high inflation" meaning inflation over 3%.
. . . You would have to look carefully at the historical examples you seem to be pointing to. Was there also a shortage of something that must be bought? If yes, then i'm saying it was the shortage that caused the high inflation.
. . . The expert economists who have spent 25 years creating MMT want to replace Unemployment with a Lob Guarantee Program that 'offers' job at a socially inclusive family wage to everyone who wants one. They claim that this will not cause ongoing inflation, but will shock the economy when it is 1st being implemented. This wage will become the new minimum wage in the economy.

Nobody should care what the debt/GDP ratio of a nation with a full fiat currency is. This is because such debts will never be paid off. Nations don't die, at least when they do *both* their paper money and bonds become valueless. In fact the so called debt has become the assets of the nation's people; and a larger asset to GDP ratio is a great thing, not a bad thing. The whole 'national debt' thing is *just* a hold over of gold standard thinking when nations had to protect their finite gold supply by draining cash out of the economy by selling bonds. Fiat money makes this totally unnecessary.

@ Rugoz,
Yes, "no equivalent to a lower bound" is better phrasing.
#15107634
Steve_American wrote:John, when has a nation ever had 0% or even 0.1% unemployment?
. . . I said the central banks want inflation of around 2%, because almost every one thinks this is good. In this sense I should have always said "high inflation" meaning inflation over 3%.
. . . You would have to look carefully at the historical examples you seem to be pointing to. Was there also a shortage of something that must be bought? If yes, then i'm saying it was the shortage that caused the high inflation.
. . . The expert economists who have spent 25 years creating MMT want to replace Unemployment with a Lob Guarantee Program that 'offers' job at a socially inclusive family wage to everyone who wants one. They claim that this will not cause ongoing inflation, but will shock the economy when it is 1st being implemented. This wage will become the new minimum wage in the economy.

Nobody should care what the debt/GDP ratio of a nation with a full fiat currency is. This is because such debts will never be paid off. Nations don't die, at least when they do *both* their paper money and bonds become valueless. In fact the so called debt has become the assets of the nation's people; and a larger asset to GDP ratio is a great thing, not a bad thing. The whole 'national debt' thing is *just* a hold over of gold standard thinking when nations had to protect their finite gold supply by draining cash out of the economy by selling bonds. Fiat money makes this totally unnecessary.


Most of the West in the post WW2 period until mid 70s had unemployment below 5%. While 0% was an imaginary number, below 5% was not that rare. Actually it was the norm. Some countries thought 2.5% unemployment was bad but i don't exactly remember which.

Here is UK statistic for example:

Image
#15107638
JohnRawls wrote:From that perspective, get a 0% unemployment rate and the inflation will pick up along with salaries. Which is a double whammy on the debt to gdp ratio.

Look, you were the one who said 0% unemployment, not me.
So, you meant low UE. Fine.
Do you have any specific of low UE that caused inflation over 2.5%?

And why does the debt/GDP ratio matter when a nation has a full fiat currency?
Then it is really "the people's assets"/GDP ratio, why is it bad for this ratio to be high?
.
PS . In case you forgot a full fiat currency is a nation
1] with its own fiat currency
2] that floats its currency & has no peg
3] has no debts in any other currency
4] can feed itself.
#15109808
Steve_American wrote:And why does the debt/GDP ratio matter when a nation has a full fiat currency?
Then it is really "the people's assets"/GDP ratio, why is it bad for this ratio to be high?


It matters if the cost of servicing the debt is high. That means higher taxes in the future, which comes with a deadweight loss of taxation. How much the government has to spend on servicing its debt in real terms depends on how much it causes scarcity in the private sector. Fiat currency cannot magically expand the capacity of the economy, it's only freaking money.
#15109858
Steve_American wrote:
And why does the debt/GDP ratio matter when a nation has a full fiat currency?
Then it is really "the people's assets"/GDP ratio, why is it bad for this ratio to be high?

Rugoz wrote: It matters if the cost of servicing the debt is high. That means higher taxes in the future, which comes with a deadweight loss of taxation. How much the government has to spend on servicing its debt in real terms depends on how much it causes scarcity in the private sector. Fiat currency cannot magically expand the capacity of the economy, it's only freaking money.

A nation that has a full fiat currency has a zero cost of servicing its co-called debt. It just creates the dollars to pay the interest. Or, it borrows the dollars.
. . It is rolling the so-called national debt over forever. It rarely has been and will have a surplus, so it rarely has been or will be paying the so-called debt down.

I have another thread about how MMT proposes to avoid high inflation.
.
#15111464

The talk about inflationary pressures is a code word in ruling circles for the fear of rising wages. As Financial Times commentator John Authers noted in a recent article, “[W]age inflation is central to the Fed’s reaction function.”

The stupendous run-up on the global stock exchanges and vast increase in the personal fortunes of the financial oligarchy have depended on the relentless downward pressure on workers’ wages and conditions.



https://www.wsws.org/en/articles/2018/0 ... s-s28.html




Under the banner of fighting inflation, Volcker was the chief architect of the class war against the working class in the United States and internationally that continues and deepens every day. All over the world, politicians, central bankers and the corporate media have hailed his “legacy.”



What is this “legacy?” It consists of the destruction of vast swathes of industry and the malignant growth of social evils such as declining life expectancy, falling wages, rising part-time and contingent employment, the opioid crisis, record suicide rates, soaring financial speculation, and the accumulation of massive wealth in the hands of a financial oligarchy amid ever widening social inequality.

The specific mission undertaken by Volcker was to jack up interest rates and plunge the country into recession, creating mass unemployment as a means of breaking the social resistance of the working class.

A full accounting would reveal that his policies, imposed on behalf of the American ruling class, resulted in untold social misery and the premature death of millions of people, not only in the US but around the world, as he charted the path for ruling classes to follow everywhere.

The social counterrevolution that he inaugurated was from the start and remains today the bipartisan policy of the entire political establishment. Volcker embodied the unity of the Democrats and Republicans on essential issues of economic policy relating to the basic interests of the ruling class. A Democrat, he was appointed Fed chairman by a Democratic president, served under the Republican Reagan, and was brought into the Democratic Obama administration to help oversee the bailout of the banks and the post-2008 intensification of class war against the working class.



The globalization of the world capitalist economy had made it possible for American corporations, which were losing market share at home as well as abroad, to shift production to cheap-labor havens around the world. They relied on the nationalist and pro-capitalist trade union bureaucracy to pit workers against their class brothers and sisters internationally and push through layoffs and wage cuts to bolster the profits of “their” US-based companies.



Volcker was later to praise Reagan for his strikebreaking, declaring that the defeat of the PATCO workers was the most important factor in bringing inflation under control. The PATCO outcome, he said, was decisive in its “psychological effect on the strength of the union bargaining position on other issues—whatever the issues were.”



One of the themes of the praise being heaped on Volcker upon his death is that he brought stability to the capitalist economy and financial system. Nothing could be further from the truth.

American and world capitalism is sitting on a mountain of debt, estimated to be $255 trillion, or $32,500 for every man, woman and child on the planet, which threatens to implode. And the social inequality that he helped create is bringing about an international upsurge in the class struggle.



https://www.wsws.org/en/articles/2019/1 ... s-d11.html



---



The 1973 oil crisis began in October 1973 when the members of the Organization of Arab Petroleum Exporting Countries proclaimed an oil embargo. The embargo was targeted at nations perceived as supporting Israel during the Yom Kippur War.[1] The initial nations targeted were Canada, Japan, the Netherlands, the United Kingdom and the United States with the embargo also later extended to Portugal, Rhodesia and South Africa. By the end of the embargo in March 1974,[2] the price of oil had risen nearly 400%, from US$3 per barrel to nearly $12 globally; US prices were significantly higher. The embargo caused an oil crisis, or "shock", with many short- and long-term effects on global politics and the global economy.[3] It was later called the "first oil shock", followed by the 1979 oil crisis, termed the "second oil shock".



Background

American production decline

By 1969, American domestic output of oil could not keep pace with increasing demand. In 1925, oil had accounted for one-fifth of American energy use; by the time World War II started one-third of America's energy needs was met by oil. Oil started to replace coal as a preferred fuel source. It was used to heat homes and generate electricity, and it was the only fuel that could be used for air transport. In 1920, American oilfields accounted for nearly two-thirds of global oil production. In 1945, US production had increased to just over two-thirds. The US had been able to meet its own energy needs independently in the decade between 1945 and 1955, but was importing 350 million barrels per year by the late 1950s, mostly from Venezuela and Canada. In 1973, US production had declined to 16.5% of global output.[4][5]

The costs of producing oil in the Middle East were low enough that companies could turn a profit despite the US tariff on oil imports. This hurt domestic oil producers in places like Texas and Oklahoma who had been selling oil at tariff-supported prices and now had to compete with cheap oil from the Persian Gulf region. The first American firms to take advantage of low production costs in the Middle East were Getty, Standard Oil of Indiana, Continental Oil and Atlantic Richfield. In 1959, President Dwight D. Eisenhower said "As long as Middle Eastern oil continues to be as cheap as it is, there is probably little we can do to reduce the dependence of Western Europe on the Middle East." Eventually, at the behest of independent American producers, Eisenhower imposed quotas on foreign oil that would stay in place between 1959 and 1973.[5][6] Critics called it the "drain America first" policy. Some scholars believe the policy contributed to the decline of domestic US oil production in the early 1970s.[7] While US oil production declined, domestic demand was increasing at the same time, leading to inflation and a steadily rising consumer price index between 1964 and 1970.[8]

US surplus production capacity had declined from 4 million bpd to around 1 million bpd between 1963 and 1970, increasing American dependence on foreign oil imports.[8] When Richard Nixon took office in 1969, he assigned George Shultz to head a committee to review the Eisenhower-era quota program. Shultz's committee recommended that the quotas be abolished and replaced with tariffs but Nixon decided to keep the quotas due to vigorous political opposition.[9] Nixon imposed a price ceiling on oil in 1971 as demand for oil was increasing and production was declining, which increased dependence on foreign oil imports as consumption was bolstered by low prices.[8] In 1973, Nixon announced the end of the quota system. Between 1970 and 1973 US imports of crude oil had nearly doubled, reaching 6.2 million barrels per day in 1973. Until 1973, an abundance of oil supply had kept the market price of oil lower than the posted price.[9]



OPEC

The Organization of the Petroleum Exporting Countries (OPEC), was founded by five oil producing countries at a Baghdad conference on September 14, 1960. The five founding members of OPEC were Venezuela, Iraq, Saudi Arabia, Iran and Kuwait.[10] OPEC was organized after the oil companies slashed the posted price of oil, but the posted price of oil remained consistently higher than the market price of oil between 1961 and 1972.[11]

In 1963, the Seven Sisters controlled 86% of the oil produced by OPEC countries, but by 1970 the rise of "independent oil companies" had decreased their share to 77%. The entry of three new oil producers—Algeria, Libya and Nigeria—meant that by 1970 81 oil companies were doing business in the Middle East.[12][13]

In the early 1960s Libya, Indonesia and Qatar joined OPEC. OPEC was generally regarded as ineffective until political turbulence in Libya and Iraq strengthened their position in 1970. Additionally, increasing Soviet influence provided oil producing countries with alternative means of transporting oil to markets.[14]

Under the Tehran Price Agreement of 1971, the posted price of oil was increased and, due to a decline in the value of the US dollar relative to gold, certain anti-inflationary measures were enacted.[14][15][16]

In September 1973, Richard Nixon said, "Oil without a market, as Mr. Mossadegh learned many, many years ago, does not do a country much good", referring to the 1951 nationalization of the Iranian oil industry, but between October 1973 and February 1974 the OPEC countries raised by posted price fourfold to nearly $12.[17]



The "oil weapon"

Arab oil producing countries had attempted to use oil as leverage to influence political events on two prior occasions—the first was the Suez Crisis in 1956 when the United Kingdom, France and Israel invaded Egypt. During the conflict the Syrians sabotaged both the Trans-Arabian Pipeline and the Iraq–Baniyas pipeline, which disrupted the supply of oil to Western Europe.[20][21] The second instance was when war broke out between Egypt and Israel in 1967, but despite continued Egyptian and Syrian enmity against Israel, the embargo lasted only a few months.[5] Most scholars agree that the 1967 embargo was ineffective.[22]



Effectiveness of embargo

The embargo lasted from October 1973 to March 1974.[20] Since Israeli forces did not withdraw to the 1949 Armistice Line, the majority of scholars believe that the embargo was a failure. Roy Licklieder, in his 1988 book Political Power and the Arab Oil Weapon, concluded that the embargo was a failure because the countries that were targeted by the embargo did not change their policies on the Arab–Israeli conflict. Licklieder believed that any long term changes were caused by the OPEC increase in the posted price of oil, and not the OAPEC embargo. Daniel Yergin, on the other hand, has said that the embargo "remade the international economy".[28]

Over the long term, the oil embargo changed the nature of policy in the West towards increased exploration, alternative energy research, energy conservation and more restrictive monetary policy to better fight inflation.[29]



International relations

The crisis had a major impact on international relations and created a rift within NATO. Some European nations and Japan sought to disassociate themselves from United States foreign policy in the Middle East to avoid being targeted by the boycott. Arab oil producers linked any future policy changes to peace between the belligerents. To address this, the Nixon Administration began multilateral negotiations with the combatants. They arranged for Israel to pull back from the Sinai Peninsula and the Golan Heights. By January 18, 1974, US Secretary of State Henry Kissinger had negotiated an Israeli troop withdrawal from parts of the Sinai Peninsula. The promise of a negotiated settlement between Israel and Syria was enough to convince Arab oil producers to lift the embargo in March 1974.[2] and again during the 1979 energy crisis.

United States

America's Cold War policies suffered a major blow from the embargo. They had focused on China and the Soviet Union, but the latent challenge to US hegemony coming from the Third World became evident.

In 2004, declassified documents revealed that the US was so distraught by the rise in oil prices and being challenged by under-developed countries that they briefly considered military action to forcibly seize Middle Eastern oilfields in late 1973. Although no explicit plan was mentioned, a conversation between U.S. Secretary of Defense James Schlesinger and British Ambassador to the United States Lord Cromer revealed Schlesinger had told him that "it was no longer obvious to him that the U.S. could not use force." British Prime Minister Edward Heath was so worried by this prospect that he ordered a British intelligence estimate of US intentions, which concluded that America "might consider it could not tolerate a situation in which the U.S. and its allies were at the mercy of a small group of unreasonable countries", and that they would prefer a rapid operation to seize oilfields in Saudi Arabia and Kuwait, and possibly Abu Dhabi if military action was decided upon. Although the Soviet response to such an act would likely not involve force, intelligence warned "the American occupation would need to last 10 years as the West developed alternative energy sources, and would result in the 'total alienation' of the Arabs and much of the rest of the Third World."[65]



https://en.wikipedia.org/wiki/1973_oil_crisis
#15112909
Steve_American wrote:A nation that has a full fiat currency has a zero cost of servicing its co-called debt. It just creates the dollars to pay the interest. Or, it borrows the dollars.
. . It is rolling the so-called national debt over forever. It rarely has been and will have a surplus, so it rarely has been or will be paying the so-called debt down.

I have another thread about how MMT proposes to avoid high inflation.
.


You avoid inflation by not servicing your debt with money creation, for starters. You always treat inflation as an afterthought, when it's at the center of it, because it is (or should be) a measure of capacity utilization.
#15113015
Steve_American wrote:
A nation that has a full fiat currency has a zero cost of servicing its co-called debt. It just creates the dollars to pay the interest. Or, it borrows the dollars.
. . It is rolling the so-called national debt over forever. It rarely has been and will have a surplus, so it rarely has been or will be paying the so-called debt down.

I have another thread about how MMT proposes to avoid high inflation.


Rugoz wrote:
You avoid inflation by not servicing your debt with money creation, for starters. You always treat inflation as an afterthought, when it's at the center of it, because it is (or should be) a measure of capacity utilization.


Sir, you started 2 sentences there with "You".
This is confusing. A pronoun without some word it refers to is always confusing.
In the 1st sentence you can't mean me because I can't create money.
So, you seem to mean "Any nation avoids".
Then in the 2nd sentence you more likely mean me personally.
The sentence makes sense to me with "Any nation treats", except that the "when it's at the center of it" seems to attack the point before as false or bad.

I think that MMTers would agree with, "You always treat inflation as an afterthought, because it is (or should be) a measure of capacity utilization." You see they think that US labor is way under utilized and that this is inefficient, harmful, and unnecessary.

As for the 1st sentence. Borrowing to pay an old bond off is not creating money. Simply put; before the transactions guy A has a $100K bond, and guy B has $100K in cash. After the transactions; guy A has $100K cash and guy B has a $100K bond. There s also some interest that has been paid.

I don't suggest that the US Gov. make it a policy of paying off old bonds with newly created dollars. Some MMTers do seem to suggest it do exactly that. But, not ME. I do suggest that the US Gov. be willing to pay old bonds off with created dollars because this takes all power away from the "bond vigilantes". MMTers assert that when inflation starts it can be dealt with by raising taxes, which will reduce the money supply unless all the taxes are spent back into the economy. If there is inflation then it might be a good idea to have a surplus.
. . . However, MMTers assert that at the moment (even before the pandemic) the US economy could have many more people working, without causing inflation. They want the Gov. to pay them to do useful work (which may not allow a profit by private comps, for example filling potholes in the streets) instead of paying them to sit at home or go classes to learn a skill for which there is no private demand or job waiting.

But like I said, you (sir) used "You" twice with no antecedent either time.
.
Election 2020

I don't think It is a good idea. Democrats don't […]

Campaign Kanye

He's sincere and idealistic, and not a puppet o[…]

The Wuhan virus—how are we doing?

We must punish China to distract from the presiden[…]

Arctic sea ice

The earth only has so much CO2. There can be no r[…]