I've been telling you that MS econ is based on false assumptions, why doesn't this change your mind? - Page 2 - Politics Forum.org | PoFo

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#15190031
Steve_American wrote:
So, let me get this straight. You think that a Koch brothers' think tank would say every case of hyperinflation was caused by shortages proves that that isn't true?



Not what I said...

In my distinctly unhumble opinion, I wouldn't touch them with a thousand mile pole.
#15190032
Steve_American wrote:1] I have pointed to Japan as an example of a nation that has been borrowing a lot (now over 256.22% of its GDP in 2020) for 28 or 29 years now and 45% of its bonds are currently held by the Bank of Japan. This is more like printing money than selling bonds to the public to fund the deficit. Is Japan in trouble yet? No? Why not?


https://www.bbc.com/news/business-53802967.amp

Japan you say. The king of exploding bubbles and economic financial crashes due to an over supply of Yen. OK bro. :lol:

The truth is, MMT is not entirely wrong. Japan has survived by using many practices of MMT as well as the 2008 crash in which we all did MMT. But you remind me of an article I read once about the importance of taxation and that understand the practice will explain why MMT isn't without assumptions in any case.

https://www.google.com/amp/s/amp.ft.com/content/bcb523c3-7448-4cd6-a2d2-69b8f13be8f3

And of course you are aware that taxation to MMT is a way to control of inflation. However I have told you before, that you have never actually understood MMT properly given the whole premises of borrowing is to make growth and recoup that borrowing with taxation in later years. You think it is OK the just print money whenever we need to. Well that causes a contradiction in which the supply of money exceeds demand of it which causes inflation or bubbles in the market like Japan. I am not saying that a nation can go bust BTW. What I am telling you is assets become defacto more, the cost of living goes up and that has a detrimental effect on the poor and de facto increases the wealth of the rich due to their excess of assets.

2] All of the examples of history are from the time when the world was on the gold standard, or involved a shortage of foreign currency, or food or oil that had to be bought with foreign currency. Also, Greece uses the euro and so doesn't issue its own money. None of the cases would apply today to nations like UK, US, Canada. Aust., NZ, Japan, etc. The world changed in 1971. MS econ. ignores this year that changed the world. It never mentions it, because it wants to ignore the effects of this.


I would say the events of 70s was because we went off Gold standard onto Fiat and that we had to adjust our understanding of an influx of new currency into a market that caused the inflation which stabilised over time. Argentina and Zimbabwe was after the 70s anyway and as such these are examples (which the exception of Weimar) after Gold Standard in any case. Also Argentina is like on its twentieth crash and the reason for that is they have yet to tackle the problem by returning borrowing with taxation and continues its social programs and borrowing large sums from the IMF. In fact if you want to understand what I am telling you all the time, you should be researching Argentina.

And no I didn't mention Greece. We have had the debate on here before that Greece relies on the Eurozone for its stimulus due to not having full control on the ECB. I have never said a nation who has control of its own central bank can go bust in any case, but that increased borrowing causes inflation which in turn causes issues of personal budgets and spiralling prices. And in laymen that is telling you that like MSc, MMT isn't without assumptions and contradictions.

3] Yes, the US is special. The US$ is the worlds reserve currency. However, as of now there is no nation that can compete with the US. And this will not change in the next 20 years, during which time ACC will devastate the world as it is already starting to do. After ACC has peaked all bets are off.
. . . a] China can't be trusted and has currency controls in place.
. . . b] Russia can't be trusted.
. . . c] Germany is in the EU & EZ and uses the euro. Also, it doesn't sell many bonds in any year. So its bonds can't be enough to meet the world demand.
. . . d] The UK, maybe, but I think not. At least it is out of the EU. But, it doesn't want to run large deficits.
. . . e] All other nations are just too small.


And the US can be trusted with currency controls? :roll:

The truth is that the Euro is becoming the competition for the Dollar. Oil is now being traded in Euros and also in commodity exchange. And of course China will soon take over the US economy anyway. The US is fortunate for the reasons I explained in my last post. But it may not have those luxuries forever and the acid test on the Dollar and inflation is when we are off oil in any case.

4] I didn't make up any of my assertions. Everyone was lifted from others. For example, in the last week or so I saw a youtube video and I think I posted a link here to it somewhere. In it they asserted that MS econ. does exclude from consideration all thoughts about the Earth setting limits like the 2 I mentioned. The fact that you have not seen a MS source say those things is not really evidence that it hasn't said them.


Well YouTube isn't the forthfront of economics. Climate change isn't relevant to MSc and yes population is important to growth, but that is a contradiction that most economists are aware of. Also growth for MSc is a way in control inflation by borrowing as in means more tax receipts in the future. And to explain why growth is important to borrowing, with the amount of dollars in the market, if only two people tomorrow only used Dollars (so a reduction in population), what do you think will happen to inflation?

5] Bank loans create cash and the asset you mentioned. As such they have no net effect on net worth, but they do add to incomes in the here and now. I have explained the process a few times here. Yes, I'm not an expert and so may not be believed or may even get some points wrong. Yet, nobody has said that I am wrong in my explanations of how bank loans cause many recessions.


Loans are merely a way to increase spending through credit. They are no different than giving people free money in that case. The only difference is they are an asset so profits go to a bank. And loans are a known contradiction in any case. It caused a boom in the 80s as it increased spending and now stems growth due to people servicing their debt. Hence why interest rates are so low now. Increasing them may well bankrupt most people as well as businesses. So sure, they may cause recession, but who argues otherwise. That doesn't mean MMT is correct. It just means that MSc has a contradiction.

6] Of course the economy is sputtering along. How can it fail? What would you see as a failure? I think that you don't grok my point. My point is that all predictions made by MS economists have failed to come true. Over a year ago I asked anyone here to find one prediction that did come true. No one did. Oh, 3 claimed they did, but none was made by a MS economist. Prof. Steve Keen is not MS. I can point to several predictions that MMTers claim to have made in print, that did come true. So, in 40 years of Neo-liberal MS econ. not one true prediction, but about 5 in 25 years for MMTers. 5 to 0 is a good batting average.
. . . If you want to you can find one prediction by a MS econ., and I'll look at it and see if it is a good example. I'm open to this and I'm honest, and I will admit I'm wrong. If you can find 1 good example. So, far this year we have seen many predictions of high inflation turning to hyperinflation and none have come true yet.
. . . So, did any economists predict the GFC/2008? Yes. Steve Keen did and so did 1 MMTer. Did any MS economist predict it? I've not heard of any. They were all claiming that such a crash was a thing of the past.


Economists who predicted 2008...

https://www.google.com/amp/s/www.businesstoday.in/amp/latest/story/these-people-predicted-the-2008-recession-and-were-laughed-at-109924-2018-09-28

Google is your friend. I remember talking about it has it happens before 2008. And today we have economists taking about other bubbles like another housing crisis and car loans of all things. So yes, economists are aware their system isn't flawless. In fact they know bubbles and crashes are by and large inevitable.

7] Did you ever look up or read the report that I have mentioned 3 times by the conservative respected MS econ. Cato Institute about the examples of hyperinflation in history? It found 47 IIRC examples, and all were after 1900. All your examples were in the list. However, in every case the cause was not too much money, instead it was shortages of food, oil, or foreign currency. For example, the one in Weimar Ger. was caused by Ger. being unable to pay the reparations in the treaty in the required gold, Francs, or Pounds. So, it tried to buy gold with printed money and didn't stop when the inflation started. All they had to do was stop printing money to buy gold. Of course France and Great Britain would have punished Ger. for that.
. . . Zimbabwe was caused by the Gov. doing land reform that gave the land to soldiers who didn't know how to farm. The resulting crop failure caused a need to buy food from overseas. So, it printed money and this caused the inflation. The shortage always comes 1st, and then the response is to print money. Try finding the Cato Institute report and reading it. Then get back to me about this point. If you can't find it maybe I can, but I'm not as computer savvy as you are.


Sure, shortages are an issue. They were an issue for the reason we had inflation recently given we ceased production and paid people to sit on their ass. But that doesn't mean printing money is the answer. Historically it hasn't worked and I don't see why you think it will now. Basically borrowing should be done solely for growth and not "anti growth" which is what the stimulus packages are. There is huge unemployment in the West at the moment btw. And no, printing money does cause inflation which is why I mentioned Weimar. It doesn't mean it was the only problem they had, only that it made the problem worse.
#15190047
Steve_American wrote:1] Yes, you are right, but that is what MMT says.

Oh? Where does it say that?
MMT also says that taxation is what gives fiat money its universal value inside a nation.

Also not quite correct. It is the fact that fiat money is considered to settle all legal obligations that gives it value.
2] OK, define "will not work".

It won't have the intended effect of reducing inequality and providing productive employment to all.
IMO, the JGP will certainly work in that it will give a job to everyone who wants one.

Be careful what you wish for. What good will all those "jobs" do if landowners just charge everyone that much more rent for permission to access the enhanced economic opportunity (which they will; why not?) and the people holding those jobs aren't actually producing anything of value?
So, all people who are not working are doing it by choice.

People having jobs and "working" does not solve the problem. The advance of AI means that more and more people will be unable to do any job better than a computer. At what point will you give up and admit that jobs aren't the answer? When 50% of the workforce is performing busywork that machines could do better, faster and cheaper? 80%? 95%? 100%?
It isn't a terrible min. wage job either. At $25/hr it is 2.4 times the current min. wage in the US.

It is a band-aid to avoid dealing with the real problem: privilege, especially landowner privilege.
Maybe you mean that it will cause inflation. If so say so and explain how it will.

It will cause inflation if the money diverts resources from more productive avenues and net money issuance consequently outstrips production.
3] Yes, banks creating money is destabilizing. However, some element in the economy must be adding money to replace the money going into savings.

In a correctly designed monetary system, savings are lent or spent back into the economy because they will buy more desirable goods and services now than later.
Also, money used to buy stuff from overseas. This was a huge problem way back in the 13 colonies. England wanted taxes paid in gold or paper English money. So, there was always a shortage of hard money. Nobody understood the economy then like MMT does. [See, i.e., google "the paradox of thrift".]

This is a problem because the US$ has the exorbitant privilege of being the international reserve currency, and circulates unregulated in many other countries. All national currencies should float, and the market determine their exchange rates.
MMT says to look at the EU & EZ for great examples of how a lack of growth in the money supply strangles national economies.

The money supply has to grow to accommodate economic growth, and the euro is a good example of why money is rightly the responsibility of national governments, not international banksters.
IMO, MMT doesn't misunderstand the problems.

But you are wrong, and if MMT proposals are actually implemented as policy, you will see the proof that you are wrong. The problem is privilege, especially landowner privilege. MMT is a band-aid. Whenever you see anyone pooh-poohing the role of land in economic and social problems, as MMTers all do, you know you are dealing with either economic ignorami or disingenuous apologists for greed, privilege and injustice.
And spending money on many problems will actually solve them.

Not when it just makes them worse, as the US medical care system proves.
There are only 3 kinds of money. Gold, etc., fiat money, and debt money.

Nope. Five: commodity money, fiat money, deposit money, debt money, and (maybe) crypto. Deposit money is created when customer savings are deposited in a bank. The difference between deposit money and debt money is that the bank's balancing asset is cash, not a loan, and deposit money doesn't have to be erased according to a principal repayment schedule as debt money does. Crypto is a topic for another thread, and its nature and ultimate role are still unclear (but FTR, I am skeptical).
. . . a] Banks create debt money with loans if they are allowed to. Pawnbrokers don't create money because they are not allowed to.

Bank lending inherently creates debt money because the new loan asset has to be balanced by a new liability. The point is to prevent that creation of debt money from increasing the money supply, by requiring private commercial banks to hold 100% reserves to cover demand deposits and maturity-matched assets to cover all their other liabilities. That way, they have to remove the same amount of money from the money supply as the new money they create with the loan, and can then bring it back into the money supply as the loan principal is repaid.
. . . b] Gold money can't increase so it strangles the economy.

Commodity money such as gold can most certainly increase, and has distinct advantages such as negative feedback and not being controllable by governments. But we can't get there from here: any attempt to return to using gold as money will be deflationary (Bitcoin is even worse).
. . . c] Fiat money is the answer.

Correct. But it should only be issued by an independent Mint whose sole mandate is price stability as measured by a commodity price index weighted by value of final deliveries. Such a Mint would issue enough money to the Treasury to be spent into circulation as needed to keep commodity prices stable. This would result in a slow (~1%) inflation relative to wages and consumer goods and services.
Frankly, the world has had a fiat money system since the end of WWII.

No, it has had a hybrid system of fiat, deposit, and (mostly) debt money, with a commodity (gold) element until 1971.
The thing is that most fiat money today is not debt money, because for example 45% of the Japanese national debt is held by the BOJ, so when the Japanese Gov. pays the BOJ when a bond comes due, the BoJ turns around and pays all or over 97% of the payment back to the Japanese Gov.

Debt money is created by private commercial banks when they lend, and is erased by principal repayments.
. . . The rest of the money isn't debt money because it can be (and must be) rolled over FOREVER. See my thread on why this is.

It doesn't have to be rolled over forever. It can -- and should -- be replaced with debt- and interest-free fiat money.
. . . . . The main reason is that taxing that much money out of any nation's economy (US, EU, UK, Aust., Canada, Japan, etc) will stop almost all spending and crash the economy.

Yes, deflation is much more dangerous than inflation.
You can add money at a reasonable rate into an economy without hurting the econ., but there is no rate at which you can extract it from an economy without crashing the econ.

No, that depends on the relationship between money and production. Variations in production and the balance of external trade can extract money from an economy without crashing it.
This is because there is a big gap between -0.001 (a small rate of removal) and +2.000 (the normal addition rate). Slowing the removal rate to +0.500 is not extracting money from the economy, it is just slowing the adding; and econ. history shows that this rate of adding $ will cause a recession. So, my point is proved.

You risk confusing cause and effect. Declining production can remove money from the economy, but that doesn't mean the removal of money caused the decline in production.
That is your opinion.

Yes, and it is a reasoned and informed one.
My opinion is it is the bribes, because without the bribes in the 50s, 60s, and 70s, the Gov. worked just fine.

No, it did not. It just worked better than it has since then. But the problem of privilege was still festering, and was bound to get worse.
The Gov. followed the rules established by FDR and the New Deal, and it worked wonderful. It was the best time in human history for the masses (in the West at least) to be growing up.

But the storms were brewing even then. The greed and power of the privileged cannot be allowed free rein if we want good times to last.
Then, in the late 80s the USSC ruled that spending money was a part of free speech, and it struck down the antibribery election finance laws.

Then how do you explain the fact that inequality has also got much worse in other countries like New Zealand, Sweden and South Korea, where Citizens United is completely irrelevant to the electoral process?
#15190104
late wrote:Not what I said...

In my distinctly unhumble opinion, I wouldn't touch them with a thousand mile pole.


Well, that is what I heard. So, what did you mean?

OK, I grok that you have zero respect for the Cato Inst. Fine, I agree.
However, when they say things that are not the normal narrative that you expect, it does make me think that (in just this case) they are saying out loud things that are true that ME econ. doesn't want said.
#15190112
B0ycey wrote:https://www.bbc.com/news/business-53802967.amp

Japan you say. The king of exploding bubbles and economic financial crashes due to an over supply of Yen. OK bro. :lol:

The truth is, MMT is not entirely wrong. Japan has survived by using many practices of MMT as well as the 2008 crash in which we all did MMT. But you remind me of an article I read once about the importance of taxation and that understand the practice will explain why MMT isn't without assumptions in any case.


OK, I clicked on your link above and this is what I found. The article dated Aug. 2020, blames the covid pandemic for the GDP dropping by Aug. 2020. I quote the 1st 4 lines in the article.
The Japanese economy has shrunk at its fastest rate on record as it battles the coronavirus pandemic.

The world’s third largest economy saw gross domestic product fall 7.8% in April-June from the previous quarter, or 27.8% on an annualised basis.

Japan was already struggling with low economic growth before the crisis.

The figures released on Monday are a stark reminder of the severe financial impact faced by countries around the world.

Two things ---
1] IIRC the great real estate bubble in Japan was in the 80s and popped about '91. I had said that Japan had been deficit spending and borrowing for 28 or 29 years. That is, I said that the period I was referring to with the high borrowing started after the bubble popped.
2] MMTers will tell you that the reason the Japanese economy has been struggling is BECAUSE the deficits were not big enough. They specifically say that Japan was talked into raising the sales tax 2 or 3 times and every time the economy slumped. MMTers say this slump was BECAUSE of the tax increase. They do have an argument they make to support this assertion.

[url]The 2nd link he provided is --- https://www.google.com/amp/s/amp.ft.com ... b8f13be8f3[/url]


This link goes to a black page with a "FT" logo in the middle.
I don't know how to get to any content there. How do I?
#15190116
Truth To Power wrote:Oh? Where does it say that?

Also not quite correct. It is the fact that fiat money is considered to settle all legal obligations that gives it value.

It won't have the intended effect of reducing inequality and providing productive employment to all.

Be careful what you wish for. What good will all those "jobs" do if landowners just charge everyone that much more rent for permission to access the enhanced economic opportunity (which they will; why not?) and the people holding those jobs aren't actually producing anything of value?


I'll reply to all 3 of you more later, I hope.
I'll keep this reply to, TtP, short.

The MMT-JGP offers a job to all who want one.
It is up to the local admin. to see that the work done is "socially useful". Is this productive? I don't know your definition of 'productive', TtP.
Maybe only jobs that are producing things or services that are are sale are 'productive'. But then, all teachers in public schools, all gov. workers (local, state, & Fed.), everyone in the army, navy, & air force are not doing productive work. I'm not sure that this is necessary. All that is necessary is that the balance of deficit spending, taxes, things and services produced not cause high inflation by demanding more resources or labor than the nation can obtain.

Actually, the legal tender thing is not always present in all nations now with their own fiat currency. Doesn't this blow a hole in your argument? Also, legal tender laws don't say the seller can't jack-up the price when the fiat money is offered, or give a discount if some other means of payment is offered.
. . . MMTers argument is that taxes in a nation give its fiat currency some thing that people must use the fiat money to do.

Yes, MMTers don't have any policy directive except the MMT-JGP.
But, they are not against taxes to fight problems like inequality and the monopoly power of landlords.
They do call for such taxes and other laws, or regs.
.
I hope there are no typos, I must go now.
#15190126
@B0ycey,
Just a shot reply.
Sir, you speak of the contradictions in MSc econ. theory as if they are no big deal.
And, then you speak about the assumptions or other problems on MMT as if they are such big deals that they invalidate everything I say about MMT.
It doesn't convince me when you hand wave away the "contradictions" of MS Econ. while not explaining why the problems you see with MMT are fatal.

Also, I never said that MMT didn't have assumptions. Of course it does. However, having assumptions is fine when the thing a theory assumes to be true is true.
I never criticized the true assumptions of MS Econ. theory. I always talk about the false assumptions that it assumed to be true. Using false assumptions that were assumed to be true is NEVER allowed in logic, never! This is because if this were allowed then it would be possible to prove *literally* anything. IMHO, this is what MS econ. did when it assumed that the market in the US was a perfect market (where every player knew everything about everything in the market. And then proved that this market set the "correct price" for everything. And other conclusions that the theory proved from that assumption.

How does depositing money into a bank create money? Unless the bank lends it. Which banks, now, do not do.
BTW-- I wrote in the present tense about the 3 kinds of money. A kind of money that doesn't exist now but did in the past was not on my radar. Crypto is not money. It is gambling tokens.
#15190129
A dollar isn't worth anything itself, its just a piece of paper or a number in a computer system. A dollar is ONLY worth something because there's a limited supply of them.

If you increase the number of total dollars in the market the dollar loses value. If the government gives everyone a million dollars for free, homes that normally cost $500k each would now cost significantly more because everyone now has more money to use to bid when buying a house. This is called inflation. If the dollar loses value it also means a country's buying power vis-a-vis the currency of other countries is reduced. There's no way around inflation, because an economy isn't based on money supply its based on how much valuable goods (wealth) a country produces. More money in the money supply doesn't make workers work more productively, or make them discover new natural resources or create new products people want to buy.

Over the longterm whether taking on debt year after year is good or not depends on whether the money that's borrowed and spent creates more wealth for a country than is lost paying back the interest on that debt.
#15190132
Steve_American wrote:Two things ---
1] IIRC the great real estate bubble in Japan was in the 80s and popped about '91. I had said that Japan had been deficit spending and borrowing for 28 or 29 years. That is, I said that the period I was referring to with the high borrowing started after the bubble popped.
2] MMTers will tell you that the reason the Japanese economy has been struggling is BECAUSE the deficits were not big enough. They specifically say that Japan was talked into raising the sales tax 2 or 3 times and every time the economy slumped. MMTers say this slump was BECAUSE of the tax increase. They do have an argument they make to support this assertion.


The Japanese economy has been struggling because population growth plateaued around 25 years ago and is now declining. That means less consumers and less workers to produce goods. An aging population means an increasing % of retired people, and retired people don't produce goods and they tend to consume less. Japan can borrow all they want to try and keep their heads above water but it won't save a sinking ship.

https://www.macrotrends.net/countries/J ... rowth-rate
#15190133
Steve_American wrote:I'll reply to all 3 of you more later, I hope.
I'll keep this reply to, TtP, short.

The MMT-JGP offers a job to all who want one.
It is up to the local admin. to see that the work done is "socially useful". Is this productive? I don't know your definition of 'productive', TtP


They should keep unemployment programs in place but force people using them to work for the state while looking for a new job. Maybe they could go around picking up litter or some other useful task that's quickly trainable and not highly desirable.

As of right now in most countries everyone is guarantee a job paid by the government but it typically involves sitting on one's arse doing nothing. Countless millions of people got free COVID benefits for staying at home to do nothing...surely some of these people could have been doing....something productive?
#15190136
Unthinking Majority wrote:The Japanese economy has been struggling because population growth plateaued around 25 years ago and is now declining. That means less consumers and less workers to produce goods. An aging population means an increasing % of retired people, and retired people don't produce goods and they tend to consume less. Japan can borrow all they want to try and keep their heads above water but it won't save a sinking ship.

https://www.macrotrends.net/countries/J ... rowth-rate

Well, if there is no solving this economic problem, then the world is going to be a terrible place to live.
Why? Because population has just about reached a peak.
Why? Because at 3% growth /year the pop. doubles each 24 years. And, it is quite impossible for the pop. to double to 19B ever, and certainly not in 24 years.
The pop. of the world and of most countries will have to stop growing in less than 24 years. Even without ACC.

Maybe instead of looking at the net GDP change, the world will have to look at the GDP/capita in the future. Then a constant net GDP can have an increasing per capita GDP as the pop. falls.
#15190137
Unthinking Majority wrote:They should keep unemployment programs in place but force people using them to work for the state while looking for a new job. Maybe they could go around picking up litter or some other useful task that's quickly trainable and not highly desirable.

As of right now in most countries everyone is guarantee a job paid by the government but it typically involves sitting on one's arse doing nothing. Countless millions of people got free COVID benefits for staying at home to do nothing...surely some of these people could have been doing....something productive?

This is a very bad idea. MMT-JGP pays a very nice living wage as the economy fails to provide enough private jobs for everyone. AI may be a problem soon.
So, no.
#15190142
Steve_American wrote:OK, I clicked on your link above and this is what I found. The article dated Aug. 2020, blames the covid pandemic for the GDP dropping by Aug. 2020. I quote the 1st 4 lines in the article.


The underlining point of the post was the Japanese economy hasn't been doing well. And it hasn't been doing well for a few decades now. So when you write things like 'Japans economy isn't in trouble', that was a post to merely explaining that it is actually.

Two things ---
1] IIRC the great real estate bubble in Japan was in the 80s and popped about '91. I had said that Japan had been deficit spending and borrowing for 28 or 29 years. That is, I said that the period I was referring to with the high borrowing started after the bubble popped.


And in that period growth has barely raised, real wages have dropped and compared to other leading nations their economy is in decline. So if mass borrowing is the answer, you need to explain why that is.

The truth is quantitative easing is merely a fix to a problem that causes more contradictions down the line.

2] MMTers will tell you that the reason the Japanese economy has been struggling is BECAUSE the deficits were not big enough. They specifically say that Japan was talked into raising the sales tax 2 or 3 times and every time the economy slumped. MMTers say this slump was BECAUSE of the tax increase. They do have an argument they make to support this assertion.


Well they are wrong. The Japanese bubble burst not because there wasn't enough Yen, but because everyone was putting their money into real assets like property. For growth, you need spending in all sectors of the economy and that is a mentality thing. The reason why the Japanese economy is fucked is because by increasing the money supply, that doesn't lower property prices or allows people to spend more, what it does is give people more money to bid up property prices further. Should the property prices ever crash, because of Japans huge debt, given their money is tied up, that may well cause inflation. But at the very least a lot of people will lose money and what happens when people don't have any free money due to debt burden... that's right. Recession. Your solution would be to shake the money tree further. But all that will do is increase the money supply, lower real wages stagnate growth... oh and revive the housing market by increasing the price of homes again and continue to make property unaffordable for most people.

Have you ever thought that increasing the money supply doesn't make the poor richer but the rich richer due to asset inflation?
#15190144
Unthinking Majority wrote:A dollar isn't worth anything itself, its just a piece of paper or a number in a computer system. A dollar is ONLY worth something because there's a limited supply of them.

If you increase the number of total dollars in the market the dollar loses value. If the government gives everyone a million dollars for free, homes that normally cost $500k each would now cost significantly more because everyone now has more money to use to bid when buying a house. This is called inflation. If the dollar loses value it also means a country's buying power vis-a-vis the currency of other countries is reduced. There's no way around inflation, because an economy isn't based on money supply its based on how much valuable goods (wealth) a country produces. More money in the money supply doesn't make workers work more productively, or make them discover new natural resources or create new products people want to buy.

Over the longterm whether taking on debt year after year is good or not depends on whether the money that's borrowed and spent creates more wealth for a country than is lost paying back the interest on that debt.

These are just assertions, with no evidence. They only convince the already convinced.
You are ignoring the effect of savings. Google the Paradox of Thrift.
. . . Like I have said MS econ. theory assumes that savings are used by banks to make loans. This practice ended back in 1913 when the Fed. Res. Bank was created by a US Gov. law. Now-a-days, loans create deposits that move between banks, so banks can always borrow from another bank to meet its reserve requirement a week after the loan was made. If no bank will make the loan the Fed. will in every case.
. . . Therefore, there is now no mechanism for savings to be put back into circulation to support the net income of the nation. They just sit there in the bank. Yes, actual cash deposits are use to make change but that doesn't count. Deposits by check are more obvious. The amount of the check is added to your account. And nothing else happens to that money. Only, if the saver decides to spend it does it move again.
. . . Again, I claim that for banks to use the savers' money to make a loan, the bank must move money from some account in the bank's bookkeeping system to the account of the borrower. And, before that, the money would have to have been moved on the bank's books from the saver's account to that special un-named account. This doesn't happen anymore. Likely it did happen 200 years ago, but not anymore.

You are also ignoring the effect of money that leaves a nation to buy foreign stuff. It can't cause inflation until it returns to the original nation.
#15190145
Steve_American wrote:@B0ycey,
Just a shot reply.
Sir, you speak of the contradictions in MSc econ. theory as if they are no big deal.
And, then you speak about the assumptions or other problems on MMT as if they are such big deals that they invalidate everything I say about MMT.
It doesn't convince me when you hand wave away the "contradictions" of MS Econ. while not explaining why the problems you see with MMT are fatal.


I don't say that MSc contradictions are no big deal. In fact I say they are a very big deal. However what I also say is that increasing the money supply is a big deal too. To you you think that all the economies problems can be printed away and all the contradictions will just go awat and we can spend like drunken sailors and boom up the economy. So which economy has successfully done that? Germany, Argentina, Zimbabwe... or even your favourite goto point...Japan?

Also, I never said that MMT didn't have assumptions. Of course it does. However, having assumptions is fine when the thing a theory assumes to be true is true.
I never criticized the true assumptions of MS Econ. theory. I always talk about the false assumptions that it assumed to be true. Using false assumptions that were assumed to be true is NEVER allowed in logic, never! This is because if this were allowed then it would be possible to prove *literally* anything. IMHO, this is what MS econ. did when it assumed that the market in the US was a perfect market (where every player knew everything about everything in the market. And then proved that this market set the "correct price" for everything. And other conclusions that the theory proved from that assumption.


But that isn't assumptions of economics but your own assumption of what MSc economists think. It is largely accepted that bubbles, growth, recession and inflation is part of the system with everyone who studies economics. What the national Bank will do is try and control these things with interest rates. But that isn't a fail-safe. And when the economy goes pop, they national Bank then does QE (MMT in name) to solve one contradiction which in turn creates another. But given you think printing money is the answer, you need to explain that despite pretty much doubling the national debt 13 years ago and create even more debt today with our Covid response, why the economy of all major markets barely have had growth that makes a single digit for the past 13 years and why inflation seem to be happening now? Surely if increasing the money supply means we all spend more, why are we not spending more. The answer is simple. All that money, goes into property, rent not spending and that is what you should learn from Japan.

How does depositing money into a bank create money? Unless the bank lends it. Which banks, now, do not do.


The deposit money doesn't make money unless it is lent out, who says otherwise? That is the whole point. But really the deposit money is never lent out but as an insurance to back up loans anyway. When people say that banks create money when they issue a loan, this isn't entirely wrong. However they need the deposit money to back it up so to remain solvent. That is known as a fractional reserve. Fractional reserves aren't necessarily needed, however if loans become toxic due to default and there is a run on the bank like what happened to Northern Rock, the bank will run out of money. Loans should be regarded as assets, and like all assets they can lose value.

Although given you are claiming the banks aren't lending at the moment, which isn't true but they are more careful who they lend to now I might add, that should be all the information you need to know that creating loans aren't without risk for the bank.
#15190228
Steve_American wrote:These are just assertions, with no evidence. They only convince the already convinced.
You are ignoring the effect of savings. Google the Paradox of Thrift.
. . . Like I have said MS econ. theory assumes that savings are used by banks to make loans. This practice ended back in 1913 when the Fed. Res. Bank was created by a US Gov. law. Now-a-days, loans create deposits that move between banks, so banks can always borrow from another bank to meet its reserve requirement a week after the loan was made. If no bank will make the loan the Fed. will in every case.
. . . Therefore, there is now no mechanism for savings to be put back into circulation to support the net income of the nation. They just sit there in the bank.

If you think a bank will just sit on mountains of cash savings (unless for strategic reasons) that is foolish. They can simply invest it in the markets, they can invest it in anything they wish.

However, you're only going to get so far by investing money, so in that sense you're right, the main driver of economic growth is producing and consuming/selling goods. You can't create wealth without producing it (or extracting it in the case of raw natural resources), and there's no reason to produce it/extract it if nobody is buying it (consumption).

You are also ignoring the effect of money that leaves a nation to buy foreign stuff. It can't cause inflation until it returns to the original nation.

Why? Where's your evidence for this?
#15190315
Unthinking Majority wrote:1] If you think a bank will just sit on mountains of cash savings (unless for strategic reasons) that is foolish. They can simply invest it in the markets, they can invest it in anything they wish.

However, you're only going to get so far by investing money, so in that sense you're right, the main driver of economic growth is producing and consuming/selling goods. You can't create wealth without producing it (or extracting it in the case of raw natural resources), and there's no reason to produce it/extract it if nobody is buying it (consumption).


2] Why? [do dollars that are out of the US not cause inflation in the US?] Where's your evidence for this?


I found this article from 2015 with google.

Excess Reserves: Oceans of Cash
02.12.15

Excess reserves—cash funds held by banks over and above the Federal Reserve's requirements—have grown dramatically since the financial crisis. Holding excess reserves is now much more attractive to banks because the cost of doing so is lower now that the Federal Reserve pays interest on those reserves. The fact that banks are holding excess reserves in response to the risks and interest rates that they face suggests that the reserves are not likely to cause large, unexpected increases in bank loan portfolios. However, it is not clear what banks are likely to do in the future when the perceived conditions change.

Since the financial crisis, American banks have increased their excess reserves, that is, the cash funds they hold over and above the Federal Reserve’s requirements. Excess reserves grew from $1.9 billion in August 2008 to $2.6 trillion in January 2015.

Why are U.S. banks holding the liquidity being pumped into the economy by the Federal Reserve as excess reserves instead of making more loans? The answer to this question has implications for monetary policy and the real economy, but it is elusive because the current economic environment is complex and still new. However, a first step toward an answer is understanding why banks choose to hold excess reserves in the first place and how their choices have been affected by new Federal Reserve policies introduced in the wake of the financial crisis.

We show that the crisis has altered the trade-off that banks make when calculating their desired levels of excess reserves. Banks now encounter an environment where holding reserves is much more attractive because the cost of holding them—in the form of foregone interest—is significantly lower than it was before the crisis. The Federal Reserve has embarked on several policies designed to pump large amounts of reserves into the banking system, fostering conditions in which it is both easier and more attractive for banks to hold huge amounts of excess reserves.

Choosing the Level of Excess Reserves
One reason banks hold reserves is because they are required to. Currently the Federal Reserve’s Board of Governors mandates that, for net transaction accounts in 2015, the first $14.5 million will be exempt from reserve requirements. A 3 percent reserve ratio will be assessed on net transaction accounts over $14.5 million and a 10 percent reserve ratio will be assessed on net transaction accounts in excess of $103.6 million. Any balances held above this threshold are considered excess reserves.1

Banks also hold reserves to meet their unknown needs for liquidity. Like a tourist who misjudges his cash and must resort to an extremely high-priced foreign ATM machine, a bank’s cash shortfalls cost it money, some of which might have been saved by holding higher amounts of reserves. Reserves can be used for payments, servicing deposit withdrawals, and responding quickly to opportunities for asset purchases and lending that require immediate action.

[There is more I snipped to keep it short.]


The link --- https://www.clevelandfed.org/newsroom-a ... -cash.aspx

I also found an article from the UK where "billions' means US trillions.

Here it shows 1 or 2 balance sheets of two of the biggest banks in America. From this you will see that they don't seem to own a lot of real estate or other investments. They do hold a lot of like insurance that the article says is because this pays higher interest. I wonder if the insur. comp. can make trillions of investments with the premiums they get each year, I doubt it.

I may have missed it, but I didn't see any large other investments there.

Link --- https://bankingtruths.com/banks-branch/
#15190317
Rugoz wrote:They do, [Do what? Sit on excess reserves, or invest] due to risk and regulatory requirements.

Image


I'm not sure what it is that you say they do.
Under the rules for English, it seems like you mean they do invest.
But, the graph shows that in late 2008 banks had zero excess reserves. [They had loaned the max. out before the GFC.] Then in the GFC their excess reserves shot up to a peak of $2.8 trillion in late 2014 [They could not find many borrowers after the GFC.] and then their excess reserves fell to $1.45 trillion in 2020 [As the economy recovered and more borrowers wanted to borrow]. But, banks are still holding about $1.5T.
This seems like you mean they do sit on large excess reserves.
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