[SueDeNîmes]

...And that's exactly why MMT failed. Why was there such a reaction to Truss' budget?

Because

a] The central bank had already announced intention to sell a load of gilts (back) into the secondary market

b] A gilt crisis originating within financial markets was already underway

c] No one - including the bond market - believed that tax cuts for the rich and deregulation would result in growth.


As we saw during the debacle (not to mention the two decades prior), the central bank can always put a price floor on govt bonds simply by buying them - or even just indicating intention to do so. A power conferred on it by govt.

The central bank then chose not to do so any further because its mandate, set by govt, obligates it to prioritise price stability in the broader economy, which it believes - rightly or wrongly - that it can do by raising interest rates.

The Chancellor can always override the central bank but, again, chose not to do so.

[wat0n]

Because

a] The central bank had already announced intention to sell a load of gilts (back) into the secondary market

b] A gilt crisis originating within financial markets was already underway

c] No one - including the bond market - believed that tax cuts for the rich and deregulation would result in growth.


As we saw during the debacle (not to mention the two decades prior), the central bank can always put a price floor on govt bonds simply by buying them - or even just indicating intention to do so. A power conferred on it by govt.

The central bank then chose not to do so any further because its mandate, set by govt, obligates it to prioritise price stability in the broader economy, which it believes - rightly or wrongly - that it can do by raising interest rates.

The Chancellor can always override the central bank but, again, chose not to do so.

Why would there be a gilts crisis? MMT people don't believe those exist. Governments can always print money

[ckaihatsu]

[EDITED -- APOLOGIES.]


Moody's lowers UK's outlook to negative

https://www.cnn.com/2022/10/21/economy/ ... index.html


UK external deficit a worry, Italy fiscal plan 'realistic' - S&P

https://www.reuters.com/markets/uk-exte ... 022-11-11/

[ckaihatsu]

Awwwwww, *Steve* -- ! (grin)

If its bad it must be because of Brexit or MMT or both depending

---

The last time Moody’s downgraded the United Kingdom’s credit rating was in October 2020, citing lower than expected growth following Brexit, rising government debt and a weakening of the UK’s institutions that it said had led to a “fractious policy environment.”

https://www.cnn.com/2022/10/21/economy/ ... index.html

[SueDeNîmes]

Why would there be a gilts crisis?

See above.

MMT people don't believe those exist. Governments can always print money

Says no one.

[ckaihatsu]

The crisis took the form of a “dash for cash” in major global financial markets in mid-March [2020] as financial assets were sold off. Its most significant feature was that it struck at the very foundations of the global financial system—the $20 trillion US government bond market—as Treasuries were sold off.

As the Financial Times noted in a report on the crisis in September: “The US government bond market is akin to the investment world’s bomb shelter, a safe space where everyone can seek refuge when the rest of the financial system is exploding. In March, the bomb shelter itself started to rumble ominously.”

According to the FSB report, the crisis was set off when foreign investors, primarily central banks, sold off almost $300 billion worth of US Treasury debt.

https://www.wsws.org/en/articles/2020/1 ... a-n19.html

[wat0n]

See above.

Still unclear.

Says no one.

Says everyone. It is MMT bugs who have been claiming that governments can always print money and that inflation isn't a problem.

[ckaihatsu]

It is MMT bugs who have been claiming that governments can always print money and that inflation isn't a problem.

---

The 'framing' issue applies to both *physicality*, *and* to media / news ('Fourth Estate'), as well.

https://en.wikipedia.org/wiki/Frame_of_reference

viewtopic.php?p=15254445#p15254445

Nationalist economic money-supply is *cross-class* -- there are several different economic and political interests intersecting here (at interest-rate policy), and if you're arguing for *nationalism* and the continuation of the status-quo then I'll unobtrusively leave the octagon here, to you and Steve. (grin)

[SueDeNîmes]

Still unclear.

To you, perhaps.

Says everyone. It is MMT bugs who have been claiming that governments can always print money and that inflation isn't a problem.

Well that'd be entirely contrary to MMT lit which asserts that inflation, rather than nominal budget deficits, is the real constraint on public spending.

[wat0n]

To you, perhaps.

To anyone who's been listening to MMT supporters, you mean. What was the constraint faced by the UK to justify a gilts crisis?

Well that'd be entirely contrary to MMT lit which asserts that inflation, rather than nominal budget deficits, is the real constraint on public spending.

...But doesn't acknowledge the monetary causes of inflation.

[SueDeNîmes]

To anyone who's been listening to MMT supporters, you mean. What was the constraint faced by the UK to justify a gilts crisis?

a] The central bank had already announced intention to sell a load of gilts (back) into the secondary market

b] A gilt crisis originating within financial markets was already underway

c] No one - including the bond market - believed that tax cuts for the rich and deregulation would result in growth.


As we saw during the debacle (not to mention the two decades prior), the central bank can always put a price floor on govt bonds simply by buying them - or even just indicating intention to do so. A power conferred on it by govt.

The central bank then chose not to do so any further because its mandate, set by govt, obligates it to prioritise price stability in the broader economy, which it believes - rightly or wrongly - that it can do by raising interest rates.

The Chancellor can always override the central bank but, again, chose not to do so.

...But doesn't acknowledge the monetary causes of inflation.

MMT is all about the monetary causes of inflation. Your comments suggest that you haven't read the MMT lit (with which I don't entirely agree, but another matter). Can you point to first hand MMT lit which supports your contention?

[wat0n]

a] The central bank had already announced intention to sell a load of gilts (back) into the secondary market

Why?

b] A gilt crisis originating within financial markets was already underway

Why?

c] No one - including the bond market - believed that tax cuts for the rich and deregulation would result in growth.

Sure, so...?

MMT is all about the monetary causes of inflation. Your comments suggest that you haven't read the MMT lit (with which I don't entirely agree, but another matter). Can you point to first hand MMT lit which supports your contention?

Is this a fair characterization of where MMT stands on inflation?

https://www.fraserinstitute.org/blogs/m ... -inflation

[SueDeNîmes]

Why?

Coz that's that's how central banks believe they can control inflation.

Why?

Pfft ..google it yerself.

Sure, so...?

So that is proof from the market itself that the 'market fundamentalism' of Tufton St thinktanks doesn't work. Even if you impose a load of rules which tie growth in the real economy to asset inflation in financial markets, the traders themselves mostly care whether or not the central bank will buy their bonds.

Is this a fair characterization of where MMT stands on inflation?

https://www.fraserinstitute.org/blogs/m ... -inflation

Dunno and don't intend to read it because I'm not defending MMT. I'm referring to what actually happened in the Kamikwasi debacle.

[noemon]

Because
c] No one - including the bond market - believed that tax cuts for the rich and deregulation would result in growth.

The Kwasi-Truss budget was not a "budget with tax-cuts for the rich". But since the media and the public interpreted it as such, markets followed suit.

This lie is a major part as to why this budget failed and of course a lot of responsibility for the cascade that happened, lies with Truss not selling it properly.

The budget reduced the lower rate of tax from 20% to 19%, a Labour manifesto promise.
It reduced the highest rate from 45% to 40%, which represents the smallest part of the budget and even though it makes sense to me despite the fact that I am not in the highest bracket, they should have shelved this for later as this gave ground for people to claim the tagline: "tax cuts for the rich". When this was just 2 billion out of the 48.
It pledged to keep corporation tax and NI contributions at the same levels as they are(no change).

These really minor changes are rational, welcome and conducive to growth and besides the freezing of the tax thresholds make up for all the money required for these tiny tax cuts. US markets & politicians reacted punitively because they are on their own track on increasing taxes and Britain would have messed up the soup but most importantly, they found an opportunity to show Britain how much Brexit costs.

This Budget effectively told the BoE that tax increases will not be used to stave off demand so the BoE must increase interest rates to counter inflation by at least the same as the US and EU, this caused a rebellion in British rentier landlords, once Truss and Kwasi were gone, Bailey came out and said that now "we can guarantee that we will do our utmost best to maintain the lowest interest rates in the world".

Lots of different forces coalesced to ridicule Kwasi Kwarteng who did not deserve this.

Liz is another matter.

Abolishing the hair-brained caps on bonuses is "deregulation"? come on now mate.

If I want to pay my employee X, I should be able to, more tax for the coffers also, rather than having government creating a ceiling. It is not conducive to anything other than silly virtue-signalling.

Since Britain is a major player in the banking world, its team players should not be constrained by such nonsense.

[wat0n]

Coz that's that's how central banks believe they can control inflation.

So? Why did it feel a need to control inflation?

Pfft ..google it yerself.

You can elaborate here.

So that is proof from the market itself that the 'market fundamentalism' of Tufton St thinktanks doesn't work. Even if you impose a load of rules which tie growth in the real economy to asset inflation in financial markets, the traders themselves mostly care whether or not the central bank will buy their bonds.

So what? It does mean deficits are not "free".

Dunno and don't intend to read it because I'm not defending MMT. I'm referring to what actually happened in the Kamikwasi debacle.

This thread is about MMT

[SueDeNîmes]

The Kwasi-Truss budget was not a "budget with tax-cuts for the rich". But since the media and the public interpreted it as such, markets followed suit.

This lie is a major part as to why this budget failed and of course a lot of responsibility for the cascade that happened, lies with Truss not selling it properly.

The budget reduced the lower rate of tax from 20% to 19%, a Labour manifesto promise.
It reduced the highest rate from 45% to 40%, which represents the smallest part of the budget and even though it makes sense to me despite the fact that I am not in the highest bracket, they should have shelved this for later as this gave ground for people to claim the tagline: "tax cuts for the rich". When this was just 2 billion out of the 48.
It pledged to keep corporation tax and NI contributions at the same levels as they are(no change).

These really minor changes are rational, welcome and conducive to growth and besides the freezing of the tax thresholds make up for all the money required for these tiny tax cuts. US markets & politicians reacted punitively because they are on their own track on increasing taxes and Britain would have messed up the soup but most importantly, they found an opportunity to show Britain how much Brexit costs.

This Budget effectively told the BoE that tax increases will not be used to stave off demand so the BoE must increase interest rates to counter inflation by at least the same as the US and EU, this caused a rebellion in British rentier landlords, once Truss and Kwasi were gone, Bailey came out and said that now "we can guarantee that we will do our utmost best to maintain the lowest interest rates in the world".

Lots of different forces coalesced to ridicule Kwasi Kwarteng who did not deserve this.

Liz is another matter.

Abolishing the hair-brained caps on bonuses is "deregulation"? come on now mate.

If I want to pay my employee X, I should be able to, more tax for the coffers also, rather than having government creating a ceiling. It is not conducive to anything other than silly virtue-signalling.

Since Britain is a major player in the banking world, its team players should not be constrained by such nonsense.

Rightly or wrongly, the bond market evidently didn't share your opinion of the Truss/Kwarteng growth plan, which certainly included significant tax cuts for the rich. No one's saying it consisted entirely of tax cuts for the rich.

While I disagree about bankers' bonuses (there's good evidence that 'bonus culture' encourages reckless speculation), it's rather beside the point. Truss and Kwarteng jointly authored a manifesto claiming that the UK economy is shackled by labour market regulations which "reward laziness" and lead to British workers being "among the worst idlers in the world". They proposed a "bonfire" of such regulation. It is that, rather than the cap on bankers' bonuses, which they meant by "supply side reforms".

Most commentators suggest that Truss and Kwarteng either hadn't anticipated the effect of the BoE and Treasury simultaneously dumping a load of gilts into the secondary market where yields were already spiking; or had anticipated the BoE taking its foot off the monetary brake in order to accommodate their supposed stimulus. You seem to be suggesting that it was a deliberate plan.

[SueDeNîmes]

So?

So it answers your question.

Why did it feel a need to control inflation?

Why do you ask?

You can elaborate here.

but needn't.

So what?

So it answers your question.

It does mean deficits are not "free".

I don't know what you mean by that.

This thread is about MMT

And someone asserted that MMT was "debunked" by "the Truss fiasco" . I'm trying to establish how.

Meanwhile, if you want to know what some school of thought says about inflation, why not just read its literature rather than asking third persons to critique critiques of it?

[wat0n]

@SueDeNîmes if MMT was correct, concerns about government debt would be non-existent. The Truss fiasco wouldn't have happened simply because the government can always deal with deficits in their view.

[SueDeNîmes]

@SueDeNîmes if MMT was correct, concerns about government debt would be non-existent.

If MMT is correct, concerns about govt debt confuse the public finances with the capacity of the real economy to absorb public spending and macroeconomic consequences thereof.

The Truss fiasco wouldn't have happened simply because the government can always deal with deficits in their view.

Insofar as I understand their view, the government cannot "always deal with deficits", but the constraints are in the real economy (of production, consumption and employment), not the public finances.

That much is just re-warmed Keynes.

[ckaihatsu]

capacity of the real economy to absorb public spending

(Overfinancialization / Ponzi scheme / zombie banks / zombie companies.)

In economics, overproduction, oversupply, excess of supply or glut refers to excess of supply over demand of products being offered to the market. This leads to lower prices and/or unsold goods along with the possibility of unemployment.

The demand side equivalent is underconsumption; some consider supply and demand two sides to the same coin – excess supply is only relative to a given demand, and insufficient demand is only relative to a given supply – and thus consider overproduction and underconsumption equivalent.[1]

https://en.wikipedia.org/wiki/Overproduction