Modern Monetary Theory

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Re: Modern Monetary Theory

Postby JackRiddler » Wed Sep 26, 2018 3:44 pm

.

The following article is relevant to MMT. Well worth reading, especially if you need a simple explanation of the repo market and swap lines. It shows a lot about the nature of the dollar, the Federal Reserve system, why the dollar is actually more central today (always pending future scenarios as they develop) than it was before the crash of 2007-9, and how thoroughly central finance is interlinked internationally.

Also, why it's so good to be king. And how the lower classes were made to suffer from the bank rescue. It's basically a run-down of Adam Tooze's new book, also recalling some of Neil Barofsky's Bailout, in the bit about "foaming the runway" with HAMP. One thing left out regarding HAMP is the odious Santelli move of totally misrepresenting what it was in his CNBC oration to the floor of the NYSE, which triggered the mass-astroturf phase of the "Tea Party" campaign and so helped mystify the understanding of everything that had happened among many if not most people.

I guess this is turning into the successor for my "End of the Wall Street Boom" thread, which started here and is currently up to page 99.


theweek.com

The quiet authoritarianism of the bank bailout

Ryan Cooper

September 26, 2018
http://theweek.com/articles/797114/quie ... nk-bailout


Ten years ago today, the world financial system was in the grips of galloping panic. The investment bank Lehman Brothers had failed, and the world's largest insurer, AIG, had just been saved by the government buying it outright. Congress was debating a bill that would become the notorious TARP bank bailout.

But what's going to happen when the next financial crisis strikes? That question has been haunting political elites for years — especially ever since a reality show star assumed the presidency.

Three men who were at the very center of the 2008 crash — former Bush Treasury Secretary Hank Paulson, former Federal Reserve Chairman Ben Bernanke, and former head of the New York Fed and Obama Treasury Secretary Tim Geithner — have been arguing for months that America is ill-prepared for the next financial panic.

Back in June, they argued that regulators lacked enough discretion to tackle a really severe crisis. They filled out that argument in a New York Times article, complaining that post-crisis legislation has reduced the FDIC's ability to guarantee bank debt, the Federal Reserve's ability to extend emergency loans, and the Treasury Department's ability to guarantee money market funds. "These powers were critical in stopping the 2008 panic," and from thence another Great Depression. Neil Irwin, a business reporter for the Times, endorsed this argument in an article of his own, as did Catherine Rampell of The Washington Post.

This argument is severely mistaken, and in the case of the three former government officials, it is straight-up deceptive. What these men want for their successors is quiet authoritarian power to make sure financial elites like themselves do not pay for their misdeeds.

To understand what Paulson, Bernanke, and Geithner are arguing here, it's useful to bring out some material from Adam Tooze's new book Crashed. This is a magnificent history of the major players in the world economy — nations, politicians, and top bureaucrats — from the financial crisis to the beginning of the Trump presidency.

Tooze has a lucid explanation of what caused the financial meltdown and how the response was conducted. (One of the reasons his book is so great is that this is some of the most well-trodden ground in financial journalism of all time, but he still provides key new insights and unearths shocking new facts.)

Most everyone knows the crisis was centered on bad American subprime mortgages. The usual story goes something like this: Mortgage originators handed out garbage home loans to people who couldn't repay, they were packaged into securities, and the whole process inflated a huge bubble in the housing market. Eventually the bubble popped, the securities went bad, and many financial companies took huge losses. The government had to step in to prevent the whole financial system from collapsing.

That is a reasonably accurate gloss, but Tooze outlines important granular details about why the large losses happened. Companies like Bear Stearns, Lehman Brothers, and AIG were not directly killed by losses on subprime securities. Instead they were brought down by the fragility of the financial system, which was severely vulnerable to a crisis of confidence sparked by the subprime crisis.

AIG, for example, infamously wrote billions of credit default swaps (basically insurance contracts) on subprime securities. But its direct losses on these swaps only amounted to $11.5 billion (compared to its total assets of nearly $1 trillion), and those took months to process. What brought down AIG was margin calls. As its exposure to subprime became clear, people who had bought AIG insurance of any kind demanded additional collateral to hedge against the risk of it being unable to pay — meaning it had to scramble for tens of billions of dollars in cash over a period of weeks. Essentially, it was a kind of bank run (one which AIG obviously made much worse for itself by directly investing in subprime securities during the bubble).

Before the crisis, AIG would have gotten easy access to short-term wholesale funding (basically, funding that is not traditional bank deposits). But by September 2008, this funding system had completely seized up. For instance, one common wholesale funding mechanism is the repurchase agreement, or "repo." This is when a firm sells an asset to a buyer with an agreement to repurchase it later. It's basically a short-term loan secured with the asset as collateral. But in what's known as a haircut, this loan is typically less than the market value of the asset, to give the lender extra protection in case the firm doesn't repurchase.

Most of the big financial companies had come to rely very heavily on this kind of short-term funding for their daily operations. When the crisis began to take hold, first companies with large exposure to subprime, like Bear Stearns, were cut out of wholesale funding with stiff repo haircuts that ate up their liquidity and quickly drove them out of business. But panic spread, as nervous lenders demanded greater guarantees for all loans and funding costs skyrocketed across the entire financial system. Between April 2007 and August 2008, repo haircuts for U.S. Treasury bonds increased twelvefold, from 0.25 percent to 3 percent; for investment-grade bonds from 0-3 percent to 8-12 percent; and for asset-backed securities from 3-5 percent to 50-60 percent.

It was a self-perpetuating financial panic — a bank run internal to the financial system, instead of being driven by panicking depositors. Interest rates for commercial loans skyrocketed, up to 23 percent for high-risk corporate debt. Non-financial businesses were squeezed hard. By September, Lehman Brothers had bled out its liquidity and failed, while AIG was tottering on the brink of bankruptcy. If it had fallen, it likely would have taken out most of the remaining big Wall Street players at a stroke.

This brings us to the response to the crisis that Paulson, Bernanke, and Geithner (hereafter PBG) designed. Tooze demonstrates that their overwhelming priority was preventing the collapse of the financial system, returning it to health in pretty much the same state as before the crash, and doing so with as little public scrutiny as possible. The first major act was to take Fannie Mae and Freddie Mac into direct government ownership. These "government-sponsored entities" had traditionally produced most mortgage-backed securities. It was private companies who produced the vast majority of the subprime toxic waste, but Fannie and Freddie had gotten into the game as well and were teetering on the brink of collapse. Then AIG was nationalized by the Fed, which took a 79.9 percent equity stake.

The first attempt at explicit bailout legislation was basically a blank check for the government, but when that went down in Congress, PBG grudgingly accepted one with more controls and oversight. That was the Troubled Asset Relief Package, which passed in early October 2008.

As part of TARP, the nine biggest U.S. banks were forced to accept $125 billion of government capital — technically a partial temporary nationalization, but without any exercise of shareholder voting rights. (AIG also got billions more.) Though Wells Fargo was threatened with regulatory attack if it refused to accept the money, at bottom the deal was a sweetheart one. Citigroup in particular got funding fully 17 percentage points under the then-going rate for its bonds (5 percent versus 22 percent) — though its balance sheet was so bad it later required another $20 billion bailout and protection on $306 billion in toxic assets.

Outside of TARP, the Fed set up various lending programs to unfreeze the wholesale funding market. With the Term Auction Facility, the Term Securities Lending Facility, the Primary Dealer Credit Facility, and other programs, the Fed handed out trillions in loans and repo transactions. These were not publicized at all, but they did receive some public attention.

However, Tooze also points out an enormous part of the bailout that did go almost entirely unnoticed: the foreign portion. During the bubble years, regulators in rich countries allied with the U.S. had looked the other way as their banks invested heavily in toxic American mortgage securities — and Western European governments especially didn't bother to build up large dollar-denominated currency reserves, as developing nations like Russia and China had done.

When the initial crisis struck, many European leaders reacted smugly, viewing it as just deserts for decades of irresponsible American policy — a "dollar problem," not a euro one. However, they quickly learned that their banks had been just as irresponsible as the ones on Wall Street, if not more so, and had run up gargantuan dollar-denominated debts. Worse, without the dollar-printing press, those nations had no way of backstopping their system as the Fed had done. A severe shortage of dollar-denominated assets quickly developed in the European banking system, as well as in Japan, Australia, and developing countries without a dollar hoard.

In response, the Fed took the extraordinary step of extending its dollar-printing authority to selected central banks around the world. Bernanke revived "swap lines" from the Bretton Woods days — in essence, a currency exchange between central banks. The European Central Bank, for instance, would exchange some euros for dollars and agree to reverse the trade at some future date (and pay an interest premium). Eventually 14 banks would receive their own swap lines — and those of the ECB, the Bank of England, the Bank of Japan, and the Swiss National Bank were unlimited in size.

The scale of this program is mind-boggling. From December 2007 through August 2010, over $10 trillion in raw swaps were exchanged. Standardized to a 28-day swap (to account for differing term lengths), the amount was still $4.5 trillion. Those central banks, naturally, turned around and used the dollar funding to stabilize their domestic banking sectors.

The Fed had quietly acted as a lender of last resort not just for America, but for half the world economy. That is why there was no sterling-dollar or euro-dollar currency crisis, and why the entire European banking system didn't collapse for lack of dollar funding.

The selection of nations eligible for swap lines was an enormously consequential geopolitical decision. Countries left out could suffer shattering currency crises — while many well-connected banker elites in countries that were included were quietly shielded from the consequences of their terrible decisions. But there was absolutely no attempt to democratically legitimize the program. To this day there is almost no public understanding that it happened at all, either in the U.S. or elsewhere. (Indeed, I did not fully grasp the scale of the swap lines until I read Tooze's book.)

On the contrary, it "was shrouded in as much obscurity as possible," as Tooze writes, for fear of public backlash. Bernanke only revealed initial details after being hounded by Congress, and more comprehensive information only came out as a result of a lawsuit the Fed fought all the way to the Supreme Court. Two countries applied for swap lines and were denied — but we still don't know which ones.

This sort of quiet authoritarianism also characterized the final major component of the crisis response: foreclosure policy.

The main such program was the infamous Homeowner Assistance Mortgage Program, controlled by Geithner and authorized by TARP to help homeowners, which failed utterly in its supposed mission. As Carolyn Sissoko writes in an excellent explanation of the program, this failure was not the result of political fears of "helping troubled homeowners," as Irwin argues, but a deliberate policy choice. The government secretly helped the banks, still deeply threatened by huge piles of subprime loans even after the immediate panic was halted, by letting homeowners drown.

Here's how it worked. First, the Treasury Department and the Fed bought huge quantities of assets from Fannie and Freddie, allowing them to restart their issuance of non-subprime mortgage-backed securities. Then, Federal Housing Administration-issued mortgages exploded in number, increasing from 3 percent of mortgages before the crash to 30 percent by mid-2009 — effectively nationalizing a large part of the housing finance system.

All this supported housing prices and kept mortgage credit flowing, thus enabling the mass refinancing of subprime mortgages under the government umbrella. Because this meant new loans were used to pay off original garbage loans, banks were able to wind down their subprime portfolios. Losses were sometimes shunted onto the FHA, whose delinquency rates on insured mortgages from the first half of 2009 ran over 20 percent. But more often, it was individual homeowners who ate them.

The government used two strategies to ensure homeowners, not banks, bore the brunt of the pain. First, stop cramdown legislation. This would have allowed judges in a bankruptcy proceeding to reduce the value of primary mortgages down to the value of the home. This is already common practice for every other type of mortgaged asset, for obvious reasons. But cutting mortgage principal would have meant the banks taking losses. Obama had previously promised to press for this legislation, but under pressure from Geithner and treasury staff, he reneged.

Second, HAMP did not carry out any principal reductions (until 2012, after the crisis had passed), as was specifically authorized in the TARP legislation. Once again, the reason was to forestall the banks from taking losses. Instead, the program was deliberately designed to help almost no one.

Of course, this monstrous policy did create a lot of foreclosures (ultimately about nine million people would lose their homes), which also meant bank losses. But these came in relatively slowly, so that banks could absorb them. Geithner frankly admitted to Elizabeth Warren that he wanted HAMP to "foam the runway" for banks. On the other hand, the policy also kept people who didn't get foreclosed on paying inflated bubble-era mortgages, helping the banks and dragging out the negative economic effects of the crisis to this day.

This is why there was no attempt to explain bailout policy, even the arguably worthy parts like the swap lines to Europe. Contrary to Rampell's assertion that PBG "never convinced the public" of what they were doing, they knew perfectly well that if their activities came under detailed scrutiny, it would create entirely justified white-hot fury. The public might be convinced, as they were in FDR's time, of aggressive action to save the financial system if it were coupled to strong action to help the middle and working classes. But such action coupled to policy to make the public eat Wall Street's losses couldn't possibly be publicly acknowledged.

So we are finally in position to understand what the ideology of PBG means in practice. Over the past generation, the financial system has become deeply embedded in the rest of the economy. This gives it great power, due to the perception that if it destroys itself with speculative excess or criminal fraud, it will take everyone down with it. It's a sort of hostage situation — Geithner argues in his book that there is simply no option aside from stuffing limitless quantities of money into the financial system any time it starts to collapse.

In fact, it's an open question whether allowing Wall Street to collapse would have led to an economic downturn much worse than the Great Recession — which was already very, very severe. As Dean Baker argues, the government easily had enough power to keep the payment system operating and rescue bank depositors. Perhaps the recession itself would have been worse, but the major culprit behind the wretched recovery that followed was the inadequate stimulus and post-2010 turn to austerity. "There is no plausible story where a series of bank collapses in 2008-2009 would have prevented the federal government from spending the money needed to restore full employment," he writes.

Even if we grant the argument that it was necessary to spend billions in cash and credit to keep Wall Street from going belly-up, it was absolutely not necessary to conduct it the way PBG did. Their actions were rooted in their desire to keep the financial system inviolate, no matter the cost.

But in reality, while the government was handing out trillions in cash and loans to rescue Wall Street from its own mistakes, it could have restructured the financial system and forced banks to eat some of the losses — for example, by hiving off a lot of bad assets onto a separate bank which would be disconnected from the system and allowed to collapse. Indeed, in 2009 Citigroup's balance sheet was such a smoking crater that Barack Obama ordered Geithner to come up with a plan to do exactly that to the bank. But Geithner straight-up disobeyed the president, and eventually the various bailouts allowed it to survive.

It's certainly not a coincidence that Geithner and Bernanke are now comfortably ensconced in elite financial companies pulling down millions of dollars annually — Bernanke at PIMCO and Geithner at the hedge fund Warburg Pincus. (Ironically, only the Bush appointee Paulson is working outside Wall Street.)

But their wretched crisis-fighting record is not just corrupt, it is also a demonstration of why authoritarianism makes for poor policy decisions. PBG would prefer a system where well-credentialed elites like themselves make all the important decisions — while the people's elected representatives, and the public itself, are kept as far away as possible.

When such a system deals with a crisis, insider elites prosper, while outsiders — that is, 99 percent of the population — are left to drown. The result is economic catastrophe and rising political extremism.

But if policymakers were forced to announce and explain their actions publicly, they might not be so cavalier about forcing the public to pay for Wall Street's mistakes.
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Re: Modern Monetary Theory

Postby JackRiddler » Wed Sep 26, 2018 4:21 pm

.

So who were the two countries denied a Fed swap line? It's still a secret, 10 years later. Might be a big historical revelation, might be minor.

A dedicated investigator might narrow it down. Look for a national banking system that was overleveraged on dollar assets, did not get swap lines, and either melted down or took some weird desperate measures in the aftermath. I have no idea how to start.

Won't be in the Eurozone, since the ECB was covered and the other "central banks" are now just for show. They don't issue currency. So stop thinking Greece. Maybe Cyprus, however.

It's also not China, they were not into the subprime, or as interlinked, famously have dollar reserves, and of course would never, ever ask, it would violate like six of Sun-Tzu's rules. Russia unlikely, but would be huge if so. Israel presumably would get one? South Africa? A Gulf state? Panama? The Vatican?! Speculation is pointless but fun.

Of course, might be two island nations you can't find on a map.

Here's Reuters reporting on the swap lines in 2008:


https://www.reuters.com/article/financi ... 9320081029

OCTOBER 29, 2008 / 4:10 PM / 10 YEARS AGO

UPDATE 2-U.S. Fed launches four new currency swap lines
5 MIN READ

(Recasts; adds details)

By David Lawder

WASHINGTON, Oct 29 (Reuters) - The Federal Reserve on Wednesday extended U.S. dollar liquidity aid beyond traditional markets, opening four new $30 billion currency swap lines with Brazil, Mexico, South Korea and Singapore. [FOUR]

The temporary arrangements, authorized through April 30, 2009, are aimed at easing global U.S. dollar funding shortages, the Fed said.

“These facilities, like those already established with other central banks, are designed to help improve liquidity conditions in global financial markets and to mitigate the spread of difficulties in obtaining U.S. dollar funding in fundamentally sound and well-managed economies,” the Fed said in a statement released in Washington.

The decision comes a day after the Fed established a $15 billion swap line with the Reserve Bank of New Zealand. The U.S. central bank now has 13 swap lines with foreign central banks.

It also coincides with the International Monetary Fund’s decision to launch a short-term financing fund to help emerging market economies weather the global credit crisis.

The Fed has expanded its reciprocal currency agreements with foreign central banks in recent weeks to ensure they have a steady stream of short-term U.S. dollar funding as financial institutions in their markets unwind dollar-based assets. Global credit markets froze up in late September after the failure of investment bank Lehman Brothers, limiting private sources of dollar funding.

The Fed in mid-October lifted all limits on swaps with the European Central Bank, the Bank of England, the Bank of Japan and the Swiss National Bank. [THIS TELLS YOU WHO THE INNERMOST CIRCLE IS. NO SURPRISE, TRILATERAL FTW.] It also is maintaining swap lines with the central banks of Canada, Norway, Australia, Sweden and New Zealand.[PLUS NINE, MAKES 13.]

In separate statements, the foreign central banks said the swap lines would be used to meet U.S. dollar funding needs of their financial institutions and help ease pressures from international financial turmoil.

The Banco Central do Brasil said Brazil’s National Monetary Council would set conditions on institutions’ use of the swap line.

“This agreement is part of the central bank’s strategy to combat the effects of the international financial turbulence on the Brazilian economy,” the bank said in a statement, adding that such arrangements highlighted the “importance of central bank cooperation at the current juncture.”

The Bank of Korea said in statement that Brazil, Mexico, Korea and Singapore accounted for 6.0 percent of the world economy in 2007 and together had foreign currency reserves of nearly $700 billion.

WON SLIDE

South Korea has said its foreign-currency reserves of nearly $240 billion, ranking sixth in the world, were sufficient to avert a repeat of the 1997-1998 financial crisis. But it is struggling to halt a huge slide in the won KRW=, which has lost one-third of its value, hit by lingering doubts about the ability of the country's banks to service their maturing short-term debt.

The swap deal with the Fed came hours before the country’s parliament, controlled by the conservative Grand National Party, was set to vote on the government’s pledge to guarantee up to $100 billion in foreign debt that local commercial banks will borrow until mid-2009.

“The U.S. dollar swap facility will enhance the robustness of the Asian dollar market for U.S. dollar funding and the foreign exchange markets in Singapore,” the Monetary Authority of Singapore said. “These markets are a significant part of the global financial system, and international financial institutions rely on Singapore as the largest U.S. dollar and foreign exchange center in Asia outside of Japan.”

The Singapore authority said there was sufficient liquidity in the Singapore dollar market to meet the needs of its banking system and it “will continue to inject additional liquidity as necessary to ensure this.”

The Fed also said it welcomed the International Monetary Fund’s decision to establish a short-term liquidity facility for emerging-market countries, adding it was supporting the IMF’s role in helping countries address and resolve their ongoing economic and financial difficulties. (Additional reporting by Yoo Choonsik in Seoul and Todd Benson in Sao Paulo; Editing by Leslie Adler)
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Re: Modern Monetary Theory

Postby thrulookingglass » Wed Sep 26, 2018 7:02 pm

Money is fake! It's a lie! It's a means of control. Put a price tag on the universe! How much is it worth?! How much is each tree worth to you?! Ask weyerhaeuser, boise cascade, canfor...maybe it's worth your last breath! MONEY IS FAKE! It's what Jesus completely rebelled against before he was killed! No one has a right to own this world! It should be SHARED! That's the whole damn problem! MONEY IS A FALLACY! It is dreamt up! How much is Halliburton worth?! What the stockholders decide! FOOLS GOLD! Peace is worth an eternity, money is the abomination. Stop thinking economics is anything else but a distraction from truth.

I'm standing alone
I'm watching you all
I'm seeing you sinking
I'm standing alone
You're weighing the gold
I'm watching you sinking
Fool's gold

Peace for your children's future is worth more than all the shiny stones in the universe. You make me cry.

https://www.youtube.com/watch?v=BBsazIACpYM
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Re: Modern Monetary Theory

Postby JackRiddler » Wed Sep 26, 2018 10:43 pm

Okay. One of the things being said here is that money is not a material reality. Some of us like to examine that. You can have the rest, and I'm not averse to it.
We meet at the borders of our being, we dream something of each others reality. - Harvey of R.I.

To Justice my maker from on high did incline:
I am by virtue of its might divine,
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Re: Modern Monetary Theory

Postby 82_28 » Thu Sep 27, 2018 7:18 am

thrulookingglass » Wed Sep 26, 2018 3:02 pm wrote:Money is fake! It's a lie! It's a means of control. Put a price tag on the universe! How much is it worth?! How much is each tree worth to you?! Ask weyerhaeuser, boise cascade, canfor...maybe it's worth your last breath! MONEY IS FAKE! It's what Jesus completely rebelled against before he was killed! No one has a right to own this world! It should be SHARED! That's the whole damn problem! MONEY IS A FALLACY! It is dreamt up! How much is Halliburton worth?! What the stockholders decide! FOOLS GOLD! Peace is worth an eternity, money is the abomination. Stop thinking economics is anything else but a distraction from truth.

I'm standing alone
I'm watching you all
I'm seeing you sinking
I'm standing alone
You're weighing the gold
I'm watching you sinking
Fool's gold

Peace for your children's future is worth more than all the shiny stones in the universe. You make me cry.

https://www.youtube.com/watch?v=BBsazIACpYM


I don't know how often it is done in other cities, but they put "price tags" on trees as warnings to the contractors who are currently remaking this place (Seattle). It's on some old phone so I don't have the photos on hand that I have taken in the past. But each tree is worth upwards of $2,000 no matter what. In fact, I don't remember any of the "sums" for each tree. One must really drive through the old clear cut forests and all the billboards declaring the innocence of Weyerhauser etc as being stewards. I guess that is good. I am writing on a wooden desk in a house built of wood. But I still don't know.
There is no me. There is no you. There is all. There is no you. There is no me. And that is all. A profound acceptance of an enormous pageantry. A haunting certainty that the unifying principle of this universe is love. -- Propagandhi
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Re: Modern Monetary Theory

Postby Elvis » Fri Sep 28, 2018 2:56 pm

I heard back from my friend about MMT. He hadn't heard about it, and agrees the theory is good common sense, but he disputes the idea that tax revenues do not pay for federal spending; rather, he insists that when taxes are paid, the money is spent immediately by the government—not "destroyed," as with a loan repayment of principal.

To me, it makes more sense that tax revenues count against monies already spent (appropriated), thus ceasing to exist. This seems important to the assertion that taxation takes money out of the economy, to control both inequality and inflation.

So how does this work in practice? It seems hard to figure out since it's all just ledger entries. :?:
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Re: Modern Monetary Theory

Postby JackRiddler » Sat Sep 29, 2018 10:38 pm

.

Again, first of all MMT is an attempt to describe how money actually works. Fiat money, mostly, although the assertion is also made that it describes European money systems starting in the 17th century, when the English crown began to issue bonds, these were held by bankers who issued money, and the state imposed taxes to pay interest on the bonds. Already then, it was no longer just commodity money. Some of it sounds brutal, but it's just descriptive. For example, the state taxes in its own currency and uses the monopoly of force to impose horrible penalties for not paying taxes, which makes people transact in its currency and work for currency so they can pay taxes. This is not meant approvingly or disapprovingly, but descriptively. So MMT describes the current redistribution of wealth to the already wealthy through the tax cuts, as well as the jobs guarantee program to which the MMT movement has now devoted itself. The first fundamental point is that money is a political arrangement, not a representation of pre-existing value.

.
We meet at the borders of our being, we dream something of each others reality. - Harvey of R.I.

To Justice my maker from on high did incline:
I am by virtue of its might divine,
The highest Wisdom and the first Love.

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Re: Modern Monetary Theory

Postby JackRiddler » Tue Oct 02, 2018 11:58 pm

I attended the first day. It was energetic.

https://theintercept.com/2018/10/02/mod ... onference/

theintercept.com
Modern Monetary Theory Grapples With People Actually Paying Attention to It
Rachel M. Cohen@rmc031

When Donald Trump signed a huge corporate and upper-income tax cut into law in December, it seemed like there was one small bright spot. With the GOP-backed bill projected to increase the national deficit by $1.9 trillion over the first decade, at the very least the Democrats could finally quit saying that an increase to the national debt — the vice that trapped so much progressive legislation — was per se political suicide.

In fact, as many Democrats reckoned at the time, if they reclaimed power, they could then repeal those Republican tax cuts and redirect the revenue to new social programs.

But this month, despite the sky decidedly not falling from the Trump tax cuts, Nancy Pelosi confirmed her intent to bringing back the “pay-go” rule, which requires all new spending to be offset with budget cuts or tax hikes. Pelosi first instituted the rule in 2007, effectively barring Congress from taking up progressive legislation that would increase the national debt.

This stark contrast between Republicans and Democrats was front-and-center at the second annual Modern Monetary Theory (MMT) conference, held last weekend at the New School in New York City. The MMT movement, started in the 1990s by a few heterodox economists, has since grown into a vocal and eclectic mix of academics and activists, trying to change the way we think about government spending.

In a nutshell: MMT proponents believe that the government can safely spend far more money than it currently does, and increasing the federal deficit is not a bad thing in and of itself — a public deficit is also a private-sector surplus, after all.

While typically we hear rhetoric that our political leaders must first “find” money through new taxes or budget cuts in order to pay for new programs, MMT proponents say that’s a fundamental misunderstanding of how money works. In so-called fiat currency systems (meaning societies in which money isn’t backed by physically valuable commodities like gold or silver) governments literally create the money and tax it later to control for inflation and keep it in demand.

Inflation is still a risk, MMT advocates say, but it’s a much more remote risk than mainstream economists let on, and it’s one that can be addressed down the line if it arises, without so much pre-emptive austerity.

The first MMT conference was held a year ago at the University of Missouri-Kansas City, where Stephanie Kelton, one of the movement’s top economists, then worked. Kelton most famously served as the chief economic adviser for Sen. Bernie Sanders’s presidential campaign, and before that as the chief economist on the U.S. Senate Budget Committee, which was Sanders’s domain. (She now teaches at Stony Brook University in New York.)

About 250 people registered for that first conference, compared to this year’s more than 430. The attendees, while hailing from diverse disciplines, were overwhelmingly white and male — something Lua Kamal Yuille, a law professor and one of the few African-American conference speakers, pointedly criticized during her panel remarks.

On Friday, Kelton gave a presentation titled “Mainstreaming MMT,” assessing how effective the movement has been in getting its ideas out to the public.

By many measures, they’re doing quite a good job. Just last week, NPR’s Planet Money featured a podcast episode on MMT, and Bloomberg ran a story titled: “Trillion-Dollar Deficit? Whatever, Says New Consensus.” Kelton recently appeared on Jon Favreau’s popular liberal podcast, The Wilderness, and in the past year-and-a half, there’s been other deep dives into MMT in The Nation, the Huffington Post, and VICE.

“First they don’t want to hear you,” said Kelton to her rapturous audience. “Then they ridicule you, then they attack you, and then you win.”

While Kelton acknowledged the growing attention she and her colleagues have been receiving from mainstream outlets, she spent much of her public remarks focused on how their ideas are still unfairly cast by policymakers and the media. Paul Krugman, the New York Times economist, was a top target of Kelton’s frustration. In 2011, he blogged several critical posts about MMT, including to say that its adherents believe “deficits never matter.”

[Kelton's reply on Twitter]

https://twitter.com/StephanieKelton/sta ... ference%2F

“This became the way that many people, probably a million or more, were introduced to MMT for the first time,” said Kelton. She also pointed to VICE’s recent headline, “The Radical Theory That the Government Has Unlimited Money” as an example of being misrepresented as more extremist than they are.

Still, MMT advocates struggled to decide just how they would frame their own movement. Were they radical or mainstream? Fringe or conventional? Rohan Grey, the conference’s head convener and president of the student-driven Modern Money Network, told The Intercept that they worked hard to “make sure there were different disciplines represented at the conference, so this isn’t seen as just a bunch of heterodox economists.”

The appeal of MMT is likely to grow, as the Democratic Party embraces new, ambitious, and expensive ideas like “Medicare for All” and free college. While some progressive leaders have called for paying for new social programs through cuts to the military or increased taxes on Wall Street, the so-called deficit owls in the MMT movement are encouraging leaders to worry less about how exactly they’ll finance their goals.

The GOP, for its part, certainly isn’t fretting much about offsets. On top of their trillion-dollar tax cut, Congress voted this summer for an $82 billion increase in military spending. House Republicans also introduced a bill calling for a $5 billion wall at the Mexico border, and last week they voted on a new round of tax cuts, to permanently extend the ones that would otherwise expire in a decade.

When Republicans vote for all this new debt-spending, conservative economists barely make a peep, said Eileen Applebaum, co-director at the Center for Economic and Policy Research. After the December tax bill, “there were some grumblings, but no real conservative outcry,” she said. “It’s amazing. But if the Supreme Court can be so politicized, why not the economics profession?”

Applebaum was among those who attended the MMT conference; she calls herself a “fellow traveler” rather than an explicit adherent. She credits MMT with communicating important ideas about deficits, inflation, and monetary policy more clearly than earlier generations of sympathetic economists have been able to.

Several panels at the MMT conference were devoted to the so-called job guarantee, a policy idea that would make the state an “employer of last resort” for anyone able and willing to work, but can’t find a job. The idea of a right-to-a-job has long historical roots, though MMT advocates say Democratic leaders abandoned these political commitments over time in favor of an economic paradigm that treats a permanently unemployed class of people as acceptable, if not desirable. This idea, referred to as the “non-accelerating rate of unemployment,” or NAIRU — essentially suggests that there’s a level of unemployment, often set around 5.5 percent, that is useful to society because it helps keep inflation — by which is meant wages — down.

“The NAIRU is a central component for most macroeconomic theories that have been used by central banks around the world, and it’s a political, technical, and moral excuse to not try and hire that last 5 percent,” said Grey. “What it actually does is keep a reserve army of unemployed people who effectively discipline the rest of the employed. If you piss off your boss, if you get too uppity, you could fall over into the abyss.”

The job guarantee has attracted some high-profile attention over the last year. In 2017, the Center for American Progress released a job guarantee proposal, something it calls a “Marshall Plan for America.” The Center for Budget and Policy Priorities followed up with its own report on designing a federal job guarantee this spring, and new polling from Data for Progress and Civis Analytics found that 52 percent of those surveyed backed the idea of guaranteeing “a job to every American adult, with the government providing jobs for people who can’t find employment in the private sector,” paid for “by a 5 percent income tax increase on those making over $200,000 per year.”

Potential Democratic presidential candidates have also elevated the idea. In March, Sen. Kirsten Gillibrand, D-N.Y., told The Nation she supports a federal job guarantee, followed by Sen. Cory Booker, D-N.J., putting out a bill in April to pilot a federal jobs guarantee over three years. Sen. Bernie Sanders, I-Vt., quickly followed suit with his own federal jobs guarantee proposal, as did Rep. Ro Khanna, D-Calif.

Not all left-leaning policy wonks are on board with the job guarantee. Matt Bruenig of the People’s Policy Project, a socialist think tank, argues that it amounts to little more than conservative work requirements by another name, and that the short-term, low-skilled jobs provided by the federal government will inevitably be stigmatized like TANF workfare programs were. (Job guarantee advocates strongly dispute this.)

Looking ahead, MMT advocates hope to grow their movement through grassroots organizing. One example they pointed to was Fed Up, a national campaign launched in 2015, whereby low-income workers and union members pressured the Federal Reserve to not hike interest rates, a rare instance of popular pressure being applied to monetary policy. Fed Up made the case that raising rates was no inflation pressure forcing them to raise rates, and that doing so would suppress their already low wages.

“What’s next is we have to plug the gaps, we have to answer the harder questions like designing legislation,” said Grey. “We need to make sure that our grassroots movement is on board with the message and framing, that we’re creating the right allies.”

A year ago, Grey said, MMT supporters were in a far different position. “No disrespect to anything before, but we have just been growing, the cavalry support is starting to arrive,” he said. “There was a period when there were five people who understood this stuff, then 10 and 15, and then there were thousands, but they were all across the world and online, and now suddenly you have other organizations and institutions willing to sign on board and talk about it, and it’s got its own center of gravity now.”

Grey knows assembling a mass of enthusiasm is not enough. “Now the trick is to turn that into something that spins like a planet, and put houses on it, and populate it with people,” he said. “The thing we’ve got to do next is go from having the right ideas and being recognized for that, to actually putting them in action.”
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Re: Modern Monetary Theory

Postby Elvis » Sat Oct 06, 2018 3:07 am

^^^ fascinating, and I followed links that led to more links... have two or three articles I'd like to post later.
But Trump's remark here, from an anti-deficit site, is interesting:

[snip]
Trump’s Business Debt Influences His Approach to U.S. Debt

Trump has a cavalier attitude about the nation’s debt load. During the campaign, he said the nation could "borrow knowing that if the economy crashed, you could make a deal.” He added, “The United States will never default because you can print the money."


Heh. This must be where policy comes in. Anyway, the article goes on:

Trump may be thinking about national debt as he does personal debt. A recent Fortune magazine analysis showed Trump's business is $1.11 billion in debt. That includes $846 million owed on five properties. These include Trump Tower, 40 Wall Street, and 1290 Avenue of the Americas in New York. It also includes the Trump Hotel in Washington D.C. and 555 California Street in San Francisco. But the income generated by these properties easily pays the annual interest payment. In the business world, Trump's debt is reasonable.
[snip]

https://www.thebalance.com/trump-plans- ... bt-4114401
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Re: Modern Monetary Theory

Postby JackRiddler » Mon Oct 08, 2018 12:03 am

Wow.

If this is accurate, I really missed it. It's happened so quickly.

https://mronline.org/2018/10/04/global- ... s-economy/

In January, President Donald Trump took to Twitter to denounce Pakistan’s commitment to fighting terrorism. Twenty-four hours later, Pakistan’s central bank announced that it no longer would use the U.S. dollar in international transactions, and would instead switch to the Chinese yuan.

Four months later, in response to the Trump Administration’s withdrawal from the United States’ nuclear weapons pact with Iran, the European Union announced that it would use its own currency, the euro, to pay for Iranian crude oil.

Earlier this month, Moscow and Beijing announced a plan to use their own national currencies in bilateral trade. Russian President Vladimir Putin told reporters that the move would “increase the stability of banks’ servicing of export and import operations while there are ongoing risks on global markets.”

The Trump administration’s bellicosity has combined with the volatility of the global economy to sharply accelerate what has become an international movement: ditching the dollar as the world’s reserve currency. When Trump was inaugurated, the greenback was used in nearly 90 percent of all international transactions; today that figure has dropped to roughly two-thirds, according to Shabbir Razvi, the director of International Finance Solutions Associates.
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Re: Modern Monetary Theory

Postby Elvis » Mon Oct 08, 2018 3:02 am

^^^^ It does seem to be happening...should be "interesting"...

Are Russia And China Trying To Kill The Dollar? - Forbes
https://www.forbes.com/sites/.../2018/. ... g-dollar...
Aug 14, 2018 - Russia says that the U.S. Dollar won't be the international reserve ... China has been active in setting up trade deals in its own currency, the ...


Russia Vows To Speed Up Efforts To Stop Using U.S. Dollar In Trade
https://www.rferl.org/a/russia-vows-spe ... 50560.html
Aug 24, 2018 - Russian Deputy Foreign Minister Sergei Ryabkov ... with China and Iran to stop using the U.S. dollar in global trade, ... And last year, Turkey and Iran signed an agreement to use their own currencies for trading purposes.


Russia & China gradually ditching US dollar in favor of domestic ...
https://www.rt.com/business/423930-russ ... lar-trade/
Apr 12, 2018 - China is Russia's largest trading partner, accounting for 15 percent of ... exchange rate is calculated without the participation of the US dollar, ...


Cutting out the US dollar: Russia & China boost national currencies ...
https://www.rt.com/business/429229-russ ... urrencies/
Jun 9, 2018 - China is Russia's largest trading partner, accounting for 15 percent of Russian international trade last year. Bilateral trade increased by 31.5 ...

https://www.google.com/search?q=russia+ ... irefox-b-1
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Re: Modern Monetary Theory

Postby JackRiddler » Wed Oct 10, 2018 4:50 pm

sojo.net

https://sojo.net/articles/can-we-afford ... ted-states

Can We Afford Economic Justice In The United States?

By Daniel José Camacho 10-10-2018

“How can we afford it?” That’s the perennial question that confronts anyone who dares to propose progressive policy changes. A recent example is CNN’s Jake Tapper grilling congressional candidate Alexandria Ocasio-Cortez over whether tax money could fund items on her platform such as Medicare for all, a federal job guarantee, and the cancelation of student loan debt. For those who are religious and politically progressive, this question is particularly challenging. While many are good at articulating the moral imperative of providing health care to all or protecting the environment, they can stumble on the issue of economic feasibility. So, when I was told about an economics conference in New York City that might connect to this topic, I was intrigued.

Rethinking how money works

The Second International Conference of Modern Monetary Theory, held Sept. 28-30 at The New School, did not feel like a traditional economics conference. Its 430-plus attendees comprised several economists and policy wonks, but also lawyers, activists, even faith leaders. They gathered to discuss ideas emerging from a relatively new economic school of thought known as Modern Monetary Theory, or MMT — a concept that turns conventional economic thinking on its head, and the implications are revolutionary.

MMT argues that government spending does not face the same constraints as a regular household budget. When we — regular people — want to buy something, we have to spend our existing money or get a loan. MMT points to the fact that the government doesn’t tax in order to raise revenue to then spend. It simply spends what it authorizes. Moreover, countries with a sovereign, fiat currency — which includes the U.S. — cannot run out of money.

According to MMT, the limits are not in our government’s ability to spend money, or even in the deficit per se, but in inflationary pressures and resources within the real economy. Can the government spend trillions and trillions of dollars on health care and infrastructure? Technically, there’s nothing stopping it. The question is whether there’s enough available labor and resources to carry out such projects without raising inflation. And governments with non-sovereign currencies or foreign debt face considerably harder restraints.

MMT’s perspective may sound outlandish, but it is — on some level — descriptively true. Even mainstream economists, who take issue with MMT, accept some of its fundamental premises but disagree on details regarding the deficit and inflation. Its framework can help explain the vertigo many of us can feel when we hear politicians claim that the government doesn’t have enough money to spend on public programs while it simultaneously increases military spending and applies tax cuts that raise the federal deficit.

To mainstream economics departments, MMT economists remain heterodox outsiders. Yet, they are anything but fringe. After starting off as a handful of interlocutors crying out into the wilderness for several decades, MMT economists are now receiving press in places like NPR and The Nation; they are getting contacted not only by insurgent political candidates but by top-ranking Democrats, foreign finance ministers, and heads of financial institutions in both Washington, D.C., and on Wall Street. Economist Stephanie Kelton, perhaps MMT’s most visible popularizer, is a former adviser to Bernie Sanders and the Democratic staff on the Senate Budget Committee; she’s also provided advising to Rev. William Barber’s Poor People’s Campaign.

Some believe that MMT’s brand of economics raises important questions that spill over into religion and metaphysics. That’s what Scott Ferguson, a professor in the Department of Humanities and Cultural Studies at the University of South Florida, argues in his book Declarations of Dependence: Money, Aesthetics, and the Politics of Care.

“I think people think that money is a finite, private, decentralized exchange relationship between individuals and firms,” Ferguson told me over a lunch break at the conference. “And then because this is such an austere, exclusionary, and unjust way of conceiving and relating to … the money relationship, we've been intensely ambivalent to money. We know we need it, but we associate it with everything that's bad in the world: greed, corruption, and erosion of social values.”

Ferguson thinks our contemporary debates over the public utility of money relate to debates that stretch all the way back to metaphysical and theological disagreements about money between Thomists and Franciscans in the late Middle Ages. For him, what we’ve lost today is an ability to understand how money symbolizes the way in which people are connected. Ferguson sides with the Thomists; money is a form of mediation. While money has been used for evil, he emphasizes that it can be "an instrument of collective uplift and social bonds.”

“I want to be clear that this is a moral claim. It is morally unacceptable to maintain unemployment for price stability,” said Pavlina Tcherneva, economist and research scholar at the Levy Institute, on a panel titled “The Future of Job Guarantee Advocacy.” Another distinguishing mark of MMT economists is their unwillingness to separate moral considerations from economic debates. How the government chooses to spend, or not spend, money in the economy is just as much a matter of moral priority as it is one of fiscal responsibility.

MMT appears to have two components: On one side, it attempts to be descriptive, unpacking how our monetary system works. On the other side, it is unabashedly prescriptive, suggesting left-leaning policies that flow from its analyses. In a way, this double-movement makes sense. If the government is not as broke as some say it is, then the inability to invest in things like public education is due to a lack of political will and not some natural law written into the fabric of economic reality.

Revisiting Coretta Scott King’s idea

The major policy proposal discussed at the conference was the federal job guarantee. Proponents caution: No one would be forced to work. The private sector would stay intact. But whoever was unemployed, underemployed, or so desired, would have the opportunity to take a government-funded job that would be administered by local governments and agencies; a supplementary basic income would support those unable to work.

Proponents argue that the jobs created by this plan would be diverse, structured according to local needs and input, and would include a high threshold of pay and benefits that would put pressure on all employers to raise their standards for workers. Raúl Carrillo, a lawyer, a founder of the Modern Money Network, and conference organizer, encouraged people to see FJG is as an alternative job stimulus to Amazon HQ2: a way to create more jobs that, advocates argue, are actually high-quality jobs and better for local economies.

The idea of a federal job guarantee was once popular among left-leaning religious leaders in the United States. Coretta Scott King’s rich legacy on this particular issue, which included co-founding the National Committee for Full Employment/Full Employment Action Council in 1974, was invoked by many at the MMT gathering.

While the federal jobs guarantee precedes MMT, some say MMT’s framework breathes new life into the idea — it bypasses old political deadlocks because it doesn’t see progressive taxation as the only way to fund such public programs.

During Coretta Scott King’s era, the idea of a job guarantee was seen as one way to combat racial discrimination. Today, this proposal is also being related to other issues such as gender inequality and climate change.

“I think it opens up debate,” Donatella Alessandrini, professor at Kent Law School, said. “… where we can reassess the distribution of all labor, and necessarily care labor.” Speaking on a panel titled “The Future of Job Guarantee Advocacy,” she argued that — historically — various forms of care labor, including labor in the home, have been gendered and devalued.

Journalist Kate Aronoff explained how a job guarantee proposal is the start of a new conversation about fighting climate change. A “green job guarantee” that puts millions to work while combatting climate change might be one of the things we’ll need to save the planet. An increasing amount of reports demonstrate that aggressive measures will be needed to avert major crises resulting from climate change. This will require not only a transformation of the world economy, but also lots of work.

Religion and money

“I came to this issue after wrestling with the foreclosure crisis in Prince George's County for the past 10 years,” Rev. Dr. Delman Coates told me. “My journey started in the aftermath of the financial crisis, seeing an uptick in the number of people coming to my church needing assistance for foreclosures.”

Currently a pastor at Mt. Ennon Baptist Church in Clinton, Md., Coates grew up in a small church in the inner city of Richmond, Va., surrounded by two housing projects and a local jail. He’s had a long journey of connecting faith and social justice. After much study, Coates said he came to the realization that “our monetary system is at the root cause of most of the social and economic issues we face in society today.” This led him to an interest in learning more about modern monetary theory. What he found: "Oftentimes faith leaders tend to be focused on personal finance and financial literacy in the household, but they have not been drawn into the whole understanding of macroeconomics."

“If we literally change the way we think about money,” Coates said, “we can change the world.”

Dr. Tomeka Scales is the program director of an organization called Our Money that she helped to start with Coates. A trained psychologist, Scales says that she’s not necessarily an “MMTer” but she wants to expand who gets to participate in these conversations. “It isn't just for economists or experts. I think that oftentimes what kind of deters people.”

While some religious people have become interested in MMT, MMT also has some followers thinking about religion. Nathan Tankus describes himself as an agnostic Jewish kid from New York who became interested in religion and theology as a result of MMT. Currently a student at John Jay School of Criminal Justice and a research scholar at Modern Money Network, he says that reading Debt: The First 5,000 Years by David Graeber helped him to appreciate how questions of money and debt are fundamentally tied to religion.

“Beyond arguments over whether we can afford X or Y spending program,” Tankus said, “at a deeper level what you get to with a lot of people is a question of whether certain human beings deserve to be redeemed. That’s especially the case in these questions about whether people have a legal right to have a job.”

The root of all evil?

I don’t know what will become of MMT. Will it influence successful legislation? Is it more than a heterodox fad? We shall see. What I do know is that those discussing modern monetary theory today raise fundamental questions about money and morality that will not go away anytime soon — as long as our species exists, and climate change or some other self-inflicted wound doesn’t wipe us out. Money touches every aspect of our lives. It’s the fundamental unit of the economy.

“For the love of money is a root of all kinds of evil,” states 1 Timothy 6:10. Christian interpretations of money seem to run in two extremes. Either money is a sign of God’s blessing or it’s inherently unjust. For some, money is about maximizing private prosperity. For many progressive Christians, money is a guilt-producing substance and the cause of injustice in the world. We need it to survive, but it’s evil. The only good thing that can happen with money is to have individuals give most of it away through philanthropy or charity. But what if money is more than this? What if it can be something else?

“It's not money that is at the root of all evil,” Coates said. “It's the love distortion and misunderstanding of money that's at the root of all evil.”
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Re: Modern Monetary Theory

Postby Elvis » Thu Oct 11, 2018 1:07 am

I'm reading a lot about MMT, starting to get a handle on it, debating/discussing with friends. Lots of variance among proponents, not a monolithic movement.

Tried explaining it to some folks. I was told unequivocally that govenment "gets its money from taxes" and that I had "no clue how money works" (I told them the same) and was an idiot etc. And usually it's the moral argument about "free stuff" that most people are unlikely to deserve. They don't get that it's an investment.


Question(s)—and tell me if me premises are wrong: Denmark does quite well by the "taxing and spending" perspective, and its budget deficits seem under control. Assuming the krone is a fiat currency (although said to be "pegged to the euro"), how much better could they do by putting the MMT perspective into practice? Do they need an MMT perspective?

Some things I looked at:

https://countryeconomy.com/deficit/denmark

https://tradingeconomics.com/denmark/government-budget

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


Denmark "expects the 2018 budget deficit to be 0.5 percent of GDP"; 2018 US figure estimated deficit will be 4.2 percent of GDP.

https://uk.reuters.com/article/uk-denma ... KKCN1IS0Q8

Gotta run...thanks for any insights.
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Re: Modern Monetary Theory

Postby JackRiddler » Thu Oct 11, 2018 2:21 am

I don't know, but my first guess was to look up the following: Denmark, population 5.7 million, had a 2017 current account surplus of almost 8% of GDP. Over 6% every year since 2010. That's a big injection of cash. (Comparison to U.S., in spite of all the trade deficit panic: -2%. Much smaller net effect, and currently half the federal deficit.)

https://tradingeconomics.com/denmark/cu ... unt-to-gdp

We haven't been talking about this aspect, but the third macro sector of a national economy, besides public and private, is cross-border transactions. In national macroeconomic accounting, public deficit/surplus plus private sector deficit/surplus PLUS current account surplus/deficit equals zero. So by comparison to U.S., Denmark has four or five times the cash injection.

MMT is definitely dependent on accuracy and fidelity of macroeconomic measurement. If I hadn't crapped out on the two additional days of that conference, I would have sought discussions about the effects of unaccounted money and offshore flows, as well as of inaccuracies and false modeling of macroeconomic stats.

This also highlights that MMT is a body of theory on the function of money under modern capitalism. Insofar as it is turning into a movement, it is radically reformist, but not revolutionary.

I also thought that Denmark is a currency sovereign, still using the kronor, but also a tiny place and an export economy specializing within a much larger European economy. It carries debt denominated in other currencies, although that is low. Because of their size they are the kind of place that would attract bond vigilantes if they run a high deficit. So it's probably wise not to stand out that way in the present global environment.

Also, they're already rich and running a full welfare state (compared to almost any other place).

For more than that, I'd have to read a lot about Denmark and wouldn't necessarily know what I was talking about even then.

Anyway, you've realized by now it's not a simple matter of state deficit always means a good thing because it puts more cash in an economy. It more that deficits simply do not have effects in the incredibly simplistic ways we're normally told (which by the way many of the miscreants genuinely believe, since this stuff isn't taught and wasn't widely realized until recently).

.
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Re: Modern Monetary Theory

Postby Elvis » Thu Oct 11, 2018 3:24 am

This gets way from MMT perhaps, but: Ask a conservative why Denmark works so well, ranking tops in all the indices, Forbes' #1 country for doing business etc., and their talking point seems to be "Denmark is tiny compared to the U.S., so socialism can work there but the U.S. is too big."

Does that argument make any sense? (They never offer evidence.) It seems to me that welfare state efficiency would rise with scale.
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