Modern Monetary Theory

[Elvis]

Forbes has a lot about MMT—pro and con—and related matters.

Concerning the velodity of money in the scheme of things. But what stood out to me is the the bolded part: he says that if "M" changes, then "P" must change, but he ignores a change in "T" — which in MMT (if I understand correctly) is the target of changes in "M." Increasing "T" to achieve full employment and a fully realized GDP is the goal.

His larger point about velocity is something I need to think more about. I'll paste the whole article FWIW:

2,193 views
Dec 1, 2015, 12:05pm
Forget The Fed: It's About Velocity!
Marc Gerstein
Contributor
Specialist in investment modeling focusing and robo-advising

Although Milton Friedman and Monetarism became less chic as the Reagan-Thatcher era faded, the Fed continues to act as if the money supply is the main lever for managing the economy. Actually, though, the theory is fine. The problem is that policymakers and the financial markets have been turning blind eyes to 25 percent of a key four-factor model: They’re not paying attention to V, Velocity of money. They’d better start soon or we could be in for some serious turbulence.

The Not-So-Secret Sauce

Monetarism is based on the Quantity Theory of Money traceable back at least to Francisco de Vitoria the 16th Century philosopher and theologian from the School of Salamanca. It’s summarized in the following equation:

MV = PT

M is Money supply
V is Velocity of money (See below)
P is Prices (think CPI)
T is Transactions (think Real GDP)

Reagan-Thatcher era policymakers thought that they could control inflation by controlling the money supply. As we know from basic algebra, if M goes up, so, too, does P and vice versa. (In other words, as money supply rises, so, too does the CPI).

There’s a Catch

Actually, in many walks of life including financial and economic research, you can’t simply say if such and such does this, then this other thing will do that. It’s always essential to add and important caveat: “all else being equal.”

The all-else caveat is vital. That, however, may be the problem. It’s so vital, we often take it for granted and forget to say it out loud. And if we stay silent for too long, it becomes easy to lull ourselves into completely forgetting about it. One well-known example is the PEG (PE-to-Growth) ratio, which presumes PEs are influenced by the level of growth. It’s not just that. Cost of equity capital is an important all-else.

Vintage 1980s monetarism faded as it became apparent that the Fed could not control inflation simply by controlling the money supply. And that conclusion was inevitable. P is not purely related to M just as PE is not purely related to G.

The Crucial All-Else Item, V (Velocity)

Velocity of money is the topic that seems least discussed. The Federal Reserve defines it as follows in connection with its data collection and presentation: “The velocity of money is the frequency at which one unit of currency is used to purchase domestically-produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy.”

Essentially, if people stuff money they earn under their mattresses or in savings accounts and spend only the minimum needed to sustain life, velocity will be very low, close to zero. When people cash their paychecks and spend most of the money before they get home, that will boost velocity, and so much more if those who receive their money (shopkeepers, bar owners, gas stations, etc.) likewise spend it as they get it.

If we think of money circulating through an economy as blood circulates through our bodies, excess velocity is would be analogous to hemophilia while low velocity could be analogous to clotting, or if low enough, a stroke or heart attack. If money doesn’t move, the economy dies.

That fact that Velocity is so seldom discussed doesn’t mean monetarist-influenced policymakers couldn’t read the whole equation; it’s only four items, it’s not that complicated. The problem is that they naively thought T (number of transactions, or Real GDP) and Velocity would be stable. As it turned out, GDP, although hardly inert, was not so changeable as to blow up the policy. The problem was V. It has been and still is a mess.

Looking Under the Hood

Figure 1 shows trends in the Money Supply as measured by MZM, the Fed’s broadest measure, which essentially, is currency (and currency-like things such as checking accounts), small savings accounts and money market funds.

Figure 1 – MZM Money Supply, year-to-year % change (1/1/59 – Present)


With Figure 1 having depicted the M in MV=PT, let’s move on now to T, or in plain parlance, Real GDP.

Figure 2 – Real GDP, year-to-year % change (1/1/59 – Present)


Eyeballing suggests there is some sort of relationship here, albeit not a perfect one. Details of the relationship are best left to those who know a lot more math than I do, and are beyond today’s topic. For immediate purposes, suffice to say that the long trend in GDP seems to be slanting slightly down but that money supply has not been the culprit; except for rocket shots up as the Fed worked to liquefy us out of recessions, money supply growth has been more than ample to support a healthy level of economic transactions.

That, traditionally, is something to worry about. More money in circulation than is needed for transactions – that’s the essence of inflation. So rising prices through a wide swath of the economy should be a headline concern right now. But Figure 3 shows otherwise.

Figure 3 – CPI, year-to-year % change (1/1/59 – Present)


We saw big problems with inflation back in the 1960s-70s, as many recall. Who could ever forget President Ford and his W.I.N. (Whip Inflation Now) buttons! But since then, inflation has, for the most part, been trending downward and at present, it looks like we’re knocking on the door of deflation.

If the world was as early-1980s policymakers thought it was, this could not have happened. With so much excess money out there, inflation would have to be a big problem. That it’s not is a big reason why monetarism is no longer hip. But perhaps it should be. We’ve only looked at three parts of the grand MV=PT equation; M, P and T. It’s amazing though how things fall into place once we stop ignoring V and take it seriously.

Figure 4 – Velocity of MZM, year-to-year % change (1/1/59 – Present)


How about that!

Those who thought V was stable and could be relegated to the back burner were wrong; horrifically wrong. That pretty much tells us what we need to know about inflation. It told us why it rose before 1980, beyond what could have been accounted for by money supply. It told us why inflation continued to retreat since 1980, even though the Fed pumped out a lot more money than was warranted by Real GDP. And it tells us why the QE programs have accomplished nothing. And finally, as we see in Figure 5, it helps us understand why interest rates (influenced more directly by inflation) have been moving as they have.

Figure 5 – AAA Corporate Bond Yield (1/1/59 – Present)


What It Means

First things first: This is not a good situation. To say “Who cares that Velocity is down? So, too are inflation and interest rates. Whoopee!” is like saying “Who cares that I have lots of blood clots. That means I won’t bleed all over things if I cut myself and I can even save money on bandages. Whoopee!”

In developing forward-looking assumptions about interest rates, we may be wasting our time worrying about the Fed or money supply. What we need to be looking at is Velocity. Why have people not been spending and what’s likely to get them to do so again?

My guess is that people aren’t spending because they are concerned about the future. This, by the way, is related to all the non-headline unemployment statistics; underemployment, gave up looking, corporate layoffs that not only hurt those who got the axe but scare those who remain, etc. Hurting too are probably credit card debt woes (interest rates on those are closer to 20% than to zero).

I don’t know how or when this will change. Hopefully, if it does, the Fed will be sufficiently attentive to know it had better restrain money supply; heaven help us if they screw that up. Adding to uncertainty is that nobody in politics is talking about it. Ultimately, though, ongoing declines in Velocity correlate with things that are likely to upset and destabilize the body politic. We’re already seeing it in the obvious and to many (who don’t get MV=PT) perplexing disdain for experienced politicians and gravitation toward boisterous outsiders.

But I’m not an alarmist or pessimist at heart. I believe in our remarkable ability to adjust and self-correct. That’s why I assume we’ll soon see Velocity at least stabilize if not start to edge upward. And that’s why I’m assuming interest rates will rise starting next year, even if nothing in Money supply, GDP or the CPI leads others to expect that.


Marc Gerstein
Contributor

As director of research at Portfolio123, I have long specialized in rules/factor-based equity investing strategies of the sort characterized as “Smart Alpha” in the July 2014 Journal of Portfolio Management. In addition, I formerly managed a high-yield fixed-income fund and...

[Elvis]

https://www.newyorkfed.org/medialibrary ... i10-11.pdf

Recommended.

11 pages

November 2004
Recent Innovations in Treasury Cash Management
Kenneth D. Garbade, John C. Partlan, and Paul J. Santoro

The Treasury Tax and Loan program, a joint undertaking of the Treasury and the FederalReserve, is designed to manage federal tax receipts and stabilize the supply of reserves in the banking system. Three recent innovations—electronic collection of business taxes, real-time investment of excess Treasury balances, and competitive bidding for Treasury deposits—have materially enhanced the ability of the two agencies to achieve these objectives.

[Elvis]

I've been looking into exactly how the tax receipt amounts are transferred from the TT&L accounts to the Treasury General Account (TGA), and after all the exploration of the TT&Ls, I was looking at a recent Treasury Daily Report and noticed this (see bolded red):

DAILY TREASURY STATEMENT PAGE: 2
Cash and debt operations of the United States Treasury
Tuesday, February 19, 2019
(Detail, rounded in millions, may not add to totals)
___________________________________________________________________________________________
TABLE II Deposits and Withdrawals of Operating Cash
___________________________________________________________________________________________
This Fiscal
Deposits Today month year
to date to date
____________________________________________________________________________________________

Federal Reserve Account:
Agriculture Loan Repayments (misc) $ 23 $ 223 $ 4,227
Air Transport Security Fees 1 11 1,344
Cash FTD's Received (Table IV) 30,864 147,148 1,092,023
Commodity Credit Corporation programs 52 531 3,152
Customs and Certain Excise Taxes 120 1,567 29,622
Deposits by States:
Supplemental Security Income 4 43 1,227
Unemployment 32 2,117 9,223
Education Department programs 353 3,328 25,693
Energy Department programs 30 168 3,432
Estate and Gift Taxes 32 731 6,575
Federal Reserve Earnings 0 1,387 19,661
Foreign Military Sales Program 44 1,925 15,744
Housing and Urban Development programs 1 68 853
Individual Income and Employment
Taxes, Not Withheld 204 3,180 120,099
Interest recd from cash investments 0 0 0
Justice Department programs 15 190 3,997
Postal Service 397 4,401 37,355
Public Debt Cash Issues (Table III-B) 86,313 587,160 4,473,635
Other Deposits:
Federal Communications Commission 87 503 610
Medicare Premiums 267 1,138 13,758
Thrift Savings Plan Transfer 183 672 17,029
Total Other Deposits 537 4,923 64,661
Change in Balance of Uncollected
Funds 0 0 0
Transfers from Depositaries 0 0 0
Total Federal Reserve Account 119,023 759,101 5,912,525
Short-Term Cash Investments:
Transfers from Federal Reserve Account
(Table V) 0 0 0
Total Deposits (excluding transfers) $ 119,023 $ 759,101 $ 5,912,525

https://www.fms.treas.gov/fmsweb/viewDT ... 021900.txt
All TDRs: https://www.fms.treas.gov/dts/index.html

Well, that's odd, I thought, and saw that other recent TDRs also entered zeros for TT&L transfers to TGA.

By coincidence the same day, I found this in a blog comment at NakedCapitalism (where some of the members bring in MMT topics) — the whole article & comments are worthwhile:
https://www.nakedcapitalism.com/2016/02 ... tions.html

Justin Santopietro
February 15, 2016 at 1:31 pm

Eric,

Great post as always. However, I’d like to point out that the Treasury Tax and Loan Accounts (TT&L’s) that you mention are actually no longer in use. After the expansion of Regulation D to allow the Fed to pay interest on both required and excess reserves, the TTL’s were no longer necessary, as the Fed could hit its overnight target independently of any reserve quantity. Thus there was no longer any reason for Treasury to manage changes in the reserve base with its TTL’s.

You many notice if you look at modern Treasury Daily Statements that the TTL balance no longer exists. This balance used to be published right at the top of the Treasury Statements, but they ceased doing this a few years ago.

Eric Tymoigne
February 15, 2016 at 2:28 pm

Right. In the santoro article he also notes that moving all funds in tga is better for Treasury because fed’s surplus is bigger (less reserves so lower interest payment to banks)

I'm not familiar with Justin Santopietro, but a search shows he's a Democratic politician. Tymoigne co-wrote a paper with Randall Wray (at least one), which I'll post later.

This is another thing I noticed: that the TGA daily target balance has gone from $5B to $30B and now it's around $400B. The increase corresponds with Fed QE injections.

Excess Reserves 1960-2013.png

Treasury Fed accts 2003-2015.png

This 2018 "Treasury Financial Manual" still talks about TTL-->TGA transfers, but its Glossary may be useful:
https://tfm.fiscal.treasury.gov/v2/p5/c200.pdf

[Elvis]

This is kinda interesting. This fellow Mike Norman sells "MMT Trader" courses in investing, applying MMT principles:

https://www.pitbulleconomics.com/

Do you want to learn to trade?

Hi. Is your dream to become a professional trader? Do you want to be able to apply a set of skills and knowledge in the high action world of foreign exchange trading, making thousands, tens of thousands or even hundreds of thousands monthly? Or, perhaps, your goal is to gain some additional income without having to spend lots of time that might take away from your current job or profession. Hi. My name is Mike Norman. Maybe some of you know me from my widely followed blog, Mike Norman Economics or, perhaps you’ve seen me on television where I have been commenting on the markets, trading and the economy for years. For those of you who aren’t familiar with me let me tell you that I’ve been a Wall Street trader for the past 35 years. I was a former member and floor trader on four exchanges—CME, NYMEX, COMEX and NYFE. I also traded the proprietary account for a major international bank and managed money for one of the world’s most famous hedge fund operators.


My MMT background

Besides trading, my background is in economics. I have been a follower and proponent of Modern Monetary Theory (MMT) for years and have helped to educate many people with respect to its very important tenets. If you are a follower of MMT you may also be interested to know that I have incorporated the insights of this economic school of thought into my trading approach. For many of you, trading is perhaps something you have tried in the past only to lose money and become frustrated. Maybe it has even become a kind of a gambling-type habit that leads to negative results. If that’s the case I would tell you that your experience is not uncommon.

Everything they tell you is wrong

The path to my own success also made me realize that all the things the so-called experts teach you with regard to trading are wrong.

[. . .]

MMT concepts give a huge advantage

Back in 2002 I was introduced to MMT. Up until that point I was deeply stuck in the flawed economic ideas as beliefs of the mainstream. MMT opened my eyes. It was sheer enlightenment. I started spreading the ideas of MMT while doing my TV appearances and on a radio show that I hosted. In 2006 I began my blog and very quickly I became friends with some really smart, thoughtful people who had become readers. In the meantime, I was personally putting the concepts of MMT to use in my trading. No longer was I doing certain trades that I used to do in response to changes in fiscal and monetary policy. I saw, clearly, what the outcomes of these policies would be and at the same time I saw how the crowd was completely getting it wrong. That “crowd” by the way included some of the most well known people on Wall Street. My account balance started to really climb. The macro picture became clear and predictable. So did market reaction to data and economic news.

Also interesting is his focus on the foreign exchange. I'm not sure how down I am with trading currencies for profit, but have much more to learn about the effects of the 'foreign' sector.

He gives a quick explanation of MMT, which may be helpful with rounding out understanding.

MMT

Modern Monetary Theory or, as it is often referred to, MMT, is the most concise understanding of our monetary system. It explains the distinction between what we see in use today in most economies, i.e. free floating, non-convertible currency systems. This contrasts with such systems as gold standards and fixed exchange rates, which were in use mostly in the past. Without getting too deeply into the theory, MMT is able to better predict the impact of monetary and fiscal policy than most of mainstream economics, which still is hindered by an out-of-paradigm, entrenched, institutional “belief” that money is finite and market forces are the determinant for interest rates. Mainstream economics got so much wrong. It got the effect of Fed monetary policy wrong when it was widely believed that such things as Quantitative Easing would cause hyperinflation. It got the U.S. credit rating downgrade wrong when it falsely believed that it would cause rates to skyrocket and it got monetary policy wrong, again, when it was believed that low rates would cause the U.S. dollar to collapse. A lot has been written about MMT and the theorists and proponents are everywhere discussing MMT in an academic contest, however, my course is the only applied MMT course anywhere. I actually teach you how to use the principles of MMT to make money and grow your wealth. What can be better than that? With an understanding of MMT and the knowledge of how to apply it, which is what I will teach you, it becomes not only rewarding from a financial point of view, but also highly gratifying to know you are beating the “Masters of the Universe” and their lap dog economists at what is supposedly their own game. You will literally be picking their pockets. I can tell you from experience, that feeling is awesome!

Video:
About my Forex Courses

https://www.youtube.com/watch?v=xJTUnz7FOKQ

[Elvis]

This is excellent—


https://www.econstor.eu/bitstream/10419 ... 473795.pdf

THE CASE AGAINST INTERGENERATIONAL ACCOUNTING
The Accounting Campaign Against Social Security and Medicare

JAMES K. GALBRAITH, L. RANDALL WRAY,and WARREN MOSLER

Galbraith, of course, is the son of the great John Kenneth Galbraith, whose books I read in my early exploration of money questions. Thinking about it, I might want to reread some of them in the new MMT light. I'm glad to see son John K. settled into the MMT camp with the kind of policy recommendations his father advocated. For awhile a few years back I wasn't sure where James was headed ideologically and/or on the money questions, but it was probably me, not him.

It's 30 pages; I'll post the succinct Preface, and the first couple of pages because it starts off so well:

Preface

“Intergenerational accounting” purports to calculate the debt burden our generation will leave for future generations. The Federal Accounting Standards Advisory Board (FASAB) proposes to subject the entire federal budget to such accounting and is soliciting comments on the recommen-dations of its two “exposure drafts.” The authors find that intergenerational accounting is a deeply flawed and unsound concept that should play no role in federal government budgeting. Arguments based on this concept do not support a case for cutting Social Security or Medicare. The exposure drafts have not made a persuasive argument about basic matters of accounting, say the authors. Federal budget accounting should not follow the same procedures adopted by households or business firms because the government operates in the public interest, with the power to tax and issue money. There is no evidence, nor any economic theory, behind the proposition that government’s spending ever need match receipts. Social Security and Medicare spending need not be politically constrained by tax receipts—there cannot be any “underfunding.” What matters is the overall fiscal stance of the government, not the stance attributed to one part of the budget. The authors note that federal government spending has usually exceeded tax revenues since the founding of the United States. In terms of macroeconomic accounting identities, there is no reason why one sector cannot run perpetual deficits so long as at least one other sector wants to run a surplus (save). The nongovernment (including foreign) sector’s “net saving” is equal (by identity) to the U.S. government’s deficits. Although debt issued between private parties cancels out, that between the govern-ment and the private sector remains, with the private sector’s net financial wealth consisting of the government’s net debt. The reporting proposed by the FASAB exposure drafts does not appear to recognize the fundamental differences between public and private budgets.

Some of the most basic principles of accounting are neglected, terms are ill-defined (e.g., “budgetary resources”), projections are misused, policy pre-scriptions are unjustified, and revenues are matched to spending for parts of the federal budget (notably, Social Security and Medicare) in ways that have no economic justification. Moreover, the concept of a “fiscal gap” is meaningless, and there is no justification in law or theory to legislate an accounting standard with a debt-to-GDP ratio as a target for economic policy. The authors point out that Social Security as a (national) liability is an asset to the public, but claims have focused on liabilities without acknowledging the corresponding assets. Since the public debt can be eternal and need never be paid off, a net debt position for Social Security and Medicare can likewise be eternal. We now have two centuries’ experience of accumulated federal budget shortfalls with, predictably, no suggestion of government insolvency. A serious shortcoming of the exposure drafts is that they provide no guidance on the choice of economic assumptions to be used in making projections. The procedures suggested for making budget projections are based on unchanging economic conditions, in spite of change resulting through actions of the government sector that have consequences for the nongovernment sector and the economy. Thus, the proposed reporting fails to promote understanding of the nation’s financial condition (e.g.,how to consider the U.S. dollar’s role as an international reserve asset). The FASAB’s proposed time horizons are problematic because they are arbitary and very long-term, so that even very minor changes in assumptions make a huge difference for financial projections. For Social Security and other permanent programs, what matters for long-range projections of future real burdens are demographics, technology, and economic growth. By contrast, financing is virtually irrelevant. Therefore, it serves no useful purpose to project financial shortfalls for Social Security and Medicare into a far distant future, or any purpose whatsoever to revise those programs today on the basis of such projections.

As always, I welcome your comments and suggestions.

Dimitri B. Papadimitriou, President
February 2009

Public Policy Brief, No. 98

The Case Against Intergenerational Accounting

Introduction

In recent years we have been subjected to a rising cacophony of nonsense about a looming financial crisis. No, we are not referring to the current, very real, meltdown of private financial markets. Rather, we are told, future unfunded entitlements will bankrupt our government as the baby boomers retire. Social Security and Medicare are the main source of what former Comptroller General David Walker has called the “super-subprime crisis.”

Social Security and Medicare have always had enemies, closely allied to private insurance companies who would like the business and to fund managers and others who would profit from privatization of the associated revenue streams. But recently, these enemies have been given a boost, and a claim to respectability, by the creation of “intergenerational accounting,” an economic method that purports to calculate the debt burden our generation will leave for future generations. This brief assesses intergenerational accounting and related aspects of what we call “The Accounting Campaign Against Social Security and Medicare.”

In intergenerational accounting, federal government revenue and expenditure streams are compared over very long periods—even over infinite time. “Deficit gaps” are then used to measure the financial burden of these commitments, and therefore the alleged solvency or insolvency of the government. Discounting the sum of the differences back to the present permits infinite sums to be translated into very large, but finite, numbers. The results, amounting to tens of trillions of dollars, are headline-grabbing and scary-looking. Evidently, this combination makes them irresistible. Even the Board of Trustees of the Social Security Administration (SSA) began to dabble in such arithmetic several years ago.

Now the Federal Accounting Standards Advisory Board (FASAB)1 is proposing to subject the entire federal budget to such accounting. It has issued two “exposure drafts” titled “Comprehensive Long-Term Projectionsfor the U.S. Government” (ED 1) and “Accounting for Social Insurance, Revised” (ED 2), and is soliciting comments on its recommendations. In this brief, we argue that these proposals are not only wrongheaded, but also dangerous. We examine the purpose of budgeting at the federal government level and explain why government should not be subject to the same sort of accounting and financial constraints that apply to private households or business firms. We conclude that intergenerational accounting should play no role in federal government budgeting, and that arguments based on this concept do not support a case for cutting Social Security or Medicare.

General Principles of Federal Budget Accounting

Even though some principles of accounting are universal, federal budget accounting has never followed, and should not follow, the exact procedures adopted by households or business firms. There are several reasons why this is true.

[more]

[Elvis]

Two items I came across, one answers a question raised in another (where did Randall Wray go? A: nowhere)

Warren Mosler ("the father of MMT") was interviewed in this recent (Feb.22) podcast by a Robert Murphy, who I ran into before when he was a guest on a different podcast. Murphy and his fellow poscaster are Austrians, "goldbugs" and so on—in a way the opposite of MMT. In the other guy's podcast (did I post it on here?), they critique MMT with Murphy acting as the objective explainer of MMT. He did quite well, and comes right up to the line of accepting MMT but his ingrained Austrian hard money vs. "credit card" thinking ultimately wins. (Explaining MMT, he might say, 'ya know it can be hard to deny some of this MMT logic!'). So Murphy is at least fair, and in his Feb.22 podcast he lets Mosler run on at length to explain and defend MMT. (it's 1.5 hours.) I havent listened to it all, since I've already heard numerous of Mosler's MMT talks.

Oh, just noticed this - Murphy's blurb:

About the author, Robert

Christian and economist, Research Assistant Professor with the Free Market Institute at Texas Tech, Senior Fellow with the Mises Institute, and co-host with Tom Woods of the podcast "Contra Krugman."

The sound is terrible but seems to get better:

https://www.bobmurphyshow.com/ep-18-war ... -insights/
Ep. 18 Warren Mosler Defends the Essential Insights of Modern Monetary Theory (MMT)
By Robert Murphy | 02/22/2019 |

Mosler

The reader/viewer/listener comments following MMT posts are usually worth reading (exception: YouTube not so much). Since Murphy's readers are Austrian/Mises adherents, they jump in posing all the usual objections, but there is some back & forth with the MMT view.

So Murphy asks about the other big names in MMT, and notes that L. Randall Wray lately seems absent from the scene. Mosler hasn't worked with Wray for awhile, so he didn't have an answer (except, "he got married, maybe he's busy" etc.). However, a few hours earlier I'd found this Wray post of Feb. 25, just three days ago, on Stephanie Kelton's New Economic Perspectives blog site, which became sort of the online home of the MMT heavyweights and other avid proponents. Wray comes out punching!

http://neweconomicperspectives.org/2019 ... cobin.html
Response to Doug Henwood’s Trolling in Jacobin
Posted on February 25, 2019 by L. Randall Wray | 12 Comments

Doug Henwood has posted up at Jacobin an MMT critique that amounts to little more than a character assassination. It is what I’d expect of him in his reincarnation as a Neoliberal critic of progressive thought. (https://www.jacobinmag.com/2019/02/mode ... nt-helping). It adopts all the usual troll methodology: guilt by association, taking statements out of context, and paraphrasing (wrongly) without citation.

According to Henwood, MMT is tainted by Warren Mosler’s experience as a hedge fund manager. Beardsley Ruml (father of tax withholding and chairman of the NYFed, who argued correctly that “taxes for revenue are obsolete”) is dismissed because he was chair of Macy’s (and Director of the NYFed—Macy’s still has a director on the NYFed) and because he argued that the corporate tax is a bad tax (his main arguments were later advanced by Musgrave&Musgrave, the textbook on public finance, by Hyman Minsky, and by me in the second edition of my Primer).

Oh, Ruml must not know anything about either taxes or central banking because he was a corporate stooge. Never mind that he was a New Dealer who helped to organize the New Deal plans for projects all over the country. And a PhD who authored several books and who was the Dean of Social Sciences at the University of Chicago. He must be an ignoramus when it comes to taxes and central banking because he does not adopt Henwood’s belief that the sovereign government of the United States must rely on the taxes that come from corporations and rich folk. Such is the depth of Henwood’s argument against MMT. It amounts to little more than a series of baseless ad hominem attacks.

I used to respect Henwood in his earlier role as editor of the Left Business Observer and indeed we enjoyed a good relationship, often corresponding on progressive issues. He disappeared from the scene some decades ago and I thought he had died. However, he reappeared recently as a troll arguing in blog commentary against MMT. His rants were largely incoherent and as we say in economics, orthogonal to anything MMT actually says. He has apparently suffered the fate of many aging Marxists—after years of fighting the good fight against capitalism they realize they’ve accomplished little and decide to instead engage the progressives on the argument that all is hopeless.

Apparently, Jacobin assigned to him the task of destroying MMT. My name is mentioned 17 times in Henwood’s article—I think that is more than anyone else. The magazine is publishing the attack without any offer of a response. That is quite typical when it comes to diatribes against MMT—dating all the way back to my first book in 1998 (Understanding Modern Money—the first academic book on MMT. The editor of the main Post Keynesian journal published a critique of the book—by Perry Mehrling, someone with no Post Keynesian credentials–without giving me an opportunity to respond in the same issue, and then declined to even let me have a response in a later issue. This is the way academics has dealt with MMT from the beginning—any critique, no matter how groundless, will be featured and no response will be allowed. And so it goes.

As Jacobin did not give me a chance to respond, I’m penning this for NEP. These are my responses and none of the other MMTers Henwood has trolled in his piece should be implicated. I’m sure that all of them—Kelton, Tcherneva, Mosler, Tymoigne, Fullwiler, Dantas, Galbraith, and Mitchell—can defend themselves ably and with more nuance and respect than I can. Me, I detest trolls and I cannot hide my distaste.

In any event, here are some of the topics I would address if I had been given a chance to respond.

According to Henwood, Wray does not discuss the role of private money (and financial institutions) in the private economy. Henwood claims “absent” from Wray’s work “is any sense of what money means in the private economy”. In fact, My 1990 book (Money and Credit in Capitalist Economies” is one of the foundational books in the endogenous money literature (that Henwood discusses favorably). My work before and after that book has focused on the private financial sector and includes hundreds of articles, chapters, and books on the topic—including a book co-authored with Tymoigne on the global financial crisis (The Rise and Fall of Money Manager Capitalism, Routledge 2014), and a recent book on Minsky’s approach to finance (Why Minsky Matters, Princeton, 2015). I’d wager that there are vanishingly few authors who have written more on the private banking system than me, and along with Bill Black, few who have taken such a critical perspective of private banking as practiced.

In one place, Henwood seems to backtrack a bit, writing “Wray, who once wrote a book on the topic, now dismisses endogenous money as a “trivial advance” next to MMT”. Yes, I do argue that in retrospect the endogenous money literature is trivial for several reasons. First, the modern endogenous money research (that began seriously around 1980) largely just recovered the pre-Friedmanian views that were common in the 1920s (and that were never lost in the UK); second the endogenous money approach was rather quickly adopted by heterodoxy; and third all the central banks of the rich, developed countries have also adopted the endogenous money approach. The policy recommendation that comes out of it is to direct central banks to target interest rates, not reserves or money supply. Central banks had usually adopted interest rates, anyway, outside of the relatively brief Monetarist experiment that began under Chairman Volcker—and although it is true that mainstream economists had taught that central banks could choose money targets, they recognized that if both the IS and LM curves are stable, choosing a money target is formally equivalent to choosing an interest rate target. By contrast, we have been pushing the MMT approach to fiscal finance since the early 1990s and it still remains highly controversial—and still attracts the same comments from trolls and others, like Bill Gates and Austin Goolsby who both recently announced “that’s crazy!”. Why? Because the implications of understanding fiscal finance are huge. By comparison, the implications of endogenous money are trivial—which is why it was relatively easy to get the theory adopted.

Wray supposedly “shies away from” discussing use of tax increases to counter inflationary pressures. While I am (and MMT in general is) skeptical of use of discretionary tax hikes to fight inflation, we strongly support progressive income taxes that will automatically rise in a boom. MMT also supports use of a JG to cause government spending to rise countercyclically (rising in a downturn as workers are shed from the private sector and falling in an expansion). Together, these can help to stabilize spending and income at the aggregate level. We also argue that the countercyclical swings of employment in the JG pool can act as a bufferstock to help stabilize wages. If there were a prolonged stretch of inflation we would—of course—recommend pro-actively raising taxes and/or reducing spending. We’ve been very clear on this. Our argument has always been that a JG and progressive tax system help to stabilize aggregate demand, wages, and prices but if that is not sufficient, government still has at its disposal the usual methods of fighting inflation—everything except using unemployment (since austerity will not increase unemployment but will instead increase employment in the JG).

According to Henwood “Wray has said MMT is compatible with a libertarian, small government view of the world”. Yes, the descriptive part of MMT accurately describes how sovereign currency systems work, and such knowledge can be used by Austrians or Marxists to better understand the world they want to change. MMT proponents, however, are mostly progressives, who are not content with merely explaining the world but more importantly want to radically change it. Hence, we do have policy proposals—proposals that I expect both Austrians and Marxist will hate, such as the JG. As I’ve written before, it is strange that the far right and far left come together in favoring unemployment over employment in a JG. One of those strange but true alliances against progressive policy. Austrians oppose the JG on the basis that it expands the role of government; some of the Left opposes it because the JG ameliorates suffering, presumably reducing recruits for the coming revolution.

Henwood: “Wray’s explanation of the Weimar hyperinflation, one of the most dazzling of all time, is odd. The deficits, Wray explained in his book, were caused by the inflation, not the other way round.” Yes, that is true; Henwood adopts the Monetarist explanation that “too much money” causes inflation. He confuses causation and correlation. Severe supply constraints can push up prices, increasing the amount of money that needs to be created both publicly and privately to finance purchases. Tax revenues fall behind spending so a deficit opens up as spending tries to keep pace with inflation. The money stock is a residual and it will grow rapidly with hyperinflation. That does not mean it is the cause. Mitchell has closely examined the hyperinflation cases from the MMT perspective; the argument is not at all odd and has the advantage that it is fact-based, unlike Henwood’s Monetarist linking of money and inflation that has been so thoroughly discredited that even central bankers have dropped it.

Henwood proclaims: “MMTers like Mitchell and Wray write as if borrowing abroad is just a bad choice, and not something forced on subordinate economies” and then goes on to argue that Mosler is “wrong” when he says that Turkey can buy capital equipment in its own currency (lira). Henwood does not understand foreign exchange markets—anyone (including Henwood) can exchange Turkish Lira for either dollars or euros in foreign exchange markets—including at airport counters around the world. Turkey can exchange lira for dollars to pay for imports of capital. (Might that affect exchange rates? Possibly. That is why floating the currency is important.) Nor does MMT argue that “borrowing abroad” is a “bad choice”—if that means issuing domestic currency debt held by foreigners. What we argue is that issuing debt in a foreign currency is a bad choice for any country that can issue its own currency. I’d go even further and argue that any country with its own currency should prohibit its government from issuing debt in a foreign currency, or from guaranteeing any such debt issued by its domestic firms. However, if private entities want to issue debt in foreign currencies, I do not necessarily advocate preventing that. What about the special case of a country that issues a currency that cannot be exchanged in forex markets (remember, Henwood wrongly proclaimed that Turkey is such a country—here I’m not talking about Turkey or any of the other many countries which do have currencies listed in forex markets; for a list of exchange rates of the 150 or so convertible currencies from the Aruban Florin to the Zambian Kwach, go here: https://www.oanda.com/currency/converter/)? I think it is most likely a mistake to issue debt in a foreign currency unless there is an identified source of the forex that will be needed to service the debt (for example, dedicated forex earned from exports). If you cannot exchange your currency in forex markets, and cannot earn forex, your best bet is international charity. Indebtedness in foreign currency will be a disaster.

Henwood claims: “MMTers will sometimes say they want to tax the rich because they’re too rich, but Wray said at a recent conference that he sees no point in framing the issue as taxing the rich to expand public services — presumably because government doesn’t need to tax to spend” and has “has written that taxing the rich is “a fool’s errand” because of their political power”. The first part of that is correct—we do not need to tax the rich in order to expand public services. The second is dishonest reporting. He does not include a citation but what I actually argued is that trying to reduce inequality using taxes is not likely to be successful—because the rich influence the tax code and get exemptions. Like Rick Wolff, I argue for “predistribution”—prevent the growth of excessive income and wealth by controlling payments of high salaries in the first place. Eliminate the practices that lead to inequality—such as huge compensation for top management of public companies. I do like high taxes on high income and high wealth. I have argued they should be set so high as to be confiscatory. Not at a marginal income tax rate of 70%, but at 99%. Or even 125%. Or 1000%. Take it all. I am not confident that the effective tax rate will ever be that high—due to the exemptions the rich will write into the code—but we that doesn’t mean we shouldn’t aspire for better. It is amusing that Henwood refers to the barriers of “political power” when it suits his purpose (for example when he talks about the political infeasibility of the job guarantee) but objects if I notice that it is politically difficult to tax rich folks. All I’m arguing is that a) we don’t need tax money to pay for the programs we want, and b) high tax rates on the rich, alone, will not be sufficient in our struggle to reduce inequality.

He writes “Tymoigne and Wray’s response to Palley barely addressed any of his substantive points” and Henwood objects to our mention of a video where Palley argued against the job guarantee because if poor people in South Africa got jobs they’d want food and that might increase imports and even cause inflation. First, we responded to Palley’s critiques in 43 different places in that paper, including responding in detail to nine long quotes where we let him speak for himself (unlike Henwood, who loosely—often wrongly—paraphrases our arguments, often with no citations at all). The video is not an outlier—it is Palley’s often repeated position. Given a choice, Palley prefers low inflation over jobs and income for the poor. He is perhaps the only Post Keynesian who still uses the ISLM framework augmented by a Phillips Curve. (For those who don’t know what that framework is, it is the “bastardized” version of Keynesian economics that helped open the door to Neoliberalism.) I have been at meetings where Palley urged the AFL-CIO to forget about arguing for full employment because of the danger of inflation. That was not in 1974 or even in 1979 when there actually was some inflation. No, it was a generation later. Like the Neoliberals, Palley is still fighting the inflation battle decades after the danger disappeared. Henwood is free to defend that Neoliberal position if he likes, but it is disingenuous to criticize us for linking to a video where Palley makes his own case for the position he is well-known to hold.

Henwood and Jacobin align themselves against the new wave of activists who have embraced MMT and the Job Guarantee as integral to the Green New Deal program. These new progressives want to tax rich people, too, not because Uncle Sam needs the money but because the rich are too rich.

Henwood wants us to believe that Government needs inequality. We’ve got to cater to the rich. They get to veto our progressive policies. If there weren’t rich folk, we’d never be able to afford a New Deal. We only get the policies they are willing to fund. If we actually did tax away their riches, government would go broke.

As Kelton puts it, people like Henwood think money grows on rich people.

For far too long left-leaning Democrats have had a close symbiotic relationship with the rich. They’ve needed the “good” rich folk, like George Soros, Bill Gates, Warren Buffet, Bob Rubin, to fund their think tanks and political campaigns. The centrist Clinton wing, has repaid the generosity of Wall Street’s neoliberals with deregulation that allowed the CEOs to shovel money to themselves, vastly increasing inequality and their own power. And they in turn rewarded Hillary—who by her own account accepted whatever money they would throw in her direction.

Today’s progressives won’t fall into that trap. “How ya gonna pay for it?” Through a budget authorization. Uncle Sam can afford it without the help of the rich.

And, by the way, they’re going to tax you anyway, because you’ve got too much—too much income, too much wealth, too much power. What will we do with the tax revenue? Burn it. Uncle Sam doesn’t need your money.

In reality, taxes just lead to debits to bank accounts. We’ll just knock 3 or 5 zeros off the accounts of the rich. Of course, double entry bookkeeping means we also need to knock zeros off the debts held by the rich—so we’ll wipe zeros off the student loan debts, the mortgage debts, the auto loan debts, and the credit card debts of American households. Yes, debt cancellation, too.

The new breed of progressive politician—represented by Bernie and Alexandria—doesn’t need corporate funding, either. And they certainly don’t need Henwood’s scolding.

As usual on NEP, the comments are part of the read.

[Elvis]

Related to above, and extremely helpful in understanding MMT:


http://www.levyinstitute.org/pubs/wp_778.pdf

Modern Money Theory 101: A Reply to Critics

by Éric Tymoigne and L. Randall Wray
Levy Economics Institute of Bard College
November 2013

ABSTRACT

One of the main contributions of Modern Money Theory (MMT) has been to explain why monetarily sovereign governments have a very flexible policy space that is unencumbered by hard financial constraints. Through a detailed analysis of the institutions and practices surrounding the fiscal and monetary operations of the treasury and central bank of many nations, MMT has provided institutional and theoretical insights about the inner workings of economies with monetarily sovereign and nonsovereign governments. MMT has also provided policy insights with respect to financial stability, price stability, and full employment. As one may expect, several authors have been quite critical of MMT. Critiques of MMT can be grouped into five categories: views about the origins of money and the role of taxes in the acceptance of government currency, views about fiscal policy, views about monetary policy, the relevance of MMT conclusions for developing economies, and the validity of the policy recommendations of MMT. This paper addresses the critiques raised using the circuit approach and national accounting identities, and by progressively adding additional economic sectors.

Keywords:Modern Money Theory;Price Stability;Full Employment;Financial Stability;Money

[Elvis]

Wow, Stephanie Kelton lashing out, too, here at Paul Krugman —

Stephanie Kelton
‏Verified account @StephanieKelton
6h6 hours ago

Stephanie Kelton Retweeted Paul Krugman

Had enough. You don’t get to do this. You didn’t call BS on “pay-fors”. We did. You were the scold., warning “Deficits Matter Again.” You told Democrats to step over a $2T bill laying in wait in 2016. https://www.google.com/amp/s/www.nytime ... n.amp.html …

Paul Krugman
Verified account @paulkrugman
I actually agree with this. The problem is MMT types who devote a lot of effort to trashing conventional Keynesians who are ALSO saying that we shouldn't worry much about pay-fors. Accepting bad economics shouldn't be a litmus test for progressives! https://crooked.com/articles/whats-miss ... -the-left/ …

Stephanie Kelton
‏Verified account @StephanieKelton
8h8 hours ago

See you in....

Krugman is getting worse. This could get interesting.

[Belligerent Savant]

.

F'ing Krugman.

https://www.bloomberg.com/opinion/artic ... -about-mmt

Paul Krugman Asked Me About Modern Monetary Theory. Here Are 4 Answers.

Deficit levels, interest rates and the tradeoff between fiscal and monetary policy.

By Stephanie Kelton
March 1, 2019, 9:30 AM EST

There is a doctrine among mainstream economists holding that: (1) government deficits push interest rates higher and (2) rising interest rates crowd out private investment. The government can take more of the economy’s financial resources, but only at the expense of lost private investment. This means that running budget deficits has at least some downside.

Paul Krugman is a believer in this doctrine. I’m not, and he’s asked me to explain why. He is responding to a column I wrote critiquing his view of modern monetary theory.

I’m going to respond directly to the questions he raised:

Krugman: Are MMTers claiming, as Kelton seems to, that there is only one deficit level consistent with full employment, that there is no ability to substitute monetary for fiscal policy? Are they claiming that expansionary fiscal policy actually reduces interest rates? Yes or no answers, please, with explanations of how you got these answers and why the straightforward framework I laid out above is wrong.

Quick responses first, followed by explanations behind my thinking.

#1: Is there only one right deficit level? Answer: No. The right deficit depends on private behavior, which changes. MMT would set public spending always to the level required to achieve full employment, and then accept whatever deficit may result.

#2: Is there no ability to substitute monetary for fiscal policy? Answer: Little to none. In a slump, cutting interest rates is weak tea against depressed expectations of profits. In a boom, raising interest rates does little to quell new activity, and higher rates could even support the expansion via the interest income channel.

#3: Does expansionary fiscal policy reduce interest rates? Answer: Yes. Pumping money into the economy increases bank reserves and reduces banks' bids for federal funds. Any banker will tell you this.

#4: Does MMT accept Krugman’s “straightforward framework”? No. We can come back to this at the end.

Is there only one right deficit level? No, because for one thing, MMT would establish a public option in the labor market — a federally funded job guarantee — thereby ensuring full employment across the business cycle. The deficit, then, would rise and fall with the cycle, as the job guarantee becomes a new stabilizer, automatically moving toward the “right size” in response to changes in the level of aggregate spending.

In the absence of a job guarantee, things get trickier. Leaving monetary (and exchange rate) policy aside, the government has to allow the deficit to go where it needs to go in order to accommodate the private sector’s net savings desires. If the private sector wants to spend less and save more, the public sector will need to accommodate that desire by running a bigger deficit or the economy will be pushed away from full employment. Krugman drew up the perfect schematic — based on the sector balance framework adopted by MMT — to explain all of this 10 years ago.

Is there no ability to substitute monetary for fiscal policy? Not much. Krugman sees MMT as saying that fiscal policy can always deliver the “right size” deficit to maintain full employment. He’s challenging that by asserting that you can have any size deficit and still have full employment because the central bank can always establish the “right size” interest rate to get you there. I disagree.

It is true that the Fed can pursue any rate policy it desires. It does not follow, however, that cutting interest rates will work to induce enough spending to maintain full employment. You can’t simply assume borrowers will always have the appetite for more private debt, even if you make it really cheap to borrow. Businesses borrow and invest when they’re swamped with customers (or expect to be). They don’t passively take on more debt simply because the central bank has dangled cheaper credit before them.

The evidence suggests that interest rates don’t matter much at all when it comes to private investment: J.P. Morgan (here and here), the Reserve Bank of Australia (here), the Federal Reserve (here) and the Bank of England (here). It is even possible, as MMT has shown, that cutting rates could further slow the economy because lowering rates cuts government expenditures (interest payments), thereby exacerbating contractionary fiscal policy.

This is in fact what modern monetary theory suggested when the European Central Bank went to negative rates, which MMT sees as a contractionary tax. But MMT recognizes that raising rates could offset contractionary fiscal policy, though in a highly regressive manner as the interest paid by the government tends to go to those with the highest incomes.

Does expansionary fiscal policy reduce interest rates? Yes, unequivocally. You won’t see it in Krugman’s stylized graphic (below), but it does happen in the real world, where the interbank market exists.

Imagine the government is running a trillion-dollar deficit, sending out checks for military weapons, contracting to do massive infrastructure projects, and so on. All of those checks get deposited into financial institutions across the country. And each time a check is deposited, the bank gets a credit to its reserve account at the Fed.

When you pay your taxes, your bank loses reserves, but with a trillion-dollar deficit, there is a huge net infusion of reserves into the banking system. If the central bank takes no action to prevent it from happening, the overnight lending rate — the federal funds rate — will fall to a zero bid.

Why? Because all banks are flush with non-interest-bearing reserves, and everyone is scrambling to lend them to another bank. When everyone’s a seller and no one’s a buyer, the price goes to zero. To prevent this, the central bank steps in.

Before the collapse of Lehman in 2008, the Fed conducted open-market operations (selling bonds to mop up enough reserves to get the interest rate up). This was all coordinated with the Treasury Department on a daily basis, as I explained here.

Today, the Fed simply pays interest on reserves to establish a positive rate. That doesn’t change the fact that deficits, in and of themselves, put downward pressure on the short-term interest rate.

Yes, the Fed has a reaction function, and it can vote to raise rates in response to perceived inflationary pressures associated with deficit spending. But that is a different matter. That is fighting against the “natural” gravitation.

Is there some reason the straightforward framework Krugman laid out is wrong? Yes, as even its creator went on to acknowledge. MMT rejects the IS-LM framework that Krugman uses to demonstrate the conclusion that widening budget deficits put upward pressure on interest rates and crowd out private investment.

The model remains the workhorse for many mainstream Keynesians. MMT considers it fundamentally flawed. It is incompatible with much of Keynes’s “The General Theory of Employment, Interest and Money.” It was designed for a fixed-exchange rate regime, and it is not stock-flow consistent.

Here’s the framework Krugman presents as a challenge to MMT:



Each of the IS curves (1-3) represents a different fiscal stance. This framework shows that the government can expand its deficit and move the economy from a depressed condition at point A to full employment by shifting IS1 to IS2. The economy is now at full employment, but with higher interest rates and lower private investment.

Keep this in mind: Higher deficits give rise to higher interest rates, which give rise to lower investment. The last bit is referred to as “crowding out.” This is the inherent tradeoff that MMT denies and Krugman defends.

And it’s easy for him to defend it because his model assumes a fixed money supply, which paves the way for the crowding-out effect!

Krugman’s framework treats investment as a simple function of the interest rate. Higher rates mean lower investment, and vice versa. Central banks can juice (or slow) the economy simply by lowering (or raising) interest rates. It’s Pavlovian in its simplicity: stimulus-response.

Keynes’s analysis was more nuanced. Investment decisions were forward-looking, heavily influenced by “animal spirits,” and overwhelmingly dependent on the state of profit expectations. When the profit outlook is sufficiently grim, no amount of rate cutting will entice businesses to borrow and invest in new plant and equipment (think Great Recession).

Conversely, when the outlook is exuberant, businesses may borrow and invest even more, despite the central bank’s desire to slow an expansion by raising interest rates (think savings and loan crisis). The downward-sloping IS curve does not allow for either of these possibilities. Yet both outcomes can, and do, occur.

One final point. Krugman says there is an inherent tradeoff between fiscal and monetary policy. I agree, but not with the tradeoff he describes. Deficits don’t automatically drive interest rates higher, and higher interest rates don’t automatically translate into lower private spending.

That tradeoff is disputed, and not just by MMTers. The tradeoff that matters is the one that Hyman Minsky and James K. Galbraith have highlighted. Monetary policy “works” by driving people into debt. Fiscal policy works by driving income into people’s pockets. As Galbraith put it:

There are two ways to get the increase in total spending that we call ‘economic growth.’ One way is for government to [deficit] spend. The other is for banks to lend. For ordinary people, public budget deficits, despite their bad reputation, are much better than private loans. Deficits put money in private pockets…This is called an increase in ‘net financial wealth’… In contrast, when a bank makes a loan, the cash is not owned free and clear.

That’s the tradeoff that interests me. Should we lean more heavily on (monetary) policy that works by leveraging the private sector’s balance sheet or on (fiscal) policy that works by strengthening it?

So, there you have it. Two no’s, a not really and a yes in response to Krugman’s questions. (Un)fortunately, this will be the last response from me, since my editors have asked me to continue any further discussion offline. I thank Paul for engaging me and am more than happy to do this.

[Elvis]

^^^^ Thanks, I hadn't seen that!

[Grizzly]

Researcher G. Edward Griffin gives a great lecture on the history of the Federal Reserve

[Elvis]

I think most MMT economists agree that the Fed and Treasury Dept. should be consolidated; Randall Wray and Mosler have argued persuasively for consolidation. G. Edward Griffin says the Fed should be abolished, but the Treasury needs some kind of bank if just for mundane financial operations (e.g. gov't writes Medicare checks on its checking account at the Fed).

Researcher G. Edward Griffin gives a great lecture on the history of the Federal Reserve

https://www.youtube.com/watch?v=eLjZPTbRdG4

Is that the right video? It's a cute and predictable lesson on the theory of constitutional government by a well-known John Bircher but I don't think the Federal Reserve is ever mentioned.

Griffin of course wrote "The Creature from Jekyll Island" (full text here) which I devoured years ago in my quest to get to the bottom of the smoking gun of the money system and stuff. Greider's "Secrets of the Temple" is a better book and I'd say I should probably re-read both, but on a quick revisiting of "Creature" I immediately run into what I now pretty clearly understand to be misconceptions, and Griffin regularly contradicts himself.

It's true that the Fed was created under sneaky circumstances by a few rich bankers and other connected elites, disguised as sportsmen, with the chief aim of protecting and institutionalizing their financial scheme, er, model. But the Fed is a "creature" of Congress, and Congress can—and ocassionally does—tell the Fed what to do. The president can't tell the Fed shit. Congress can delete it. If Americans want to control how their money is spent—money is rightly a public utility—the only place to do that is in the Congress. Just sayin'.

Now, these Birchers like Griffin are "gold bugs." Returning to a gold standard is a terrible idea. What they don't understand is that goverment-issued fiat tokens (dollars in this case) are "backed" by the goods and services they buy at the time they're created and paid to someone.

Griffin correctly posits a choice between taxes and inflation: you want no taxes and skyrocketing high prices, or taxes and stable prices? The inflation itself he calls a "tax" but the simple fact is, if a government spends money into the economy every year, most of the money must be drained back out of the economy or it'll just pile up without matching resources to spend it on—and the result is high inflation. Treasury bonds are another way of draining excess money from the economy. Either way, it has to be done if you don't want inflation.

Also, Griffin believes in the "money multiplier" effect, which MMT economists have roundly refuted. Money comes from the state. "Money doesn't grow on rich people."

Griffin explained what Ruml explained, but gets crossed up:

Ruml explained that, since the Federal Reserve now can create
out of nothing all the money the government could ever want, there
remain only two reasons to have taxes at all. The first of these is to
combat a rise in the general level of prices. His argument was that,
when people have money in their pockets, they will spend it for
goods and services, and this will bid up the prices. The solution, he
says, is to take the money away from them through taxation and let
the government spend it instead.

That's not at all what Ruml said. Is Griffin talking about a fiat currency decoupled from taxes or not?

The other purpose of taxation, according to Ruml, is to redistrib-
ute the wealth from one class of citizens to another. This must
always be done in the name of social justice or equality, but the real
objective is to override the free market and bring society under the
control of the master planners.

ROTFLMAO. The master planners have been stopping us from using or even knowing about the "extraordinary" measures, the little secret of where money comes from, the public power of money creation for the public good.

The objective can be to override the free market and bring society under an umbrella of healthcare, education, full employment and a clean environment. One act of Congress, one appropriation, would do it. Done.

"Congress hereby appropriates the following amounts...." is how money is created.

"It is the ability of governments to acquire money without direct taxation that makes modern warfare possible, and a central bank has become the preferred method of accomplishing that.”

Again, it's also the government's ability to acquire money without direct taxation that makes health, education and full employment possible. Griffin is against all that, just on some "no free stuff" principle. Like Ivanka, "people don't want free stuff."

"the euphoria of being able to create money without
human effort is so great that, once such a narcotic is taken, there is
no politician or banker who can kick the habit."

Politicians and bankers, again, have been keeping this narcotic for themselves and working overtime to keep it from us. And it's ours!

Robert Hemphill was the Credit Manager of the Federal Reserve
Bank in Atlanta. In the foreword to a book by Irving Fisher, entitled
100% Money, Hemphill said this:

"If all the bank loans were paid, no one could have a bank deposit,
and there would not be a dollar of coin or currency in circulation. This
is a staggering thought. We are completely dependent on the
commercial banks. Someone has to borrow every dollar we have in
circulation, cash, or credit. If the banks create ample synthetic money
we are prosperous; if not, we starve. We are absolutely without a
permanent money system. When one gets a complete grasp of the
picture, the tragic absurdity of our hopeless situation is almost
incredible — but there it is."

A credit manager would say this. It's more "money multiplier" theory that ignores the federal government sector, which is the real source of money. We do have a "permanent money system" and the idea that we have to "borrow every dollar we have in circulation" is nonsense. It's true in the sense that the government is advancing money to the economy; the goverment does not require that the advance be "repaid" because there was no cost creating it—but to prevent high inflation, most of the money will have to be "recalled" or "retired" or however you want to put it, just removed from the economy.

You can just see the debt manager's hands wringing over that "debt."

He says, "If the banks create ample synthetic money we are prosperous; if not, we starve." That's exactly where government, using the public utility of money, should step in and take up the slack. Job guarantee now!!

[JackRiddler]

Wow wow wow. Here's a forthright defense of capitalism as it is, deal with it poor people.


https://www.youtube.com/watch?v=CyiZUl0re3k

You choose to be poor, or you were educated to be poor, or you took a paycheck (and thus dependence) to be poor, or wait, once you're poor it gets passed on, it's genetic. Born and stuck. Lazy. You weren't taught about money in school (and you weren't), and you didn't learn it. School taught you to be an employee, or a professional, the teachers are employees for a paycheck. Answers close minds, questions open them. So don't say, I can't afford it, but ask yourself, how can I afford it? You poor didn't understand spiritualism: there is good and bad, up and down, a game to play. You were greedy, that's why you're poor. The poor are greedy, they want comfort. Give them money, you make them poor. They waste it. "Entrepreneurs work for free." They give. They invest. They create. They make the jobs. They take the stab in the back and learn, work to become stronger. They don't pay taxes, because they're smart and it's legal. You didn't risk and fail and try again, that's why you're poor. You didn't sign up to go to Vietnam for the war, to risk all and find your better man. That's why you're poor.

MORE

For whatever reason it reminded me of this -- which is a fiction, but then so is Robert Kiyosaki. 43 years apart and makes for an interesting contrast. A narrative of system and order and balance for a form of collective, as against one of individual heroism and "reality"; Kiyosaki, a rational conqueror, a new Weberian spirit.


https://www.youtube.com/watch?v=yuBe93FMiJc

[JackRiddler]

Useful outline of the 2007-10 bailout (and beyond). Lots of links in it at source.

https://www.rollingstone.com/politics/p ... ut-809731/

www.rollingstone.com
Turns Out That Trillion-Dollar Bailout Was, in Fact, Real

Matt Taibbi

Last summer, Washington Post “Fact-checker” columnist Glenn Kessler wrote that the Medicare for All plan favored by Sen. Bernie Sanders (I-VT) would cause “providers” to face an “immediate cut of 40 percent in their payments.” The piece was quickly amended to reflect that the cuts only referred to private insurance payments, leaving Medicare recipients untouched. A few days later, Kessler would repeat — and later correct again — the same error.

Now, Kessler is fact-checking another statement made by Sanders, this one about the financial crisis in South Carolina:

“Not one major Wall Street executive went to jail for destroying our economy in 2008 as a result of their greed, recklessness and illegal behavior. No. They didn’t go to jail. They got a trillion-dollar bailout.”

On the question of whether or not anyone went to jail for crimes related to the crisis, Kessler is right that one executive, Kareem Serageldin, did get sentenced to 30 months for offenses that could be construed as having contributed to the crash. That his case took place in 2013, well after reporters like Gretchen Morgensen, Louise Story and myself made noise about the conspicuous absence of prosecutions, is beside the point. Serageldin was indeed prosecuted for overvaluing mortgage bonds, and though he wasn’t one of the important players in the scandal by any stretch, he had a title you could technically call “major.”

Still, Kessler concedes, “Sanders’s overall point is valid,” adding:

Almost 900 executives went to jail for the savings and loan scandal in the 1980s, compared with just one person in the 2008 financial crisis.

From there, he asks, “But did Wall Street get a $1 trillion bailout?” He ends up giving this assertion “Two Pinocchios.”

In order, his points:

The Troubled Asset Relief Program, or TARP, which is what you call “the bailout” if you’re a Wall Street executive trying to make the bailout seem smaller, involved an initial outlay of $700 billion, which Congress later reduced to $475 billion. (The actual ultimate expenditure of TARP was lower than that, at $431 billion, but this won’t matter much, as I’ll show in a minute.
Kessler says ProPublica maintains a great tracker on TARP spending, and says, “banks and other financial institutions received $254 billion, mostly to replenish capital.” He goes on to say, “But many of those banks are not what one would consider ‘Wall Street.’ Many community banks and credit unions also received TARP funds.” We’ll come back to the issue of the bailout recipients not being “Wall Street.”
He then adds the automobile bailouts, the bailouts of AIG, Fannie Mae and Freddie Mac, and comes up with a $632 billion sum — still not $1 trillion. He insists this was not just a bailout of big companies, because “the American people” were also helped. “If these banks and other financial institutions had collapsed, many companies would have soon followed, leading to massive layoffs.”
Lastly, closer to the real point, Kessler disputes the numerous studies showing the real bailout outlay was through the Fed, which the Sanders campaign had said was anywhere from $7.7 trillion (the number Bloomberg used in its coverage of secret Fed lending) to $29 trillion (the number the Levy Institute at Bard College calculated, including guarantees and other forms of aid).
Kessler dumps on these numbers because a) Ben Bernanke once said they were “wildly inaccurate,” and b) because loans listed as different expenditures often represented the same loan simply rolled over. Under that standard, Kessler quotes the Government Accountability Office, which said “loans outstanding for the emergency period peaked at about $1 trillion in late 2008.”

This would seem to get us past a “trillion dollar bailout” already, but Kessler also wants to argue the issue of whether the bailouts were good or bad. What that has to do with fact-checking is not clear, but he goes there. “The Fed is not a Federal Agency” he writes, and insists its bailout facilities made profits and were a social necessity. For instance, he says, they unfroze the commercial paper market, which was “essential for meeting liabilities such as workers’ payroll.” Had the Fed not acted, he says, “the U.S. economy would have ground to a halt.”

This is basically the history of the bailouts as written in self-congratulatory tomes like Ben Bernanke’s The Courage To Act (revised, probably, from My Courage To Act) and Timothy Geithner’s Stress Test. It’s Wall Street’s one-sentence summary of the bailouts: they weren’t that big, but if they were, they were necessary, and made a profit, and even though they made us rich again, they were done for you, the ordinary person!

Let’s start with the notion that “community banks” were also aided in the bailout. There were, indeed, a few smaller banks that participated in the TARP, and in fact, they tended to be in the program longer than the super-sized banks, mainly because they were unable to repay money as quickly.

However, only a section of community banks get into the program. The Treasury Department invested in 707 banks, or about 10 percent of the industry. But 100 percent of the biggest banks were bailed out. As Bernanke told the Financial Crisis Inquiry Commission, of the nation’s 13 largest banks, “12 were at the risk of failure within a week or two” of the initial bailout period, in late September and October of 2008. Every single one of those banks took huge bailout payments.

As Gretchen Morgenson pointed out when information about Fed bailout programs first became public, just six banks — JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley — were the recipients of 63 percent of the Fed’s average daily borrowing, representing about a half-trillion dollars at peak periods just for those firms.

Those Fed dollars were doled out through an alphabet soup of different programs (the TAF, the TALF, the TSLF, the TOP, the PDCF, the Maiden Lanes, etc.) and were used to execute major restructurings of the economy. The Fed put up $30 billion to help Chase buy the hulk of Bear Stearns, helping further by buying up $29 billion in bad assets from the dying investment bank.

Citigroup was borrowing $100 billion from the Fed at its peak, Morgan Stanley $107 billion. Fed money was used to broker Bank of America’s absorption of Merrill Lynch and help Wells Fargo buy up Wachovia, in addition to other mergers. At the end of all the rearranging, the 12 largest banks in the country — which had all contributed massively to the crisis and had maybe a week to live when the crash happened, as Bernanke testified — suddenly controlled 70 percent of all bank assets in the United States.

This matters in relation to Kessler’s piece because it had a profound effect on the market. The financial community now knew the government would never let the biggest banks fail, and now those banks had lower borrowing costs than small community banks, for whom the same could not be said. This turned into a so-called “implicit guarantee” that Bloomberg said was worth $83 billion a year by 2013.

The point is, the bailout plan not only didn’t really help community banks, it massively accelerated their disenfranchisement, by placing them in a separate economic class from those deemed Too Big to Fail. This is why the Independent Community Bankers of America supported the bill introduced by Sherrod Brown (D-OH) and David Vitter (R-LA) in 2013 to break up Too Big To Fail banks.

Kessler spends half his time quibbling over the size of the TARP, which was really a minor appetizer on the bailout menu. The bailout was not just the government handing bags of money to companies (although it did that, too). It was an array of programs designed to help the companies who screwed up the worst avoid losses, secure new revenue streams and emerge from the crash not just unscathed, but more powerful than before.

Did Kessler count interventions like the 2008 ban on short-selling of 799 financial stocks, which protected just those companies from (legitimate) market pressures?

CNBC said the ban included “commercial banks, insurers and the two remaining big investment banks, Goldman Sachs Group and Morgan Stanley.” These two massive investment banks had to beg the state to save them from short-sellers! Goldman shares jumped 27 percent after that ban, while Morgan Stanley’s jumped 29 percent. Did Kessler count that increase in market capitalization in his figures?

Did he count the emergency bank charters handed out to Goldman and Morgan Stanley late on the Sunday night of September 21st, 2008? The two investment banks were not commercial banks, but they obtained late-night permission to call themselves Bank Holding Companies, so they would have lifesaving access to borrowing at the Fed’s discount window and could open their doors the following morning. How much would other investment banks have paid for the same stay of execution?

There were so many other interventions. The Post likely forgot that on October 6th, 2008, the Fed for the first time in its history began paying interest on required reserve balances, a perk that one banker described as “paying banks to be banks.”

This was a particularly obnoxious gift to Wall Street since the whole concept of the bailouts was supposed to be unfreezing the economy and spurring lending. But banks were so strapped for safe income sources they began filling reserve balances at the Fed, hoarding cash in search of those interest payments. In 2012, for instance, banks were only required to keep about $100 billion in reserve, but according to the San Francisco Fed, reserves averaged $1.5 trillion over the first six months of that year. That was $1.4 trillion taken out of the economy.

How about the Obama administration’s early-2010 decision to give Fannie and Freddie an unlimited credit line to buy mortgages? Everyone from Darrell Issa to Dennis Kucinich saw through this one.

Raising the caps allowed the two mortgage giants — which, as Kessler correctly notes, had been taken out of the hands of shareholders — to be used as a “backdoor TARP” to “purchase toxic assets at inflated prices.” In other words, the government took over Fannie and Freddie and used the duo in a way private shareholders would never have allowed, as a landfill in which banks could dump bad assets at high prices.

How about the government’s continual efforts to look the other way or lower standards so bailout recipients who should have failed mandated “stress tests” would be allowed to pass?

Several banks got the Fed to drop estimates of capital shortfalls by $20 billion or more after intense lobbying. Citigroup passed one of its early tests when regulators were persuaded to cut billions of an expected hole on its balance sheet based on “pending transactions.” Again, how do you price that kind of aid?

How about non-prosecuting a company crime? Crafting settlements so automatic penalties for certain offenses like the revocation of bank charters don’t kick in? Then there was the too-common practice of letting offenders like HSBC make at least part of regulatory settlements related to crisis-era offenses tax-deductible. This forced all of us to pay for hundreds of millions of dollars’ worth of these settlements.

Beyond all of these gifts, which are difficult to quantify, Kessler has his numbers confused. Even he cites the $1 trillion figure for emergency Fed loans offered by the GAO. Bernanke put the peak-lending figure at $1.5 trillion. Why don’t these numbers by themselves justify the statement, “They got a trillion dollar bailout’?

The Special Inspector General’s office for the TARP program, meanwhile, issued reports for the bailout. This oversight panel led by Bailout author and former SIGTARP chief Neil Barofsky put the gross outlay — including the TARP, and other Treasury and Fed expenditures — at $4.6 trillion. The net outlay they place at $3.3 trillion. Why are these numbers less reliable than the rest?

As I’ve written before, trying to compute the bailout is a fool’s errand, because it was so all-encompassing. The government’s massive treasure dump into the balance sheets of the top banks was a kind of merger, one that obligated us to keep our investments viable going forward though a range of complementary actions.

Those included regulatory relief, inflated asset purchases, market intervention, tax breaks and other actions. God knows how much all of that was worth, but the cash portion of it alone was certainly north of a trillion dollars, when you figure in both TARP and the Fed lending.

Apart from mortgage issuers like Countrywide, the institutions most responsible for the crash were the Too Big To Fail big banks that financed, pooled and re-sold toxic mortgage-backed securities, often fraudulently. Those banks were rewarded with bailouts and state-aided mergers that allowed executives to quickly return to previous compensation levels, and left them more dominant than ever.

The ordinary person couldn’t walk into the Fed and get a new credit card that allowed them to borrow with government’s backing. Wall Street firms could take advantage of a galaxy of bailout facilities that allowed them to do things just like that, like the Temporary Liquidity Guarantee Program. Banks prospered and were made whole; regular people went into foreclosure by the millions and saw their credit ratings ruined.

The Post’s take on this goes beyond fact-check, arguing the bailouts were necessary, appropriately sized and validated by future repayments. But the facts show the crash response was a massive, sustained investment in the wealthiest sector of the economy, which also happened to bear the biggest responsibility for the disaster. The pain was mostly felt elsewhere. Sanders, and the many citizens who helped pay that bill, are right to be upset.

[Elvis]

^^^^

emergency bank charters handed out to Goldman and Morgan Stanley late on the Sunday night of September 21st, 2008? The two investment banks were not commercial banks, but they obtained late-night permission to call themselves Bank Holding Companies

I remember Goldman Sach's switch to "bank holding company" being characterized as a "demotion" for Goldman—a punishment even.

banks were so strapped for safe income sources they began filling reserve balances at the Fed, hoarding cash in search of those interest payments. In 2012, for instance, banks were only required to keep about $100 billion in reserve, but according to the San Francisco Fed, reserves averaged $1.5 trillion over the first six months of that year.

I'm pretty sure this is related to ending the use of the TT&L accounts, where tax receipts used to be deposited, partly to offset the big drops in deposits—i.e. reserves—on big tax-paying days. This new aspect also seems to obviate the hourly coordinations between Treasury and the Fed in timing transfers from the TT&Ls to the Treasury General Account (TGA). As I understand it, the close timing was meant to keep the time between the making of a deposit (TT&L transfer to TGA) and the making of the associated payment (Treasury pays the amount to someone) as close to zero as possible. (Of course, those deposits are not needed for the Treasury to spend the money, but they help maintain the illusion that is does.)

Without the "valve" function of the TT&Ls, seems now that all tax receipts are credited directly to the TGA; one question I have is, how then does the TGA maintain that relatively steady daily balance?

If records of individual TT&L transfers are published, I cannot find them. Only the totals were published, in the Treasury Daily Report (linked somewhere above), but now that line is "zero," no transfers from any TT&L accounts, and I'm assuming the TT&L accounts at the commercial banks now sit empty (if they still exist).

My next effort, when I have more time, in this is to figure out how the Treasury General Account's daily balance target works in this new arrangement; the TGA daily balance is now HUGE compared to what it was just a few years ago, see graph somewhere above—was $30B, now more like $450B+.