I think it’s time for some humility. It’s precisely your ideas of reckless creating money which had led the UK in its predicament. The United States gets away with this at the moment because it’s the world’s reserve currency.
Is that the same issue with Japan, China, Australia, Russia, Canada?
Seems time for "humility" belongs to the person attempting to speak WELL past their understanding... you have a mouth and an opinion based.in ignorance.
Its only harsh if you ignore the implications of the comment made....consider that all modern fiat currencies operate in the same way. Food, energy and manufacturing sovereignty... real resources... are key to leveraging the full power of fiat. Imports can be done away with and domestic production can eliminate the whole world reserve currency benefits. Yes.... to quote Warren Mosler: imports are a benefit and exports are a cost... but if you are not production sovereign, you will need to get supplies from other nations.
Any country that has its own currency and only borrows in its own currency, is a monetary sovereign. If it owes debts, in its own currency, it cannot default and it cannot run out of its own money.
Therefore, it can always pay for anything that is for sale in its own currency (meaning stuff produced domestically).
But if it must buy things abroad, it must then convert its currency to buy those things that are for sale in a foreign currency. That is when it can run out of money.
Government A can run out of Government B's money.
Brazil cannot run out of Brazilian Reals, but it can run out of European Euros.
Now because most countries need at least some imports, then buyers need to have foreign currencies to pay for them.
Some countries need fewer imports, some need more.
But, again, no country, as a whole, can run out of ITS OWN money. They can only run out of a foreign money.
The US is a unique position only because other countries will accept US dollars for payment.
If an Argentine firm wishes to buy inputs from a South African firm, the South African firm will accept payment in US dollars. It probably won't accept payment in Argentine pesos. It might accept payment in Euros.
Even the United States must import many things. But just because the rest of the world will accept US dollars as payment for goods and services, doesn't mean that unemployed workers in the US are having great lives.
Yes, excellent reply Kepler. The problem with current monetary policy, aside from the fact that it doesn't work, is that it has no direct beneficial effect for the individual. Generally theorists of all disciplines have a problem with direct looking. That comes from our wonderful (but incomplete and onesided) proclivity for abstraction. If economists had looked directly at the point of retail sale and the point of loan signing they would have probably long ago recognized that utilizing the means of debt money creation by banks , equal accounting entries that summed to zero, could resolve the thorniestest problem of the economy, (inflation) and remedy chronically weak individual purchasing power and thus weak demand for commercial agents' goods and services....if you simply created it as a gift of money at those points. So creating money at strategic points in the economic process can actually create BENEFICIAL DEFLATION. Ah, the cardinal signatures of historical paradigm changes: Complete conceptual opposition, the destruction of old orthodoxies, the inversion of current paradigm temporal universe realities and direct observation instead of dedicated abstraction that misses temporal opportunities.
With material resources the money is used to buy and with the human beings who use the resources to create products and services.
Monetary policy is about structuring the distribution of money in such a way that you accomplish some goal.
Moreover, no central bank has ever been able to control the quantity of money. The Fed tried and gave up in the late eighties, publicly (but quietly) admitting it could not. The only thing it could do was control interest rates.
So, monetary policy is about what you DO with the money created by a government. How will the society use that money and who will benefit?
That's correct. Governments across the world have been reckless in money creation, especially during Covid. Now the ones which do not have the petrodollar status to back them up are in serious problems.
Briefly my gripe is that MMT as described in S.Kenton’s book ‘the deficit myth’ does not provide a lasting alternative to the ills of free market capitalism in terms of addressing wealth inequality. Simply creating more money inevitably devalues currencies which hurt the poorest the most when prices increase. Covid was a time where those with the deepest pockets should of been asked to help those effected by this crisis. Instead Governments took the easy option of just spending money which is a major reason for todays cost of living crisis
Oh, Zamir, Zamir, Zamir. You came to the wrong newsletter, buddy.
Here's the proper frame for thinking about economic ideas.
There is Ptolemy and there is Kepler.
Ptolemy's model says the Earth is at the center of the universe and everything revolves around us in circular orbits, moving at constant speed in those orbits.
Kepler's model says the Sun is at the center of our solar system and the planets orbit the sun in elliptical orbits. Moreover, the areas swept out by the planet (in the ellipse) are equal for equal time intervals. Given the eccentricity of an ellipse this can only be possible if the planet's speed is faster the closer it is to the sun.
What's my point? My point is your model of how money works in a monetary production economy works is wrong. Your model is Ptolemy. Now, even kids in middle school know Kepler's model is the accurate one.
And your language is imprecise.
What does "recklessly creating money" mean?
Do you mean the Bureau of Printing and Engraving actually making paper Federal Reserve notes?
Do you mean the Federal Reserve crediting the reserve accounts of commercial banks?
Do you mean the legislature and executive of the United States (Congress and President) passing a spending bill?
Do you mean commercial banks creating money by making commercial or personal loans?
What do you mean?
I hope you don't mean QE because QE is not money creation.
Now George, what do you mean by Britain's "crash and burn." What, exactly, do you mean? What precisely are you saying?
Do you mean the price of the pound declining relative to the US dollar? Why is that a crash and burn?
Or do you mean the price of energy going up for UK citizens, which of course has nothing to do with "money creation" and everything to do with neoliberal fake markets.
Now, the key word is "necessarily." Everyone's favorite fake Nobel prize winner*, Milton Friedman, said "Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output."
REALLY? Always? Always an everywhere? It can ONLY be produced by a more rapid increase in quantity of money than output?"
So prices can't increase because, hmm, we run low on some important input to production?
Prices can't increase because a monopoly increases the price?
Prices can't increase because an oligopoly forms a cartel and fixes the price higher than you want?
Prices can't increase because a monopsony, or near-monopsony exists, in the middle of some market? (For example, four firms control buying of meat from livestock farmers. That's why beef prices went up in the U.S. The price paid to the cattle ranchers didn't go up. The middlemen kept paying them the same but then raised the prices to consumers.)
The government can't run out of money This is a fact. There is exactly one entity in the entire world that can create US dollars: The government of the United States (and its authorized agents, i.e., the central bank and commercial banks). Therefore the government, any government, cannot run out of its own money.
But the society CAN run out of workers, raw materials, land, clean water, etc. And the society can CHOOSE to structure markets so whatever money is created goes to one group of people and not a different group. But that is a choice. The UK government can choose to lower taxes of rich people and corporations and give a subsidy to other people so they can pay their energy costs. The direct effect of the tax reduction and subsidies are greater profits for the energy sellers. Or the UK government could just skip all that by regulating prices and taxing windfall profits. These are choices, not needs.
You're right, Zamir. It IS time for humility. It's time for all the Ptolemaics and Copernicans of the world to put down their bad models and epicycles, and listen to Kepler and Newton.
Listen and learn. Put aside what you THINK you know and become an observer of reality.
I say follow the professor's advice. Read the paper. I've been reading, and re-reading, and re-reading again, that paper since since 2016, just after reading Professor Wray's book.
When all you know is Ptolemaic astronomy, learning Kepler takes time. You'll have to read it more than once. But you will learn a lot.
Here are great follow-ups, Professors Papadimitriou and Wray talking about inflation in 1994 and again last December. Turns out the neoclassicals at the Fed have no idea what to do about inflation and there isn't much they can do that is useful anyway. (Or they know but don't care.)
*The "Nobel Prize in Economics" is fake because it's not one of the original Nobel prizes endowed by Alfred Nobel (for physics, chemistry, medicine or physiology, literature and peace). The economics one is in fact the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. That's because it was invented in 1968 by the Swedish central bank. The Nobel prizes were supposed to be for "benefits to mankind." Neoclassical economics has done very little, I'd say nothing, to benefit mankind.
Uh, no. His predictions were wrong. If you predict something, and your predictions fail, then you failed. It’s that simple. But the implications of his bad theory benefited some people with power. So, they promoted his ideas and gave him a fake Nobel prize.
You just have to actually read his papers to see how ridiculous he was. Helicopters throwing money around. Where did the money come from? Did the government pass a spending bill to create the money. Is the helicopter money counterfeit bills printed by a foreign country?
The whole thing is remarkably stupid, created by a man who created his theories first, then refused to test them, then created silly stories to justify them. Instead of investigating how money ACTUALLY works, under what rules and institutions, and how people actually behave, he just made up his made and declared himself right.
Learning economics from Friedman is like trying to learn physics by reading Aristotle and Ptolemy and ignoring Kepler and Newton. Good luck.
Look, I admire MMT economists as being some of the smartest people on the planet. But in case you haven't noticed, we are the brink of nuclear war. Putin will now consider the "annexed" Ukrainian territories in the south and east to be part of "Mother Russia." If Ukraine continues its counter-offensive in these regions (which it will), the absolutely insane Putin has said he will respond with a nuclear strike. And anyone who thinks that events can be stage-managed once the first nuclear weapon is detonated is a fucking fool. So while the discussions that Stephanie has so adroitly instigated on these pages are fascinating, I have to say that at this moment it all amounts to academic bullshit.
What should MMT economists be doing today? At this very moment? Gather the usual suspects--Kelton, Wray, Mosler, Mitchell, et al, and demand a meeting with President Biden for tomorrow morning. Explain to the president that we have the economic wherewithal to negotiate our way out of nuclear Armageddon. How so? The West will pick up the tab for rebuilding Ukraine (at least $1 trillion if we're being honest). Russia must be offered NATO membership, which immediately removes Putin's reason for invading Ukraine in the 1st place. The West will offer peace and prosperity to the Russian people, provided Russia remove its troops entirely from Ukraine (including Crimea) and Putin from office. How much freedom the Russian people desire will be up to them. These heroic MMT'ers must explain to Biden that we can afford to do it because we can't afford not to. It's just money, and it's just a deficit. So what?! when the stakes are so high?
Putin is crazy and cornered, and he'll start a nuclear war because he can. Our only chance to stop him is to give Kremlin insiders a tangible economic reason to oust him. But this probably has to happen within the next 72 hours (that estimate might be generous). MMT economists are uniquely equipped with the intellectual firepower to deliver what amounts to an economic cri de coeur for decisive action. Before it's too late.
Of course, if thermonuclear war ends human civilization on Sunday, no one will be around to observe how silly folks were to worry about the exchange rate of the British pound.
The Wray article is an interesting read. It's the first time I've been able to wrap my head around the "Banking School vs. the Currency School" debate enough to answer the question, "Which side are you on?"
The article appears to have been written so as to be a chapter in a book of essays, probably by different authors. Is that inference correct? If so, was the book ever published?
It would be interesting to have Randy republish this with updates and annotations. For example, now that the U.S. Federal Reserve pays interest on reserves, to what extent does it still engage in open market operations?
In case Wray never does that, the next best thing might be a report from Nathan Tankus earlier this year and Robert Hockett’s article from last year on the digital dollar.
Tankus’s article is not exactly a continuation or update of Wray’s but it’s similar in that it analyzes monetary policy and discusses what would be useful and beneficial to all right now.
Hockett’s article discusses the digital U.S. dollar as one instrument of a useful and beneficial monetary policy.
I think it’s time for some humility. It’s precisely your ideas of reckless creating money which had led the UK in its predicament. The United States gets away with this at the moment because it’s the world’s reserve currency.
Is that the same issue with Japan, China, Australia, Russia, Canada?
Seems time for "humility" belongs to the person attempting to speak WELL past their understanding... you have a mouth and an opinion based.in ignorance.
A little harsh , I guess this means you are shrouded in great knowledge of the economy's of the Nation you mention . By the way I am a Canadian
we are not far behind Britain's crash and burn .
Its only harsh if you ignore the implications of the comment made....consider that all modern fiat currencies operate in the same way. Food, energy and manufacturing sovereignty... real resources... are key to leveraging the full power of fiat. Imports can be done away with and domestic production can eliminate the whole world reserve currency benefits. Yes.... to quote Warren Mosler: imports are a benefit and exports are a cost... but if you are not production sovereign, you will need to get supplies from other nations.
Which nations fullfil the criteria you laid out in your response?
Any country that has its own currency and only borrows in its own currency, is a monetary sovereign. If it owes debts, in its own currency, it cannot default and it cannot run out of its own money.
Therefore, it can always pay for anything that is for sale in its own currency (meaning stuff produced domestically).
But if it must buy things abroad, it must then convert its currency to buy those things that are for sale in a foreign currency. That is when it can run out of money.
Government A can run out of Government B's money.
Brazil cannot run out of Brazilian Reals, but it can run out of European Euros.
Now because most countries need at least some imports, then buyers need to have foreign currencies to pay for them.
Some countries need fewer imports, some need more.
But, again, no country, as a whole, can run out of ITS OWN money. They can only run out of a foreign money.
The US is a unique position only because other countries will accept US dollars for payment.
If an Argentine firm wishes to buy inputs from a South African firm, the South African firm will accept payment in US dollars. It probably won't accept payment in Argentine pesos. It might accept payment in Euros.
Even the United States must import many things. But just because the rest of the world will accept US dollars as payment for goods and services, doesn't mean that unemployed workers in the US are having great lives.
Excellent
Yes, excellent reply Kepler. The problem with current monetary policy, aside from the fact that it doesn't work, is that it has no direct beneficial effect for the individual. Generally theorists of all disciplines have a problem with direct looking. That comes from our wonderful (but incomplete and onesided) proclivity for abstraction. If economists had looked directly at the point of retail sale and the point of loan signing they would have probably long ago recognized that utilizing the means of debt money creation by banks , equal accounting entries that summed to zero, could resolve the thorniestest problem of the economy, (inflation) and remedy chronically weak individual purchasing power and thus weak demand for commercial agents' goods and services....if you simply created it as a gift of money at those points. So creating money at strategic points in the economic process can actually create BENEFICIAL DEFLATION. Ah, the cardinal signatures of historical paradigm changes: Complete conceptual opposition, the destruction of old orthodoxies, the inversion of current paradigm temporal universe realities and direct observation instead of dedicated abstraction that misses temporal opportunities.
A monetary sovereign does not "crash and burn":
BoC Annual Report 2011
https://www.bankofcanada.ca/wp-content/uploads/2012/04/annualreport2011.pdf
Page 4
The Bank collaborated with the federal government in the development and
implementation of the government’s prudential liquidity plan, ensuring that
the government can meet its financial obligations even during periods of
market stress.
Page 31
Liquidity
Given the Bank’s ability to create virtually unlimited quantities of
settlement balances ..... its operations are not constrained by its cash flow
or by its holdings of liquid assets.....
Most economists do not understand that monetary policy has nothing to do with the quantity of money. ~L. Randall Wray
If it's nothing to do with quantity of money , what is it to do with?
With material resources the money is used to buy and with the human beings who use the resources to create products and services.
Monetary policy is about structuring the distribution of money in such a way that you accomplish some goal.
Moreover, no central bank has ever been able to control the quantity of money. The Fed tried and gave up in the late eighties, publicly (but quietly) admitting it could not. The only thing it could do was control interest rates.
So, monetary policy is about what you DO with the money created by a government. How will the society use that money and who will benefit?
That's what monetary policy is about.
That's correct. Governments across the world have been reckless in money creation, especially during Covid. Now the ones which do not have the petrodollar status to back them up are in serious problems.
What does this MEAN?
What, exactly, are you saying?
Just saying repeatedly, "governments have been reckless in money creation" is not an analysis. It's a political slogan.
Be precise.
Briefly my gripe is that MMT as described in S.Kenton’s book ‘the deficit myth’ does not provide a lasting alternative to the ills of free market capitalism in terms of addressing wealth inequality. Simply creating more money inevitably devalues currencies which hurt the poorest the most when prices increase. Covid was a time where those with the deepest pockets should of been asked to help those effected by this crisis. Instead Governments took the easy option of just spending money which is a major reason for todays cost of living crisis
Oh, Zamir, Zamir, Zamir. You came to the wrong newsletter, buddy.
Here's the proper frame for thinking about economic ideas.
There is Ptolemy and there is Kepler.
Ptolemy's model says the Earth is at the center of the universe and everything revolves around us in circular orbits, moving at constant speed in those orbits.
Kepler's model says the Sun is at the center of our solar system and the planets orbit the sun in elliptical orbits. Moreover, the areas swept out by the planet (in the ellipse) are equal for equal time intervals. Given the eccentricity of an ellipse this can only be possible if the planet's speed is faster the closer it is to the sun.
What's my point? My point is your model of how money works in a monetary production economy works is wrong. Your model is Ptolemy. Now, even kids in middle school know Kepler's model is the accurate one.
And your language is imprecise.
What does "recklessly creating money" mean?
Do you mean the Bureau of Printing and Engraving actually making paper Federal Reserve notes?
Do you mean the Federal Reserve crediting the reserve accounts of commercial banks?
Do you mean the legislature and executive of the United States (Congress and President) passing a spending bill?
Do you mean commercial banks creating money by making commercial or personal loans?
What do you mean?
I hope you don't mean QE because QE is not money creation.
https://www.hks.harvard.edu/sites/default/files/centers/mrcbg/files/PSheardQEQAAugust2014.pdf
Now George, what do you mean by Britain's "crash and burn." What, exactly, do you mean? What precisely are you saying?
Do you mean the price of the pound declining relative to the US dollar? Why is that a crash and burn?
Or do you mean the price of energy going up for UK citizens, which of course has nothing to do with "money creation" and everything to do with neoliberal fake markets.
Here's a 23 minute lesson on European electricity markets: https://www.youtube.com/watch?v=NicE0-N9ux0&t=2195s
And here's Steven Keen's latest explanation, for what feels like the thousandth time, of why governments spending money don't necessarily create inflation: https://shows.acast.com/debunkingeconomics/episodes/how-much-money-is-too-much
Now, the key word is "necessarily." Everyone's favorite fake Nobel prize winner*, Milton Friedman, said "Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output."
REALLY? Always? Always an everywhere? It can ONLY be produced by a more rapid increase in quantity of money than output?"
So prices can't increase because, hmm, we run low on some important input to production?
Prices can't increase because a monopoly increases the price?
Prices can't increase because an oligopoly forms a cartel and fixes the price higher than you want?
Prices can't increase because a monopsony, or near-monopsony exists, in the middle of some market? (For example, four firms control buying of meat from livestock farmers. That's why beef prices went up in the U.S. The price paid to the cattle ranchers didn't go up. The middlemen kept paying them the same but then raised the prices to consumers.)
The government can't run out of money This is a fact. There is exactly one entity in the entire world that can create US dollars: The government of the United States (and its authorized agents, i.e., the central bank and commercial banks). Therefore the government, any government, cannot run out of its own money.
But the society CAN run out of workers, raw materials, land, clean water, etc. And the society can CHOOSE to structure markets so whatever money is created goes to one group of people and not a different group. But that is a choice. The UK government can choose to lower taxes of rich people and corporations and give a subsidy to other people so they can pay their energy costs. The direct effect of the tax reduction and subsidies are greater profits for the energy sellers. Or the UK government could just skip all that by regulating prices and taxing windfall profits. These are choices, not needs.
You're right, Zamir. It IS time for humility. It's time for all the Ptolemaics and Copernicans of the world to put down their bad models and epicycles, and listen to Kepler and Newton.
Listen and learn. Put aside what you THINK you know and become an observer of reality.
I say follow the professor's advice. Read the paper. I've been reading, and re-reading, and re-reading again, that paper since since 2016, just after reading Professor Wray's book.
When all you know is Ptolemaic astronomy, learning Kepler takes time. You'll have to read it more than once. But you will learn a lot.
Here are great follow-ups, Professors Papadimitriou and Wray talking about inflation in 1994 and again last December. Turns out the neoclassicals at the Fed have no idea what to do about inflation and there isn't much they can do that is useful anyway. (Or they know but don't care.)
https://econwpa.ub.uni-muenchen.de/econ-wp/mac/papers/9903/9903011.pdf
https://www.levyinstitute.org/pubs/ppb_156.pdf
*The "Nobel Prize in Economics" is fake because it's not one of the original Nobel prizes endowed by Alfred Nobel (for physics, chemistry, medicine or physiology, literature and peace). The economics one is in fact the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. That's because it was invented in 1968 by the Swedish central bank. The Nobel prizes were supposed to be for "benefits to mankind." Neoclassical economics has done very little, I'd say nothing, to benefit mankind.
If Dr Friedman were alive he would set you straight on understanding monetary policy. You and MMT don’t have a clue.
Uh, no. His predictions were wrong. If you predict something, and your predictions fail, then you failed. It’s that simple. But the implications of his bad theory benefited some people with power. So, they promoted his ideas and gave him a fake Nobel prize.
You just have to actually read his papers to see how ridiculous he was. Helicopters throwing money around. Where did the money come from? Did the government pass a spending bill to create the money. Is the helicopter money counterfeit bills printed by a foreign country?
The whole thing is remarkably stupid, created by a man who created his theories first, then refused to test them, then created silly stories to justify them. Instead of investigating how money ACTUALLY works, under what rules and institutions, and how people actually behave, he just made up his made and declared himself right.
Learning economics from Friedman is like trying to learn physics by reading Aristotle and Ptolemy and ignoring Kepler and Newton. Good luck.
Look, I admire MMT economists as being some of the smartest people on the planet. But in case you haven't noticed, we are the brink of nuclear war. Putin will now consider the "annexed" Ukrainian territories in the south and east to be part of "Mother Russia." If Ukraine continues its counter-offensive in these regions (which it will), the absolutely insane Putin has said he will respond with a nuclear strike. And anyone who thinks that events can be stage-managed once the first nuclear weapon is detonated is a fucking fool. So while the discussions that Stephanie has so adroitly instigated on these pages are fascinating, I have to say that at this moment it all amounts to academic bullshit.
What should MMT economists be doing today? At this very moment? Gather the usual suspects--Kelton, Wray, Mosler, Mitchell, et al, and demand a meeting with President Biden for tomorrow morning. Explain to the president that we have the economic wherewithal to negotiate our way out of nuclear Armageddon. How so? The West will pick up the tab for rebuilding Ukraine (at least $1 trillion if we're being honest). Russia must be offered NATO membership, which immediately removes Putin's reason for invading Ukraine in the 1st place. The West will offer peace and prosperity to the Russian people, provided Russia remove its troops entirely from Ukraine (including Crimea) and Putin from office. How much freedom the Russian people desire will be up to them. These heroic MMT'ers must explain to Biden that we can afford to do it because we can't afford not to. It's just money, and it's just a deficit. So what?! when the stakes are so high?
Putin is crazy and cornered, and he'll start a nuclear war because he can. Our only chance to stop him is to give Kremlin insiders a tangible economic reason to oust him. But this probably has to happen within the next 72 hours (that estimate might be generous). MMT economists are uniquely equipped with the intellectual firepower to deliver what amounts to an economic cri de coeur for decisive action. Before it's too late.
Of course, if thermonuclear war ends human civilization on Sunday, no one will be around to observe how silly folks were to worry about the exchange rate of the British pound.
The Wray article is an interesting read. It's the first time I've been able to wrap my head around the "Banking School vs. the Currency School" debate enough to answer the question, "Which side are you on?"
The article appears to have been written so as to be a chapter in a book of essays, probably by different authors. Is that inference correct? If so, was the book ever published?
It would be interesting to have Randy republish this with updates and annotations. For example, now that the U.S. Federal Reserve pays interest on reserves, to what extent does it still engage in open market operations?
In case Wray never does that, the next best thing might be a report from Nathan Tankus earlier this year and Robert Hockett’s article from last year on the digital dollar.
Tankus’s article is not exactly a continuation or update of Wray’s but it’s similar in that it analyzes monetary policy and discusses what would be useful and beneficial to all right now.
Hockett’s article discusses the digital U.S. dollar as one instrument of a useful and beneficial monetary policy.
Put your thinking cap on and enjoy.
https://files.modernmoney.network/M3F000001.pdf
https://scholarship.law.ufl.edu/cgi/viewcontent.cgi?article=1002&context=jtlp