This is solid advice but let’s also focus on creating high paying job training programs that will help with green infrastructure. Working on a public private partnership to create jobs in emerging technology areas with philanthropic involvement. Stay tuned for developments!
MTMT when Stephanie and Randy are part of MMT. Bit of a dilemma for an acronym! One could go on to say that the fed is MT -- empty -- of any good ideas and .... I’ll leave now!
"The Jimmy Stewart savings and loan sector was allowed to recess into a distant memory of Christmas past. Banks started treating borrowers like one-night stands and loans like toxic waste, something to bundle up and quickly offload onto pension funds and other investors."
Bravo! That is some seriously fine writing!
And then there's this: "We need to move--quickly--to a system of FDIC insured BANKS, not FDIC insured DEPOSITORS." Is the implication here that the Fed should stop selling bonds altogether (after all, the whole point of a treasury bond is to have your money protected) and adopt a policy of "Interest On Excess Reserves" for ALL bank deposits?
Worth reading multiple times over to be honest with you. Great piece here by Kelton and Wray. Its too bad these so called economists simply don't understand what they're talking about when it comes to interest rates, deficits, and the economy. It's long overdue that the fed needs to stop weaponizing rates, the results for decades have been a disaster.
I still can't figure out how any policy-making institution can "fight inflation" without having an empirically valid theory that explains the thing being fought -- a theory that's capable of making accurate predictions and making sense of historical evidence. As best as I can tell -- and I am, admittedly, a rank amateur -- no such theory exists and MMT doesn't really have one.
The standard Friedmanite theory -- that inflation is "always and everywhere" a monetary phenomenon -- is obviously wrong both empirically and logically. In itself, it's so far off the mark as to be "not even wrong." The MMT theorists seem, on the one hand, to reject Friedman, but, on the other, to have no compelling story of their own to tell about the causes of inflation. Indeed, MMT often seems to embrace a sort of mealy-mouthed Friedmanism: Too much money floating around in the economy-- particularly money injected by federal deficit spending -- can "cause" prices to rise.
But what's the actual "causal" mechanism in the MMT theory? Sometimes I hear mumbling about excess money "causing" prices to be "bid up" by people flush with excess cash. But this also seems wrong, or, at best, incomplete: The prices of most consumer goods (with the possible exception of housing) aren't determined by auctions in which bidding occurs: The sellers of most consumer goods simply set prices. The microeconomists clearly seem to understand this, but the macroeconomist don't, or can't, or won't.
Apart from housing markets, the only places in which prices are set by buyers "bidding" for stuff are commodity markets (and labor markets -- but that's a rather different story). It's possible, I suppose, that members of the investor class, who always and everywhere control a hugely disproportionate share of the "money supply," might use "excess" cash to bid up the prices of commodities, thereby driving up costs for downstream producers, distributors and vendors who then pass those costs along to consumers, and that's where inflation -- or, at least, some of it -- comes from. Is that the theory? Is there any evidence to support it?
And then there's the market for labor. There's a "bidding up" process that often occurs when, as in the last few years, labor supply contracts (or fails to expand): Employers who are short of employees often "bid up" their wage and benefit offers to attract workers, and that process is, at least in theory, inflationary. But this isn't obviously a monetary phenomenon at all, except perhaps obliquely. And it fails to account for the fact that some significant portion of any inflation resulting from the bidding up of the price of labor will result from firms raising prices to maintain (or increase) profit targets, and will reflect the relative ability of those firms to get away with price increases in excess of their increased labor costs (which will depend, in turn, on things like their position in the market, the elasticity of the demand for their products).
Does MMT have a workable theory of inflation? I haven't really seen one. But, to be fair, I question whether a falsifiable theory of inflation is even a possibility. The economy is a chaotic system. It's a system that includes, effectively, just about everything that happens in the universe -- including all the stuff that happens in the brains of human beings (and each human brain is its own chaotic system). How can this system possibly be modeled in a way that would give rise to useful predictions? Beats me. Glad it's not my job to figure it out.
Loved it, as per usual, except the mistaken belief that regulators had anything to do with this travesty. Regulators can never be held responsible for the failure and stupidity of modern man. Those in charge, need to be "bankrupted" eg fired, and then sent to pause land for a time, before our memories are wiped and they can screw us again. If history proves anything, there is another crisis coming and we will have no means to prevent it. Just get the buckets and start bailing, we need banks, good ones and bad ones.
What is the magical full employment level and interest rate that the Phillips Curve supposedly predicts ? Full Employment Act was thrown under the bus.
KeltonBideninflation. Napalm on a forest fire 🔥. Joe knew. Confidence in our debt, Spending, leadership and finances are being questioned. Sadly for good reason. Rate and inflation instability has led to a run on the banks. Confidence in our financial system is in question.
I don't know enough about the financial sector to follow these arguments. My impression is that interest rate hikes serve two purposes which are dear to the heart of the corporate feudal class - creating unemployment and job insecurity among the masses, and increasing economic inequality.
This statement puzzles me a bit "Central banks can’t control the money supply (despite the carnage, the Fed never hit its money targets), and money supply growth isn’t related to inflation (money grew rapidly as inflation finally began to drop)."
How to reconcile this with the (MMT) concept that one purpose of tax is to reduce/increase money in circulation to stop overheating/boost economy. With full employment being the objective.
There's only so much regulation and oversight can do. At some point, one needs responsible management. The Financial Times reported that Blackrock warned SVB about it's weak risk controls. From the article "The January 2022 risk control report gave the bank a “gentleman’s C”, finding that SVB lagged behind similar banks on 11 of 11 factors considered and was “substantially below” them on 10 out of 11, the people said."
I agree with much of this. But most of this recounts history and does little to explain inflation. I do not agree that money supply has no impact. M2 money stock was increased more than 30% post-COVID. The inflation that I and others expected predictably followed. Somebody needs to credibly disprove Milton Friedman before anyone can believe otherwise.
I absolutely agree though that many of our financial crises are rooted in Fed behaviors. Jimmy Carter squeezed three Fed Chairs in four years for easy money. He got much of what he wanted, sadly. I'm older than Dr Kelton and remember 13% inflation and gasoline lines. I respectfully disagree - Volker did what he needed to do to destroy Carter's economic train wreck.
Greenspan tried to make the job look like the work of Merlin. Speaking in prose that often left people guessing at its meaning, the Greenspan Fed mostly followed rates down as the Reagan era boom continued through the 1990's. Greenspan spent too much time fretting over irrational exuberance instead of embracing the explosion in innovation that was fueling 1990's growth.
Then came 9/11. Here is where the Fed really went off the rails. They lowered interest rates to near-zero, arguing that the nation could not easily recover without ZIRP. Never mind that our productive capacity was totally intact after 9/11. Yes, it was heinous but no factories, refineries, smelters, power plants etc were destroyed on 9/11 - just buildings and more than 3,000 lives & families. The Fed response to 9/11 didn't call for ZIRP.
Since 9/11, central banks have responded to one 'crisis' after another with more damaging long-term results. Greenspan's low post-9/11 rates fueled the housing bubble that the Fed was too blind to see. Franklin Raines of Fannie Mae told Congress that housing was one of America's safest & best investments, and Congress believed him.
2007-2009 brought lots of extraordinary measures from the Fed. The nation got through the crisis that was wrought in no small measure by ZIRP and FAS157.
Then came COVID - a pandemic that may have been created in-part with taxpayer dollars. We irresponsibly shut down the entire economy. The Fed dutifully printed lots of money to buy Treasuries so that both the Trump and Biden Administrations could helicopter money everywhere for people to not work. Is it any wonder consumer spending went through the roof in 2021 & 2022?
The Fed kept rates near zero for nearly a decade. They embedded the expectation that ZIRP would be quasi permanent and necessary for the economy to function. It's what people came to expect because ten years of recency bias taught them that. Then people wonder why problems erupt when the Fed pushes up rates 400 bps in less than a year. SVB just passed a bank examination a few weeks ago - what the examiners actually looked at appears to be unclear, but they passed. Why though would SVB's unqualified board worry about duration after a decade of ZIRP? After all, they held 'safe' treasuries in an era of ZIRP that they seemingly thought would not end.
Lurching from one crisis to the next, followed by one Fed keystone cop exercise after another, is no way to run the central bank. It's no way to 'manage' the economy. Nor is it sensible to nationalize banks, guarantee all banks & deposits and thereby nationalize risk & moral hazard. If there is no consequences for imprudent risk, there's no disincentive for reckless economic & financial behavior.
Academics have spent a century debating the proper role of the Fed. 'Abolish the Fed' advocates probably have a point. But bank failures were prevalent before the Fed too - 1907 is why we got the Fed. I wish someone would take a closer look at the Taylor Rule again. Putting some practical guidelines around interest rate policy seems a heck of a lot more sensible than anything we've done the past two decades. And while we're at it, abolish the Congressional Budget and Impoundment Act of 1974. Let the Executive Branch have a true budget veto once again.
This is solid advice but let’s also focus on creating high paying job training programs that will help with green infrastructure. Working on a public private partnership to create jobs in emerging technology areas with philanthropic involvement. Stay tuned for developments!
The factor underlying many of these shocks are America's wars and the need to continue funding them.
Any thoughts on: 1) public-sector banks and 2) a new tax regime for speculative income?
MTMT when Stephanie and Randy are part of MMT. Bit of a dilemma for an acronym! One could go on to say that the fed is MT -- empty -- of any good ideas and .... I’ll leave now!
"The Jimmy Stewart savings and loan sector was allowed to recess into a distant memory of Christmas past. Banks started treating borrowers like one-night stands and loans like toxic waste, something to bundle up and quickly offload onto pension funds and other investors."
Bravo! That is some seriously fine writing!
And then there's this: "We need to move--quickly--to a system of FDIC insured BANKS, not FDIC insured DEPOSITORS." Is the implication here that the Fed should stop selling bonds altogether (after all, the whole point of a treasury bond is to have your money protected) and adopt a policy of "Interest On Excess Reserves" for ALL bank deposits?
Worth reading multiple times over to be honest with you. Great piece here by Kelton and Wray. Its too bad these so called economists simply don't understand what they're talking about when it comes to interest rates, deficits, and the economy. It's long overdue that the fed needs to stop weaponizing rates, the results for decades have been a disaster.
I still can't figure out how any policy-making institution can "fight inflation" without having an empirically valid theory that explains the thing being fought -- a theory that's capable of making accurate predictions and making sense of historical evidence. As best as I can tell -- and I am, admittedly, a rank amateur -- no such theory exists and MMT doesn't really have one.
The standard Friedmanite theory -- that inflation is "always and everywhere" a monetary phenomenon -- is obviously wrong both empirically and logically. In itself, it's so far off the mark as to be "not even wrong." The MMT theorists seem, on the one hand, to reject Friedman, but, on the other, to have no compelling story of their own to tell about the causes of inflation. Indeed, MMT often seems to embrace a sort of mealy-mouthed Friedmanism: Too much money floating around in the economy-- particularly money injected by federal deficit spending -- can "cause" prices to rise.
But what's the actual "causal" mechanism in the MMT theory? Sometimes I hear mumbling about excess money "causing" prices to be "bid up" by people flush with excess cash. But this also seems wrong, or, at best, incomplete: The prices of most consumer goods (with the possible exception of housing) aren't determined by auctions in which bidding occurs: The sellers of most consumer goods simply set prices. The microeconomists clearly seem to understand this, but the macroeconomist don't, or can't, or won't.
Apart from housing markets, the only places in which prices are set by buyers "bidding" for stuff are commodity markets (and labor markets -- but that's a rather different story). It's possible, I suppose, that members of the investor class, who always and everywhere control a hugely disproportionate share of the "money supply," might use "excess" cash to bid up the prices of commodities, thereby driving up costs for downstream producers, distributors and vendors who then pass those costs along to consumers, and that's where inflation -- or, at least, some of it -- comes from. Is that the theory? Is there any evidence to support it?
And then there's the market for labor. There's a "bidding up" process that often occurs when, as in the last few years, labor supply contracts (or fails to expand): Employers who are short of employees often "bid up" their wage and benefit offers to attract workers, and that process is, at least in theory, inflationary. But this isn't obviously a monetary phenomenon at all, except perhaps obliquely. And it fails to account for the fact that some significant portion of any inflation resulting from the bidding up of the price of labor will result from firms raising prices to maintain (or increase) profit targets, and will reflect the relative ability of those firms to get away with price increases in excess of their increased labor costs (which will depend, in turn, on things like their position in the market, the elasticity of the demand for their products).
Does MMT have a workable theory of inflation? I haven't really seen one. But, to be fair, I question whether a falsifiable theory of inflation is even a possibility. The economy is a chaotic system. It's a system that includes, effectively, just about everything that happens in the universe -- including all the stuff that happens in the brains of human beings (and each human brain is its own chaotic system). How can this system possibly be modeled in a way that would give rise to useful predictions? Beats me. Glad it's not my job to figure it out.
Loved it, as per usual, except the mistaken belief that regulators had anything to do with this travesty. Regulators can never be held responsible for the failure and stupidity of modern man. Those in charge, need to be "bankrupted" eg fired, and then sent to pause land for a time, before our memories are wiped and they can screw us again. If history proves anything, there is another crisis coming and we will have no means to prevent it. Just get the buckets and start bailing, we need banks, good ones and bad ones.
What is the magical full employment level and interest rate that the Phillips Curve supposedly predicts ? Full Employment Act was thrown under the bus.
KeltonBideninflation. Napalm on a forest fire 🔥. Joe knew. Confidence in our debt, Spending, leadership and finances are being questioned. Sadly for good reason. Rate and inflation instability has led to a run on the banks. Confidence in our financial system is in question.
I don't know enough about the financial sector to follow these arguments. My impression is that interest rate hikes serve two purposes which are dear to the heart of the corporate feudal class - creating unemployment and job insecurity among the masses, and increasing economic inequality.
This statement puzzles me a bit "Central banks can’t control the money supply (despite the carnage, the Fed never hit its money targets), and money supply growth isn’t related to inflation (money grew rapidly as inflation finally began to drop)."
How to reconcile this with the (MMT) concept that one purpose of tax is to reduce/increase money in circulation to stop overheating/boost economy. With full employment being the objective.
There's only so much regulation and oversight can do. At some point, one needs responsible management. The Financial Times reported that Blackrock warned SVB about it's weak risk controls. From the article "The January 2022 risk control report gave the bank a “gentleman’s C”, finding that SVB lagged behind similar banks on 11 of 11 factors considered and was “substantially below” them on 10 out of 11, the people said."
I agree with much of this. But most of this recounts history and does little to explain inflation. I do not agree that money supply has no impact. M2 money stock was increased more than 30% post-COVID. The inflation that I and others expected predictably followed. Somebody needs to credibly disprove Milton Friedman before anyone can believe otherwise.
I absolutely agree though that many of our financial crises are rooted in Fed behaviors. Jimmy Carter squeezed three Fed Chairs in four years for easy money. He got much of what he wanted, sadly. I'm older than Dr Kelton and remember 13% inflation and gasoline lines. I respectfully disagree - Volker did what he needed to do to destroy Carter's economic train wreck.
Greenspan tried to make the job look like the work of Merlin. Speaking in prose that often left people guessing at its meaning, the Greenspan Fed mostly followed rates down as the Reagan era boom continued through the 1990's. Greenspan spent too much time fretting over irrational exuberance instead of embracing the explosion in innovation that was fueling 1990's growth.
Then came 9/11. Here is where the Fed really went off the rails. They lowered interest rates to near-zero, arguing that the nation could not easily recover without ZIRP. Never mind that our productive capacity was totally intact after 9/11. Yes, it was heinous but no factories, refineries, smelters, power plants etc were destroyed on 9/11 - just buildings and more than 3,000 lives & families. The Fed response to 9/11 didn't call for ZIRP.
Since 9/11, central banks have responded to one 'crisis' after another with more damaging long-term results. Greenspan's low post-9/11 rates fueled the housing bubble that the Fed was too blind to see. Franklin Raines of Fannie Mae told Congress that housing was one of America's safest & best investments, and Congress believed him.
2007-2009 brought lots of extraordinary measures from the Fed. The nation got through the crisis that was wrought in no small measure by ZIRP and FAS157.
Then came COVID - a pandemic that may have been created in-part with taxpayer dollars. We irresponsibly shut down the entire economy. The Fed dutifully printed lots of money to buy Treasuries so that both the Trump and Biden Administrations could helicopter money everywhere for people to not work. Is it any wonder consumer spending went through the roof in 2021 & 2022?
The Fed kept rates near zero for nearly a decade. They embedded the expectation that ZIRP would be quasi permanent and necessary for the economy to function. It's what people came to expect because ten years of recency bias taught them that. Then people wonder why problems erupt when the Fed pushes up rates 400 bps in less than a year. SVB just passed a bank examination a few weeks ago - what the examiners actually looked at appears to be unclear, but they passed. Why though would SVB's unqualified board worry about duration after a decade of ZIRP? After all, they held 'safe' treasuries in an era of ZIRP that they seemingly thought would not end.
Lurching from one crisis to the next, followed by one Fed keystone cop exercise after another, is no way to run the central bank. It's no way to 'manage' the economy. Nor is it sensible to nationalize banks, guarantee all banks & deposits and thereby nationalize risk & moral hazard. If there is no consequences for imprudent risk, there's no disincentive for reckless economic & financial behavior.
Academics have spent a century debating the proper role of the Fed. 'Abolish the Fed' advocates probably have a point. But bank failures were prevalent before the Fed too - 1907 is why we got the Fed. I wish someone would take a closer look at the Taylor Rule again. Putting some practical guidelines around interest rate policy seems a heck of a lot more sensible than anything we've done the past two decades. And while we're at it, abolish the Congressional Budget and Impoundment Act of 1974. Let the Executive Branch have a true budget veto once again.
Thanks very much for shedding some light on this.
Wheres the instrument to fight
Free range
Mark ups
By market power firms ?
We need a price regulation system if not micro then macro ie the price level path
Lerner was all over this
from 1948 to 1980
Hes one of your Rushmore guys
Go to him