In my last post, I wrote about growing concern that the Federal Reserve’s rate hikes could trigger a financial accident that spills over into financial markets.
It seems that the concept of the "Minsky Moment" is spreading through the mainstream as I have seen more references to it over the past few years. Unfortunately, I don't think it has reached the Fed and Jerry Powell.
Or, is it that their desire to suppress wages and grow the "reserve army of the unemployed" is more important than financial stability? From my POV it looks like the Fed is violating both sides of their dual mandate to promote financial stability and full employment.
It is, however, clarifying to see Powell admit that wage suppression is the goal. The wealthy elites running this economy really do hate the working class and they seem to find great pleasure in beating them down. Sad and disgusting.
Your right on point, especially with the US pulling manufacturing back to the states as they require cheap labor to maintain their exorbitant profit, wealth, income, power, control & influence.
What is required is a revolt of the actually productive bourgeoisie against the real problem, private finance and their monopolistic paradigm for the creation and distribution of money. Money, debt and banks are the core of the core problem. It's what MMT, Keen, Hudson, Public Banking and UBI aspire to...with reforms. But after 4999 years of the paradigm of Debt Only the only thing left that will make a damn bit of lasting difference is a paradigm change.
We need to reclaim ALL Public Treasuries that have been privatized by the Banking Interests, like the state publicly-owned Bank of North Dakota that's been around 100+ years. The State of ND also owns the ND Mill & Elevator company. Both earned a total of about $160 Mil last year in a Red state with 800K people.
For example, there should be Infrastructure Departments, like Water Depts, that do the work within their state, county, city boundaries.
Local, city, county & state treasuries have $3 Tril of cash rolling through their budgets and could issue Bonds. These bonds would be invested in an appreciating asset ie public bank as opposed to necessary but depreciating assets like infrastructure, etc. If a bank had sufficient assets, they could lend $30 Tril minus $3 Tril for all sorts of projects that would benefit We the People not A Few People.
This would have a major impact on major banks & corps bankrupting many because their cashflow would be interrupted, but this could be good as they could become some combination of publicly-owned or Worker-owned Enterprises
"It’s basically about the relationship between income and debt and how it evolves over time."
Correct. And the answer is guaranteeing that individual agents always have a decent level of income...so that all but illegitimate commercial agents can compete in an ACTUALLY stabilized system. Illegitimate as in private finance because as I have posted here before it is always an exterior to the actual productive process incredibly costly and domineeringly profitable force injected either pre-production or post retail sale exposing it as a complete and de-stabilizing parasite.
If you don't see this its largely because of the last 5000 years of the acculturation of the present paradigm for the creation and distribution of new money, that is Debt Only, is blinding you.
Unfortunately the truth is there has been no actual evolution from the current paradigm AT ALL. New paradigms expose erudition as simply hide bound reformist orthodoxy. I'm sorry, study historical paradigm changes. Paradigms like wisdom insights are deep truthful simplicities. That's why I titled my book Wisdomics-Gracenomics...because what we need to do is rise to wisdom, and because the pinnacle concept of wisdom according to ALL of the world's wisdom traditions is the natural philosophical concept of grace as in love in personal action...and systemic policy...unless we just want to illogically deny/ignore the value of wisdom, especially in our temporal affairs.
I didn't know that Ponzi schemes or enterprises were numerous and always with us. Social Security has been called one; at the time, I thought how outrageous, but Minsky explains here that just not enough money is flowing in to keep the system in operation, so it had to sell off assets to survive. So it's not necessarily pure evil, although it can be.
By the way, I've also read that Social Security is a major governmental success, a program that really helps a lot of people and paid for itself until Congress borrowed heavily from it and never paid it back. Now it must depend on Congress to bail it out if it wants to pay full benefits in perpetuity. (I'm depending on memory for all that.)
Social Security isn't in bad shape. Before it reduces benefits, it first has to spend down its massive savings account. It owns a HUGE number of treasury bonds which are as safe an asset as one can buy on this earth. Then it might have to reduce benefits. Of course, it could slightly, perhaps a half a percentage point, increase its payroll tax level or raise the threshold and continue to pay full benefits.
I'd worry more about Medicare now that Medicare Advantage has gotten its hooks in for the benefit of the private sector. Whenever you sprinkle free market dust on something it withers and dies.
Social Security is never in danger of *financial* bankruptcy, because the government paying for the pensions is a currency issuer. They issue money by typing numbers into bank accounts, and so can never run out of money. Social Security Trust funds (gov superannuation) is only needed when the government is promising gold or a fixed exchange rate, which today are inapplicable. Whenever the gold supply is threatened governments always go off the gold standard.
What threatens Social Security is mass unemployment. Too few workers producing the goods the retirees desire to consume. Know how to avoid mass unemployment? Answer: issue your currency to pay people decent wages to produce stuff the people want. There are no end of jobs people could enjoy doing for public purpose, and if you do not require a profit on sales (and governments do not) the unemployed can always be offered non-bullsh*t jobs, with no inflation risk (since the private sector bid for unemployed labour is zero).
Correct. UBI conceptually aligns with the new monetary paradigm of Direct and Reciprocal Monetary Gifting. MMT does also, as what are fiscal deficits but monetary gifting to government contractors. The new monetary paradigm integrates and furthers the self interests of business and the consumer while simultaneously breaking up the dominance of the monopoly paradigm of Finance which is at the root of all of our current economic problems like inflation, the orthodoxy of austerity and compelling the individual to serve the system...instead of making the system serve humanity. Thus, appropriately applied, the policies of the new monetary paradigm are able to create a thirdness greater oneness of the intentions and goals of the all too often false dualism of capitalism vs socialism.
A 50% Discount/Rebate policy at the point of retail sale is the very temporal/economic expression of the new monetary paradigm.
Both Stephanie's substack and Steve Keen's substack (where I recently posted an affirmation of Keen's mentioning that if properly understood Hegel 's dialectic is necessary in furthering economic change) also align with the new monetary paradigm. I've posted here enough without mentioning my own substack newsletter Wisdomics-Gracenomics: The New Monetary Paradigm and Its Policies which deals with the entire patterns of money and economics and which has the ability to integrate and accomplish the goals of all of the leading economic reforms. Let us bring wisdom and wisdom's pinnacle ethical concept grace as in monetary gifting to modern economies.
You dish free markets, and I agree that there is no such thing, but capitalism seems the only game in town. Where does socialism work? Cuba? North Korea? Venezuela? The old Soviet Union? The old Red China? Nowhere. Scandinavian countries aren't socialist; they just have large social safety nets.
Capitalism, of sorts, pulled tens of millions of Chinese out of poverty. It's a mess over there, but markets seemed to be very helpful.
You disagree?
(You probably know Churchill's: "Capitalism is a bad system; nonetheless, it's the best available." Or something to that effect.)
Maybe not my place to say, but I read Kaleberg's comment as a criticism of "free markets" which is a loaded term. If not well defined it leads to unnecessary disputes and misunderstandings. What I think all can agree upon is people need to have a market to trade goods, under any system of political economy, the ideal is to make it FAIR not FREE. "Free" too often means those with more power gain even more power disproportionate to what is justified. Justice should always lead freedoms. In fact I would argue justice (of some kind that can be obtained) is necessary in order for "freedoms" for all people to be enhanced. So not only socialists, but I think almost every normal person, would, when pressed, desire *fair* markets. If that means "free" to you, then all well and good.
Well said, sir! You are indeed a man of deep thoughts: Words mean something to you; therefore, no need for humility: It's always anyone's place to speak their minds, hopefully in a respectful way, but whatever communicates best. Which you did.
Markets with buyers and sellers is one thing. Put in a middle man and it’s a different story. He or she will inevitably come to exploit productive participants for non-productive gain, which we call our financial system.
Yes, without any public purpose for the "middle man" that is true. However, some intermediary is required in a monetary economy, a payments clearing layer. Whether that is decentralized or run by banks is a choice, and does not need to be profiteering system. Banks can be licensed to only run the payments system, civil servant wage workers, non-profit, nothing more. Then their public function is clear and uncorrupted if the payments transactions are public record with anonymous buyers not sellers. Look up GNU Taler. It's a good way to do privacy respecting encrypted payments (and does not promote a "war on cash".)
Why do we even need a Fed? It's an instrument to help the banks and not the people. If the goal of society is to raise all boats the cost of money should be kept very low. The drastic increase in interest rates is extremely inflationary. The banks gain and the people and small business' lose. What I'm wondering is this "October Surprise" by design to build up the oligarchy at great expense to the people. As a retiree, God Bless the staying power of indexing of Social Security. Curse any stiff arm politician who would privatize that system to gain political contributions.
That's a good point. It would be easier to justify the Fed if it opened a retail window and directly lent money to individuals. Cut out the banks and payday lenders.
The US FED is a central bank, like for any other nation. They regulate the banking system. You want them, and you need them, if you want a centralized monetary system. Some agency holding the interest of the public to heart has to regulate banks. They are part of your government. What you do NOT WANT is a central bank run by the rentier class. They will always abuse the public monopoly on currency creation (but technically that's Congress, the FED only regulates the own price = the interest rate).
I harbor the suspicion that at some deep level, people at the Fed and others in government understand all this very well. Even so, they're proceeding on the current likely disastrous course because to do otherwise would risk revealing how finance and the economy really work to the broader public.
Tax/fine away the rentiers first. second, ban speculative purely financial trading that has no public purpose. Then if there is ever a debt deflation use the automatic stabilizers --- they are automatic but can always be tweaked (lower some taxes functionally, or increase well-targeted investments functionally, and in extreme cases do a debt jubillee).
I'm trying to click on the "Heart" in order to "like" your comments, but for whatever reason the site won't let me. Just want you to know that I appreciate your clarifications and amplifications to the questions folks are asking on this post - they're helping me understand, for sure. So, thanks for that.
Thanks KenS. <3 I did get emailed notifications for your Likes :-) I really appreciate your feedback, I know commenting on the social media is a one hit in a hundred approach to activism, but being way down under in New Zealand I will take that hit rate over nothing any day!
Does the model assume no particular regulation that creates, for example, hedge incentives? IOW could automatic stabilizers manage the risk distribution?
Surprisingly easy to understand.
Right?! I get the feeling Professor Kelton is a very good teacher.
Great article!
It seems that the concept of the "Minsky Moment" is spreading through the mainstream as I have seen more references to it over the past few years. Unfortunately, I don't think it has reached the Fed and Jerry Powell.
Or, is it that their desire to suppress wages and grow the "reserve army of the unemployed" is more important than financial stability? From my POV it looks like the Fed is violating both sides of their dual mandate to promote financial stability and full employment.
It is, however, clarifying to see Powell admit that wage suppression is the goal. The wealthy elites running this economy really do hate the working class and they seem to find great pleasure in beating them down. Sad and disgusting.
Your right on point, especially with the US pulling manufacturing back to the states as they require cheap labor to maintain their exorbitant profit, wealth, income, power, control & influence.
What is required is a revolt of the actually productive bourgeoisie against the real problem, private finance and their monopolistic paradigm for the creation and distribution of money. Money, debt and banks are the core of the core problem. It's what MMT, Keen, Hudson, Public Banking and UBI aspire to...with reforms. But after 4999 years of the paradigm of Debt Only the only thing left that will make a damn bit of lasting difference is a paradigm change.
We need to reclaim ALL Public Treasuries that have been privatized by the Banking Interests, like the state publicly-owned Bank of North Dakota that's been around 100+ years. The State of ND also owns the ND Mill & Elevator company. Both earned a total of about $160 Mil last year in a Red state with 800K people.
For example, there should be Infrastructure Departments, like Water Depts, that do the work within their state, county, city boundaries.
Local, city, county & state treasuries have $3 Tril of cash rolling through their budgets and could issue Bonds. These bonds would be invested in an appreciating asset ie public bank as opposed to necessary but depreciating assets like infrastructure, etc. If a bank had sufficient assets, they could lend $30 Tril minus $3 Tril for all sorts of projects that would benefit We the People not A Few People.
This would have a major impact on major banks & corps bankrupting many because their cashflow would be interrupted, but this could be good as they could become some combination of publicly-owned or Worker-owned Enterprises
Very simple and insightful
Isn't the fiscal situation in the last year or so amplifying this?
"It’s basically about the relationship between income and debt and how it evolves over time."
Correct. And the answer is guaranteeing that individual agents always have a decent level of income...so that all but illegitimate commercial agents can compete in an ACTUALLY stabilized system. Illegitimate as in private finance because as I have posted here before it is always an exterior to the actual productive process incredibly costly and domineeringly profitable force injected either pre-production or post retail sale exposing it as a complete and de-stabilizing parasite.
If you don't see this its largely because of the last 5000 years of the acculturation of the present paradigm for the creation and distribution of new money, that is Debt Only, is blinding you.
Unfortunately the truth is there has been no actual evolution from the current paradigm AT ALL. New paradigms expose erudition as simply hide bound reformist orthodoxy. I'm sorry, study historical paradigm changes. Paradigms like wisdom insights are deep truthful simplicities. That's why I titled my book Wisdomics-Gracenomics...because what we need to do is rise to wisdom, and because the pinnacle concept of wisdom according to ALL of the world's wisdom traditions is the natural philosophical concept of grace as in love in personal action...and systemic policy...unless we just want to illogically deny/ignore the value of wisdom, especially in our temporal affairs.
Thanks Stephanie for explaining it so I can understand it.
I don't think you should consider becoming an artist :)
Easy to understand when presented well.
This is brilliant
I didn't know that Ponzi schemes or enterprises were numerous and always with us. Social Security has been called one; at the time, I thought how outrageous, but Minsky explains here that just not enough money is flowing in to keep the system in operation, so it had to sell off assets to survive. So it's not necessarily pure evil, although it can be.
By the way, I've also read that Social Security is a major governmental success, a program that really helps a lot of people and paid for itself until Congress borrowed heavily from it and never paid it back. Now it must depend on Congress to bail it out if it wants to pay full benefits in perpetuity. (I'm depending on memory for all that.)
Social Security isn't in bad shape. Before it reduces benefits, it first has to spend down its massive savings account. It owns a HUGE number of treasury bonds which are as safe an asset as one can buy on this earth. Then it might have to reduce benefits. Of course, it could slightly, perhaps a half a percentage point, increase its payroll tax level or raise the threshold and continue to pay full benefits.
I'd worry more about Medicare now that Medicare Advantage has gotten its hooks in for the benefit of the private sector. Whenever you sprinkle free market dust on something it withers and dies.
Social Security is never in danger of *financial* bankruptcy, because the government paying for the pensions is a currency issuer. They issue money by typing numbers into bank accounts, and so can never run out of money. Social Security Trust funds (gov superannuation) is only needed when the government is promising gold or a fixed exchange rate, which today are inapplicable. Whenever the gold supply is threatened governments always go off the gold standard.
What threatens Social Security is mass unemployment. Too few workers producing the goods the retirees desire to consume. Know how to avoid mass unemployment? Answer: issue your currency to pay people decent wages to produce stuff the people want. There are no end of jobs people could enjoy doing for public purpose, and if you do not require a profit on sales (and governments do not) the unemployed can always be offered non-bullsh*t jobs, with no inflation risk (since the private sector bid for unemployed labour is zero).
By 2050, 50 percent of all work will be done by machines, robots, AI. Thus, we'll need UBI. Also, robots can be taxed.
Glad to see that you understand MMT.
Correct. UBI conceptually aligns with the new monetary paradigm of Direct and Reciprocal Monetary Gifting. MMT does also, as what are fiscal deficits but monetary gifting to government contractors. The new monetary paradigm integrates and furthers the self interests of business and the consumer while simultaneously breaking up the dominance of the monopoly paradigm of Finance which is at the root of all of our current economic problems like inflation, the orthodoxy of austerity and compelling the individual to serve the system...instead of making the system serve humanity. Thus, appropriately applied, the policies of the new monetary paradigm are able to create a thirdness greater oneness of the intentions and goals of the all too often false dualism of capitalism vs socialism.
A 50% Discount/Rebate policy at the point of retail sale is the very temporal/economic expression of the new monetary paradigm.
Both Stephanie's substack and Steve Keen's substack (where I recently posted an affirmation of Keen's mentioning that if properly understood Hegel 's dialectic is necessary in furthering economic change) also align with the new monetary paradigm. I've posted here enough without mentioning my own substack newsletter Wisdomics-Gracenomics: The New Monetary Paradigm and Its Policies which deals with the entire patterns of money and economics and which has the ability to integrate and accomplish the goals of all of the leading economic reforms. Let us bring wisdom and wisdom's pinnacle ethical concept grace as in monetary gifting to modern economies.
Thanks for responding.
You dish free markets, and I agree that there is no such thing, but capitalism seems the only game in town. Where does socialism work? Cuba? North Korea? Venezuela? The old Soviet Union? The old Red China? Nowhere. Scandinavian countries aren't socialist; they just have large social safety nets.
Capitalism, of sorts, pulled tens of millions of Chinese out of poverty. It's a mess over there, but markets seemed to be very helpful.
You disagree?
(You probably know Churchill's: "Capitalism is a bad system; nonetheless, it's the best available." Or something to that effect.)
Maybe not my place to say, but I read Kaleberg's comment as a criticism of "free markets" which is a loaded term. If not well defined it leads to unnecessary disputes and misunderstandings. What I think all can agree upon is people need to have a market to trade goods, under any system of political economy, the ideal is to make it FAIR not FREE. "Free" too often means those with more power gain even more power disproportionate to what is justified. Justice should always lead freedoms. In fact I would argue justice (of some kind that can be obtained) is necessary in order for "freedoms" for all people to be enhanced. So not only socialists, but I think almost every normal person, would, when pressed, desire *fair* markets. If that means "free" to you, then all well and good.
Well said, sir! You are indeed a man of deep thoughts: Words mean something to you; therefore, no need for humility: It's always anyone's place to speak their minds, hopefully in a respectful way, but whatever communicates best. Which you did.
Markets with buyers and sellers is one thing. Put in a middle man and it’s a different story. He or she will inevitably come to exploit productive participants for non-productive gain, which we call our financial system.
Yes, without any public purpose for the "middle man" that is true. However, some intermediary is required in a monetary economy, a payments clearing layer. Whether that is decentralized or run by banks is a choice, and does not need to be profiteering system. Banks can be licensed to only run the payments system, civil servant wage workers, non-profit, nothing more. Then their public function is clear and uncorrupted if the payments transactions are public record with anonymous buyers not sellers. Look up GNU Taler. It's a good way to do privacy respecting encrypted payments (and does not promote a "war on cash".)
Why do we even need a Fed? It's an instrument to help the banks and not the people. If the goal of society is to raise all boats the cost of money should be kept very low. The drastic increase in interest rates is extremely inflationary. The banks gain and the people and small business' lose. What I'm wondering is this "October Surprise" by design to build up the oligarchy at great expense to the people. As a retiree, God Bless the staying power of indexing of Social Security. Curse any stiff arm politician who would privatize that system to gain political contributions.
That's a good point. It would be easier to justify the Fed if it opened a retail window and directly lent money to individuals. Cut out the banks and payday lenders.
The US FED is a central bank, like for any other nation. They regulate the banking system. You want them, and you need them, if you want a centralized monetary system. Some agency holding the interest of the public to heart has to regulate banks. They are part of your government. What you do NOT WANT is a central bank run by the rentier class. They will always abuse the public monopoly on currency creation (but technically that's Congress, the FED only regulates the own price = the interest rate).
Thanks, really clear explanation
I harbor the suspicion that at some deep level, people at the Fed and others in government understand all this very well. Even so, they're proceeding on the current likely disastrous course because to do otherwise would risk revealing how finance and the economy really work to the broader public.
So, do we live with fragility or are there recommended policy actions for getting more Hedge units than Ponzi units into the system?
Tax/fine away the rentiers first. second, ban speculative purely financial trading that has no public purpose. Then if there is ever a debt deflation use the automatic stabilizers --- they are automatic but can always be tweaked (lower some taxes functionally, or increase well-targeted investments functionally, and in extreme cases do a debt jubillee).
I'm trying to click on the "Heart" in order to "like" your comments, but for whatever reason the site won't let me. Just want you to know that I appreciate your clarifications and amplifications to the questions folks are asking on this post - they're helping me understand, for sure. So, thanks for that.
Thanks KenS. <3 I did get emailed notifications for your Likes :-) I really appreciate your feedback, I know commenting on the social media is a one hit in a hundred approach to activism, but being way down under in New Zealand I will take that hit rate over nothing any day!
Go crypto! 😳
Does the model assume no particular regulation that creates, for example, hedge incentives? IOW could automatic stabilizers manage the risk distribution?