Modern Monetary Theory

Discussion in 'Markets & Economies' started by mmm....shiney!, Sep 14, 2019.

  1. mattyman174

    mattyman174 New Member

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    Theoretically. What would happen to Silver and Gold (PMs in general?) If currency gradually became backed by Gold again?
     
  2. alor

    alor Well-Known Member Silver Stacker

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    its not backed by gold, if you can not get the gold

    it is going to be used in trades settlement net quarterly differential for gold settlement, once in a while a gold settlement is called for
    but is is not gold backed
     
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  3. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    It couldn’t happen under a system as explained by MMT.

    It won’t happen under a system where governments have a monopoly on currency.

    Rickards and others have offered their thoughts on how much an ounce of gold would have to be worth to back the amount of currency in use worldwide.

    Best off IMO to value pm as a currency hedge rather than a potential currency.
     
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  4. sgbuyer

    sgbuyer Well-Known Member Silver Stacker

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    There are already cryptos backed by gold so gold backed private currency already exists although not many merchants accept them.
     
  5. alor

    alor Well-Known Member Silver Stacker

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  6. Silver260

    Silver260 Well-Known Member Silver Stacker

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    Yea...... we're starting to see a lot of countries / central banks / funds / investors hedging themselves.

    Ironically enough, the same crowd that said gold was nothing but a relic a few years back o_O

    Has to make even the biggest optimist ( bull ) wonder why.
     
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  7. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    https://tsi-blog.com/2019/12/lower-interest-rates-lead-to-slower-growth/
     
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  8. JulieW

    JulieW Well-Known Member Silver Stacker

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    From The Guardian:

    They talk of surplus as if it’s the norm, but it isn’t,” he says. “Australia has always run a small deficit of 2-3%. The only way Peter Costello delivered a surplus [for the Howard government] was by deregulating banking, so that household debt rose from 60% of disposable income in 1980 to 180% now. It was a massive credit binge. We have always said it would come unstuck, but we just never said when.”

    Australia’s huge household debt means consumers are now fearing unemployment, he says, and they realise they have to stop spending. The last time Australia came close to recession, after the Lehman crash in 2008, the Treasury became “unbelievably pragmatic” and Wayne Swan switched overnight from fiscal conservatism to pumping funds into the system. “Australia was the only advanced economy to avoid recession,” Mitchell says.

    There is a catch of course, which is that a lot of economists don’t think MMT would work. Creating your own money would led to inflation, they say, and the markets would have a field day by driving down currencies seen as devalued by taking the business of buying and selling debt away from independent central banks. The Obama-era treasury secretary, Larry Summers, has called MMT “fallacious”, others have sneeringly dubbed it the Magic Money Tree, while Nobel laureate Paul Krugman, who is on the left of economics thinking, is also highly sceptical.

    Mitchell dismisses these concerns and argues that runaway inflation could be curbed by judicious government management and adds that the threat of financial markets is overrated.

    “I don’t see it as a problem. If the currency sold off you can just introduce capital controls and that would be the end of that. The legislative system would triumph,” he says, citing Iceland’s success in forcing US hedge funds to accept losses after the country’s banking system collapsed in 2008.

    “Instead of taking the neoliberal approach which was being forced on them by the British and the Dutch, they brought in capital controls and made the hedge funds take a hit. Markets can only work through the law of the land. Iceland did the right thing by their citizens. The government’s job is to protect the citizens, not to guarantee private capital.”

    It’s a powerful example given the mess that the UK and European authorities made of clearing up the global financial crisis, after which private losses were essentially assumed by taxpayers, who continue to pay the price in austerity.

    Even sceptics admit that the crisis proved to some extent that MMT might work. The independent Australian economist Saul Eslake says that the key tenet of the central bank effectively writing cheques for the government has to an extent already happened in Japan after years of quantitative easing, the money creation scheme seen in many countries after the GFC.

    “The evidence of the last 10 years can support the idea. Despite fears about quantitative easing leading to a collapse of the US dollar or runaway inflation, this has not happened. The problem is that inflation is too low across the western world.

    “The country that has come closest is Japan, where government holds debt equal to about 100% of GDP.”

    Mitchell notes that what has happened in Japan has confounded mainstream economists. Despite decades of money creation, the country has a stable economy with low inflation and low unemployment. “The Bank of Japan BOJ says we are not a MMT laboratory but it makes me laugh,” he says. “Mainstream economists can’t explain any of it but MMT can explain all of it.”

    But Eslake, vice-chancellor’s fellow at the University of Tasmania, still thinks there would be a significant risk of a run on currencies and also questions whether the political cycle of regular elections would succeed in managing growth properly.

    “If politicians are controlling monetary policy, then it can be manipulated for electoral purposes. The central bank would not be independent,” he says. “Many advocates don’t think that’s a problem but I’m a bit more cynical about politicians.”

    “But I don’t dismiss this out of hand. It’s a legitimate question. If there is another downturn there is virtually no room for conventional monetary policy.”


    The answer, however, might come from an unlikely source: Donald Trump. For Mitchell, the 2020 US election will come too early for champions of his thinking to emerge victorious. But he believes the current resident of the White House, by drastically increasing the US deficit, is busy laying waste to the monetarist orthodoxy that has gripped international economic thinking for decades.

    “Sanders is not really an MMTer but he won’t win. Joe Biden is still frontrunner but he’s a fiscal conservative and another Hillary Clinton so he won’t win ... I think Trump will probably win,” he says.

    “But Trump’s legacy is that he is destroying the Republican party. He’s destroying the idea that fiscal deficits are bad and that there must be a debt ceiling. Catastrophist theorists about debt (typified by the Tea party movement in the US) are on the way out.

    “Trump said ‘We’re going to spend. We issue the dollar so there’s no way we are going to default on our own debt.’ His legacy is not good in other ways but in fiscal terms he has shown that the mainstream economists have got it wrong. He’s just defied them.”

    This, in turn, will open the way for more radical thinking in the future. “It opens it up for Democrats. The likes of AOC will come through over time.”

    https://www.theguardian.com/busines...a-radical-monetary-theory-fix-australias-woes


     
    Last edited: Dec 8, 2019
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  9. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    Timely to point out that MMT is not really a theory, it’s more an insight into how the modern monetary system is structured and how to best make it work for people. This included high net-wealth individuals and their financial advisers long before its ascent into the political mainstream. :D

    And I’m neither of them. :p
     
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  10. leo25

    leo25 Well-Known Member Silver Stacker

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    Trump understands how the system works. Though the last president that understood it got a bullet in the head.
     
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  11. leo25

    leo25 Well-Known Member Silver Stacker

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    Think this talk is relevant to this thread. By Richard Werner, the guy that made the Princes of the Yen.



    Q&A after the talk. Richard Werner reveals a bit too much banking details at the end and gets cut off. :) The other guys didn't look happy about their dirty little secret being told.

     
    Last edited: Dec 8, 2019
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  12. 66rounds

    66rounds Well-Known Member Silver Stacker

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    Wont be surprised if they turn Trump into an undeserving martyr as well, just like JFK.
     
  13. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    I would doubt he understands MMT. He doesn’t understand much else except stoking his ego. For example he’s hung up on the trade deficit, something which doesn’t make any difference to the wealth of Americans.
     
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  14. Oddjob

    Oddjob Well-Known Member Silver Stacker

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    Maybe but I think more to do with his view on the US intel community.

    [​IMG]
     
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  15. leo25

    leo25 Well-Known Member Silver Stacker

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    Yea you're probably right about his ego and not understanding of MMT.

    Regarding the deficit part, i don't agree with Milton Friedman & Warren Mosler view on that. I think they way over simplify the effects of running a long term trade deficits.

    China isn't working for nothing, they want Americans to become dependent on them. That gives China leverage which in time will use to take wealth away from Americans. Nothing is "free"

    Also, it reduces jobs in America which over long durations creates social issues. It also makes people in America lazy and self entitled, which creates further social issues.

    Though since America is the global reserve currency, by definition they have to run a trade deficit. So not sure if Trump is either completely ignorant to this or he just wants to rattle the cage and get a reaction.
     
    Last edited: Dec 8, 2019
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  16. JohnnyBravo300

    JohnnyBravo300 Well-Known Member

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    Trump is doing as hes told so he wont have to worry. It's an orchestra.
    JFK wasnt cooperating so he got the bullet.
    He was against going to vietnam and worst of all he was against the fiat that was coming and the idea of worthless money.
    Once he stopped cooperating it was over.
    JFK and trump are polar opposites.
     
  17. JulieW

    JulieW Well-Known Member Silver Stacker

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    I've been watching the Oliver Stone documentary "The Untold history of the United States" and it is pretty much evident that the story of Kennedy being actually opposed to Vietnam intervention is a fiction.

    Here it is from youtube.

    Eight episodes and lots of supporting material there also.

     
  18. JohnnyBravo300

    JohnnyBravo300 Well-Known Member

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    It was mostly his resistance to the change to fiat that got him killed. Either way, easy problem to take care of with no resistance.
    Once the problem was removed it was game on.
    Every potus knows his neck is on the line if they dont follow orders. That was a great example for them.
    Theres a reason we dont get men like that anymore. There are plenty of puppet boys that will do what they are told. So we only get the weak jokes now.
     
  19. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    But isn't a trade deficit a fallacy? Like Adam Smith pointed out 2 centuries ago, real wealth is only measurable in the amount of goods and services available for the satisfaction of the needs and desires of consumers. It's not how much currency a nation has because a nation can print more, and it's not how much gold a nation hoarded under the gold standard because gold must be converted into goods/services to meet the needs of the people - or it just sits in the coffers of kings. A bit like it's a waste of resources central banks hoarding gold because there's an opportunity cost involved. Just as there is for us gold bugs.

    Running long term trade deficits is really long term exchanges of fiat currency (which is just credit notes) for real goods and services (which is wealth).

    And if either China or the US push the trade thing too much other countries will fill the void in meeting domestic consumer demand. We need free global trade though in order for that to work.

    That's where the "transition employment schemes" come in, ie government pays individuals to transition into private employment. These individuals must be creating something meaningful ie enhancing value in order to get paid. It's not the dole and it's not a UBI. Once the individual is transitioned into the private sector the government pulls the pin on spending.

    I think Mosler et al argue that shrinking the amount of USD available is damaging to the rest of the world. I'm reading into this at the moment so I don't have a handle on it yet.
     
    Last edited: Dec 8, 2019
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  20. Silver260

    Silver260 Well-Known Member Silver Stacker

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