Modern Monetary Theory

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

  1. harry_mr

    harry_mr Member

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    Everything unproven starts off as a theory including the child's theory of Santa's non-existence.
    MMT is just another twist in the ongoing financial experiment of which you and I are part of this involuntary (I didn't) experiment . That's why I am here to discuss it and the reason why I'm on SS to oppose it.
     
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  2. sgbuyer

    sgbuyer Well-Known Member Silver Stacker

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    I'm not too old, but we have recessions in Singapore where housing prices or the stock market reset, drop 20%-40% every couple of years in 1997, 2001, 2004, 2008.

    It depends on how you define deflation. But I've never in a single case seen real consumer price deflation. In a capitalistic system, prices generally goes up whether you have recessions or booms because this is how capitalism works - businesses will not reduce prices, but they will cut manpower and fixed costs. Those that can't cut costs fast enough will go bankrupt, leading to shortages, and possibly even higher prices charged by the remaining players as we have seen with bullion recently.
     
  3. leo25

    leo25 Well-Known Member Silver Stacker

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    I’m talking about it in it’s true meaning, a reduction in the money supply.
    Sure some prices can go up but most will come down if there is less money in the system. Just like when there is inflation, some prices can go down but most will go up.

    Btw a capitalistic system has no preference if prices go up or down.
     
    Last edited: Sep 15, 2019
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  4. sgbuyer

    sgbuyer Well-Known Member Silver Stacker

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    I've never really understood money supply vs inflation or MMT so I try not to understand it but look at past trends instead.

    If you looked at the past 20 years, dollar printing by the Americans has financed China's investments and factories which led to a flooding of cheap goods throughout the world. So, at least for this case, it is proven that money printing actually reduces consumer price inflation, at least in the short term.

    With the trade war, the moment America reduces the flow of dollars to China by just 1%, food inflation in China shot up to well over double digits. No need a genius to know if uncle sam reduces dollars sent to China by 10%, what will happen. All Chinese housewives will be stacking sacks of rice, toilet paper, can food and milk powder. If you know the RMB is losing value, won't you stack necessities before prices goes up?

    Even with the relatively much stronger SGD, I'm considering stacking 2 year's supply of soap, my gillette razer blades and other non-perisheables.
     
    Last edited: Sep 15, 2019
  5. leo25

    leo25 Well-Known Member Silver Stacker

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    Cheap labor and advancements in technology caused a reduction in prices.
     
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  6. mmm....shiney!

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

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    And on that note Warren Mosler says that central banks have very little influence on economic conditions, he uses the analogy that it’s akin to giving the steering wheel to the baby in the baby seat. The car just wanders all over the road aimlessly. It’s the macroeconomic events and conditions that determine the direction an economy travels, eg manufacturing output. And the political atmosphere so Trump’s trade tariffs are damaging consumer and manufacturing confidence and are in essence a multi-billion $ tax borne ray consumers.

    When asked what governments can do to improve economic conditions he says anything that boosts productivity.
     
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  7. harry_mr

    harry_mr Member

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    Dont overlook the effect that cheap energy from shale oil and gas has played in the role of output and on price.
     
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  8. willrocks

    willrocks Well-Known Member Silver Stacker

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    Don't they need someone to buy their bonds? Isn't that a limiting factor?
     
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  9. mmm....shiney!

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

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    Productivity improvements
     
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  10. leo25

    leo25 Well-Known Member Silver Stacker

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    So let me focus on the FED. Prior to 1935 the FED could buy directly from Treasury. A policy decision was then made to make it look like the FED is "independent" from government so they shifted to open market purchases. Other banks connected to the FED were then setup to buy direct from Treasury and then the FED would buy from the banks.

    So US banks are setup to make sure Treasury auctions always clear and then the FED is setup to always buy/credit as much government debt needed in the open market to make sure everything keep roiling along smoothly. And of course all that is happening is a balance sheet at the FED is just crediting or debiting values from one account to another.

    I guess it's like how we once thought that when you borrow money from a bank it's taken from another persons savings account. Of course we now know that's not true and instead the bank just creates a new line of credit for you. So no one needs to save in order for you to borrow, but someone needs to borrow/spend in order for you to save.
     
    Last edited: Sep 15, 2019
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  11. mmm....shiney!

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

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  12. leo25

    leo25 Well-Known Member Silver Stacker

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    Warren Mosler does a better job explaining how the system works in this video.

    Once you understand it, you can understand why the RBA is begging government to spend. Problem is ScoMo has no clue. It seems Kevin Rudd understood how the system works.

     
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  13. willrocks

    willrocks Well-Known Member Silver Stacker

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  14. leo25

    leo25 Well-Known Member Silver Stacker

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    It's good to have a critical viewpoint, but i think John Adams has a poor understanding and is just fearmongering. By the looks of it Martin thinks the same as me.

    Some notes;
    -Agree with it or not, the reality is governments are treated differently then the private sector/households. Governments never pay down debt, that's why all governments debts only increase over time. I'm not saying i agree with it, rather it's just an observational fact.
    -MMT doesn't say print as much as you like and there is no consequences.
    -MMT never says government has to always run a budget deficit. Clearly if the private sector is expanding credit due to borrowing a lot, there is no need for government to further expand credit.
    -The reality is government already apply MMT concepts now, just they only seem to apply it to defense spending and bailing out the financial sector etc.. When hospitals are falling behind and need new investment to benefit the people then suddenly government have to be "careful" with how they spend and make cut backs.
    -Government spending doesn't necessarily create inflation.(thought it can if reckless) If private sector is contracting credit and government then spends to fill the gap then the overall credit in the system remains the same.
    -And last, as the rules stand now governments (that control their currency) can issue as much debt as they like with no limit. That doesn't mean i think they should, rather I'm just saying how the rules are atm.


    Steve Keen touches on MMT plus other monetary policies and has a much more balanced view. I 100% agree with Keen that MMT completely overlooks the negative effects of long term trade deficits. Also I'm not all that flash with government employing people too easily if they can't find work. (Though technically they do that now but it's called "unemployment benefits" and then there are all the useless government jobs that exist)

    You can start about 10min in.
     
    Last edited: Sep 19, 2019
  15. leo25

    leo25 Well-Known Member Silver Stacker

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    ahh that Japanese intro.. :)
     
    Last edited: Sep 19, 2019
  16. willrocks

    willrocks Well-Known Member Silver Stacker

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    What restraints are there with MMT? What are the consequences?

    Is there a government that isn't reckless when it comes to spending? The politicians are acting for their short-term interests, obviously spending money will effectively buy more votes, leading to a vicious cycle.

    Government creating jobs for anyone who wants work. Sounds a lot like parts of communism.
     
  17. leo25

    leo25 Well-Known Member Silver Stacker

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    Non, just like there are no restraints now. The only consequences any government has is a peoples revolt.

    No, but that's a deeper problem that will take more then a monetary theory to solve.

    It's not forced labor, so it's more like socialism, which is what we have today. Again MMT doesn't and can't change a structural social issue.

    The main take away from MMT is not that it's a new theory, but rather how the system really works today (Japan is the most open about it). Atm governments want to play ignorant so they can pick and chose when and where to spend, MMT just says add credit where people want/need it. If roads are deteriorating, if hospitals are low on staff and there are people that what to do the job then there is no reason today why government can't spend to address the issues.

    The people need to make sure if they do spend then its on things they value/need and not Pink Batts and submarines that are outdated. :p
     
    Last edited: Sep 19, 2019
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  18. mmm....shiney!

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

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    ^ this.

    Mosler et al aren’t necessarily apologists for the theory and for government issued fiat, they’re just more insightful AND they go to pains to point out that much of the criticisms of the current banking system comes from theories that are only applicable to pre-1934 ie they are now irrelevant.

    Now if we get rid of a monopoly currency provider then we have an all new ball game and MMT might become largely irrelevant.
     
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  19. willrocks

    willrocks Well-Known Member Silver Stacker

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    Or, in other words, it models how the system functions. Because in reality what we have today doesn't really work. MMT is simply a more accurate model of a fundamentally broken system.
     
  20. willrocks

    willrocks Well-Known Member Silver Stacker

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    Is this a joke? The same mob rule who are all working in their individual best interests. They will always vote short-term, for whichever figurehead offers them more of the public purse.

    MMT won't solve any problems, it may even create bigger problems than we have now. The problems originate from human behavior, and the fact that some humans ruling over other humans simply doesn't work, no matter how well intentioned the motives are.
     
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