Modern Monetary Theory

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

  1. precious roar

    precious roar Active Member

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    It's always the fault of the electorate as politicians will do what needs to be done to get elected, so if we demanded infrastructure spending, they would plan for big infrastructure projects, which would provide the lifts in efficiency that provide true economic gains. Alas, most of the electorate are greedy idiots.
     
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  2. mmm....shiney!

    mmm....shiney! Moderator Silver Stacker

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    ^ yep, see Koo’s “Balance Sheet Recession “.
     
  3. Lovey80

    Lovey80 Well-Known Member

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    Didn’t Zimbabwe try this already? Doesn’t this rely on all the other countries doing the same thing? If everyone else thinks you’re printing too much won’t your currency plummet and inflation get out of hand?

    Well isn’t this the case at all times anyway? But it assumes that economic growth is guaranteed through the very vehicle of money printing. If there’s no “intrinsic” growth in the economy then the printing can’t happen at all. But all the Keynesian economists tell us you print and spend and the economy churns. The old C+I+G (x-m)=y theory? This theory just doesn’t add up.
     
  4. mmm....shiney!

    mmm....shiney! Moderator Silver Stacker

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    Mugabe trashed the Zimbabwean economy by redistributing the productive assets to those who had no idea how to use them.

    It really doesn't matter what others thinks. But anyway the US has expanded its money supply enormously and other countries are still amassing more and more USD as foreign reserves because they want to trade with the US and because the US has a stable economic and political domestic situation despite views to the contrary. This stability brings confidence in the USD which flows across into confidence in the economies of those nations that hold USD.

    Inflation will only get out of hand if consumer demand exceeds the nation's productive capacity to meet that demand which will drive up the cost of resources and therefore prices. Currently that is not going to happen because the most valuable resource, labour, is going under-utilised so wage growth remains stagnant. This reduces inflationary pressure because consumer demand is going unsatisfied and businesses are not expanding.

    MMT is partly based on Keynesian economics ie that spending drives economic growth.

    But MMT doesn't claim that economic growth is guaranteed just by simply printing money, it argues that growth will only be achieved by printing money that is spent on buying currently under-utilised resources in order to put them to a more productive use.
     
    Last edited: Mar 30, 2021
  5. mattyman174

    mattyman174 Member

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    The first thing that popped into my head when I read this was, "how does MMT then account for Social Welfare?". Is productivity in this case only the measure of the flow of cash through the system? Instead of what is actually produced as a byproduct (Goods and Services of actually productive people)?

    If the population which are in Social Welfare programs (which could be endlessly supplied by MMT) increases dramatically as a result of the potential for the Government (Most Government jobs could also be considered Social Welfare as they to produce absolutely nothing for society) to be able to fund such initiatives indiscriminately, given enough time cause issues for the system?

    Curious as to your thoughts.
     
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  6. mmm....shiney!

    mmm....shiney! Moderator Silver Stacker

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    Productivity growth will still be measured using the normal economic tools ie GDP. As flawed as it is it's about the only real useful measure, the unemployment rate would be used as a measure by which to assess how much potential GDP growth a nation could expect (or whether a nation's GDP growth is at an optimum.)

    The social welfare system under MMT would change. The Job Guarantee would be introduced ie currently unemployed or underemployed would be paid a minimum wage to work in industries or services where there is consumption demand that is currently being unmet by the private sector say transport, care, ecological initiatives etc. I presume that those who are incapable of working would be paid a pension which would likely be much higher than it currently is. MMT advocates argue that as social welfare is a form of government spending then it contributes to economic growth.

    And on the other side of the spending/taxing regime taxation would have to be addressed, particularly those taxes that restrict production ie GST and those taxes that restrict consumption ie income tax. As part of the Theory's policy implications the government would have to juggle the various tariffs placed upon industries and goods as a means to encourage desired consumption of goods/services while at the same time discouraging the undesirable consumption of goods/services in order to reduce inflationary pressures brought on by the conflict between public/private competition for resources. For example if the government adopted a public infrastructure building program and it created conflict over resource use between the public/private sector, say the price of steel or bitumen rose quickly as a result, then the government could reduce steel/bitumen consumption in the private sector by raising tariffs on it or it could assist in the expansion of our domestic steel/bitumen manufacturing industries in order to meet demand.
     
    Last edited: Mar 30, 2021
  7. Lovey80

    Lovey80 Well-Known Member

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    and because he printed money and spent it on his government programmes while the rest of the world refused to take said money as a forex because he was printing.


    I argued on these very pages years ago, and I believe you were involved in those topics at the time, that the only reason the US maintained its reserve status after they defaulted on France was due to the Cold War. Because of that, they didn’t get punished for borrowing to fund deficits like hey should have (had it been any other country in the world, WOULD have). By the time the 90’s rolled around we were too busy with tech booms, followed by housing booms and busts and we have the business cycle where everyone wanted a strong USD because they needed Americans buying mountains of useless shit they couldn’t afford on credit because it helped all of our unemployment rates. It was politically expedient. To do so we all printed at the same rate in one way or another. But the problem was, the biggest winner was a belligerent state. China. And now they hold the US by the balls. With a big chunk of their debt and a growing military that will challenge them in the China sea. What happens if China dumps all those trillions of USD and bonds on the market? Why would a Japan keep holding those dollars and bonds with its ageing population and ridiculous debt to gdp ratios? How long will the Saudi’s maintain the Petro -dollar with Biden sanctioning them and with pressure to sanction the future King? Look what happened to Gaddafi after he threatened the Petro Dollar with the dinar? The yanks understand how fragile the Petro dollar is and how strong it is in maintaining the reserve status.

    or if the trillions of dollars around the world being held for the use of trading things like oil come flying home because other nations decide the USD is no longer needed as the currency of exchange for all these goods.



    and which genius at political level, or for that matter an economist that gets to advise politicians, is smart enough to accurately and acutely determine which under-utilised resources the money should be spent on? Let’s have the Labor party decide which resources are “under-utilised” shall we? Next we’ll be stimulating the economy by giving huge pay rises to teachers to give us all free transgender lesbian dance theory classes. Because they’re under-utilised right now of course
     
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  8. mmm....shiney!

    mmm....shiney! Moderator Silver Stacker

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    @Lovey80, you've gone to a great deal of effort in repeating criticisms of MMT that have already been posted in this thread - and that have already been countered. I'll leave it you to go back through and find them, except for this one:

    That's the problem with any political solution. I would suggest that the best outcomes we could hope for are the ones that would be made at the local level made by communities and Councils. That's the most libertarian option.

    There is an alternative emerging though - I've called it Fractional Reserve Banking 2.0, it'll have a mountain of opposition to face, but all mountains erode in time.
     
  9. mattyman174

    mattyman174 Member

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    This just sounds like Socialism/Communism in sheeps clothing. "Seize the means of production" by proxy. Instead of physically forcing the private sector to produce what the Government thinks is needed with guns. Its just going to do it with ever increasing taxation. The end result will be the same.

    We have already seen how Government intervention into Free Markets has played out, what makes this time any different? Especially when you take into consideration the human element (Government and decision making is still handled by people, people can be corrupted).

    This is my concern as well, the human element cannot be ignored. To me it seems the system is placing to much trust in people making the decisions to play by the rules in order for the system to work and not just be a disaster like what we have now.
     
  10. mmm....shiney!

    mmm....shiney! Moderator Silver Stacker

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    That's the ever present danger with the State and it's already happening.

    I think we can agree that all Monetarism has managed to do is redistribute an ever increasing amount of wealth from those without assets to those with assets. One thing MMT tries to do is to circumvent the CB's fondness with looking after its buddies at the expense of everyone else. The common individual is directly funding the Central Bank's policy decisions through the steady erosion of purchasing power and declining productivity because of the reliance on debt-fuelled spending in place of wage growth.
     
  11. mmm....shiney!

    mmm....shiney! Moderator Silver Stacker

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    Bill Mitchell answers a few questions form the recent EdX MMT course:

     
  12. Lovey80

    Lovey80 Well-Known Member

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    Well you’ll have to forgive me for repeating them because I don’t think the “counters” are based in solid economics. Just theories from egotistical men that think they can manipulate an economy perfectly in the direction they chose it to go. There certainly hasn’t been a suitable counter to the sustainability of the USD as the worlds reserve currency.

    I mean are we really expected to believe that in spite of all of history telling us that un-sound money (in every form so far) always results in a collapse of the monetary/ banking system, this time they are taking the system to the extreme of unsound money and they want us to believe that this time they got this? Really?
    Some of them need to heed Hayek’s words “ The curious task of economics is to demonstrate to men how little they really know, about what they imagine they can design”

    I would suggest that the most libertarian solution is one that uses government at any level to use its force to mandate sound money and leave the best outcomes the be decided by individuals (consumer/market lead outcomes) and have no individuals or groups of individuals coming together to dictate how to manipulate the such markets.
     
  13. leo25

    leo25 Well-Known Member Silver Stacker

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    This thread still going.... :confused: MMT seems to be a tough nut to crack.

    Maybe they should have called it HTSFW. How the system f*@king works.
     
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  14. mmm....shiney!

    mmm....shiney! Moderator Silver Stacker

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    See the “Fractional Reserve Banking 2.0” thread in the “Digital Currencies” sub forum.

    In the meantime we’re stuck with Monetarists, maybe we’ll have to go through a period of MMT first though, it would be an improvement on what we’ve got.

    And Hayek also advocated a monetary system where the amount of currency on issue could be inflated or deflated as required.
     
    Last edited: Apr 1, 2021
  15. mmm....shiney!

    mmm....shiney! Moderator Silver Stacker

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    On the topic of the USD, Russia is selling USD and EUR and buying gold apparently.

    https://www.kitco.com/news/2021-03-29/Russia-s-National-Wealth-Fund-piles-into-gold.html

    A pointless activity.

    But the de-dollarisation of Forex reserves may well be temporary:

    [​IMG]

    https://www.bloomberg.com/news/arti...of-global-reserves-sinks-to-lowest-since-1995
     
  16. Lovey80

    Lovey80 Well-Known Member

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    But what was the basis for Hayek inflating the money supply? Surely it wasn't to reward the mal-investment created by the central bank in the first place?
     
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  17. mmm....shiney!

    mmm....shiney! Moderator Silver Stacker

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    I think it’s just supply and demand. Inflate the supply of money when it is in high demand to reduce the cost to borrowers and deflate the money supply when it’s in low demand to incentivise currency issuers. Edit to add: it was his attempt to keep purchasing power stable.

    We’ve lived under a system of perpetual inflation, the deflation bit is now technologically possible.
     
    Last edited: Apr 6, 2021
  18. leo25

    leo25 Well-Known Member Silver Stacker

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    An interesting talk from some old timers. Not an MMT talk, but there are some overlapping topics.

     
  19. jultorsk

    jultorsk Well-Known Member Silver Stacker

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  20. mmm....shiney!

    mmm....shiney! Moderator Silver Stacker

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    ^ governments could just avoid the banking sector entirely and spend directly, which is actually what MMT devotees argue, they are no friend of the Monetarists.

    Yes under our current system banks create money by issuing loans, but governments also create money when they make welfare payments. Our current system is broken so the Reserve Bank should just tap a few keys and fund Treasury directly without having to rely on the banking sector to build credit fuelled growth.
     
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