Modern Monetary Theory

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

  1. mmm....shiney!

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

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    On "Princes of the Yen", and the challenging message the author had for free-marketeers I'v given some thought to the problem I posted in #96 https://www.silverstackers.com/foru...ern-monetary-theory.93079/page-5#post-1110758, How did the post-War Japanese planners manage to create such wealth when the majority of economic theories observe that the best form of wealth creation happens within a free-market?

    I've got an idea about it and would appreciate some feedback, as long as you don't disagree. :p

    If the author's thesis is accepted, then post-war Japanese economic planners applied a wartime economic model in order to rebuild the nation. Instead of factories making bullets or Zeros, they made washing machines and trains. The wartime factory model is highly effective when applied to the manufacturing industry ie supply and control the capital input, specify the manufactured good that is the planned output and hey presto you've got a million Sanyo washing machines! Sell those washing machines domestically to the workers (effectively recycling much of the injected cash) and overseas at a cheaper price to foreigners. But eventually that model was doomed to fail the needs and desires of the more prosperous Japanese consumer because whilst factories are great at making tractors, or Game Boys, they're lousy at producing the more sophisticated (social) goods that the more discerning and wealthier consumer demands eg health, education, the environment, entertainment etc.

    At some point the complaint Japanese factory worker, empowered with more wealth would no longer want to work in a factory, or spend their free time filling their new washing machines with dirty overalls but would yearn for holidays, sporting events, artwork and quiet walks through misted mountains. And their kids would aspire to a different life to the one their parents experienced, and their parents would also share and probably encourage those same aspirations. It's at that point that manufacturing gets offshored and it's at that point that a wartime economic model loses its capacity to meet the needs of the people. And that leaves the free-market as the best alternative in meeting those new needs.
     
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  2. leo25

    leo25 Well-Known Member Silver Stacker

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    @mmm....shiney! Sorry for not replying to that previous post you made, i must have missed it. To be honest i sometimes feel like the ball in Pong, bouncing between two sides. I still haven't completely resolved my own views and that makes it hard for me to convey my ideas in text on a forum.

    One idea that really seems to get me stuck is something much more basic then all the ideas above it. That is, what if the majority of people what to have things planned for them. What if it was by the free choice of the majority that we have the socialist system we have today. Because i know more people that love the idea of someone managing their life then people like us that don't want to be told what to do. If you need to force people to participate in a completely free market is it still a free market? The best i can think off is finding a middle ground between what i would want and what the majority want and maybe that is close to what Japan has?

    A interesting scene from Avengers.

     
    Last edited: Nov 23, 2019
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  3. Lovey80

    Lovey80 Well-Known Member

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    [QUOTE="mmm....shiney]Why would producers prefer gold/Euro over USD? Because they would value it more than USD. Producers/nations will trade their steel for whatever unit of currency is used, whether it's USD, Euro, gold or paperclips but they'll save what they value. In other words what they transact in is irrelevant, it's what they choose to accumulate and hold that is important. They will save what they value the most and exchange what they value the least.

    In a post-USD-world-reserve-currency economic environment, the USD will still be highly valued simply because it is the world's largest, wealthiest, stable economy.[/QUOTE]

    i think what you’re saying is largely correct for every other country. If there wasn’t an artificial demand to hold them the USD24t in debt would be the least of the USA’s problems. What if China was to dump all of their USD assets on the market as the Japanese begin their inevitable selling of US debt?

    Maybe you’re forgetting or don’t realise exactly how much USD is out there because of the Petro-Dollar. Right now KSA’s influence at OPEC is holding strong. But there could be plenty of reasons to drop it.

    how stable would the US economy be if it lost reserve status? Printing and spending your way to wealth would be over.
     
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  4. Silver260

    Silver260 Well-Known Member Silver Stacker

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    Absolutely, I think domestic pressures would have made the continued use of Window Guidance challenging, not impossible, but challenging.

    I think another issue would have been the rise of emerging markets, especially China, with their significantly lower wages and cost. As Japans economy moved from a net exporter, to a net importer, it would have required some fairly creative thinking to transform the economy. Maybe Window Guidance couldn't offer such flexibility??, we'll never know :)
     
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  5. Silver260

    Silver260 Well-Known Member Silver Stacker

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    This is a subject that I've noticed some interesting developments on lately. There's a rising number of American economists and business leaders starting to examine the pitfalls of the USD being the reserve currency.

    With the recent global economic developments, it's becoming a double edged sword for the US. While it offers untold geopolitical power, and monetary "liberties", its also crippling their export industries and foreign investments. Because, in times of uncertainty, reserve currencies become seen as a store of wealth, pushing up their value.

    I think we will see the USD cease to be the reserve currency ( when? ) , because they ( US / Western powers ) already have a mechanism in place, which offers all the benefits and very few of the pitfalls.

    The IMF.

    Just a thought :)
     
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  6. mmm....shiney!

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

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    I'm not sure that the demand is artificial. You walk the streets of non-Western countries and you can buy goods with USD from vendors. Now there's a vast difference between someone selling fishballs from a bain-marie in KL to central banks, but the CBs are holding USD as a matter of financial security, in the same way they hold gold. Of course it's hard to gauge the intent of many of those Central Banks. But there is no logical reason why any central bank would offload their USD reserves because trading and saving are two different ends.

    No idea, but it would be far more stable than every other fiat currency.
     
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  7. mmm....shiney!

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

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    No it wouldn't. But in a free market we can still voluntarily hand over all responsibility to service providers for meeting our needs. That's why Hello Fresh, or Uber Eats is so popular. In a free-market we can have a choice of how independent we want to be.

    Any other system is simply immoral.
     
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  8. leo25

    leo25 Well-Known Member Silver Stacker

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    Wouldn't the USD be the most unstable and have to most to lose in the event it no longer was the global reserve currency?

    Every other currency's value is based on what can be purchased in their own country, whereas the USD value is based on what can be purchased in the world. If the USD was to resort back to only represent what can be purchased in America, then a lot of value must be lost.

    Constant amount of USD with the ability to buy less goods in the market = price inflation.
    This will make America a low cost country, thus creating job, which might make America a producing power house again, which will then make the USD strong? :confused:
     
    Last edited: Nov 23, 2019
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  9. Silver260

    Silver260 Well-Known Member Silver Stacker

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    I had to have a chuckle at this paragraph. Rather fitting, in the context of modern economic theories.

    IMG_20191124_094657.jpg
     
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  10. mmm....shiney!

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

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    I used to think that but I’m not sure sure now. And Mosler is definitely sure it won’t ie when he says they may as well trade paperclips for all it matters, it’s what they save that is important.

    I don’t think that that is correct about currency valuation. I’m thinking currencies are valued on a mix of the cash rate available and the strength of an economy. If you look at the AUD when it was USD1.10 we had a high cash rate and a booming economy because of demand for commodities.
     
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  11. mmm....shiney!

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

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    On the topic of free markets, self-responsibility and the desire amongst some to hand control of their lives over to others, a good example of what could possibly happen is in the first of Ken MacLeod's sci-fi books “The Star Faction”. My memory is a bit hazy but I think New London is an anarcho-capitalist state (community), it’s bordered by other communities, some socialist, some religious based and maybe a dictatorial one or two. There’s also a bunch of unwashed, non-state, space-aged, neo-Luddite greenies who regularly terrorise everyone and then disappear off into the scrub - as is their way.

    An individual is welcome to live in any of those states as long as they abide by the laws and values of the different communities. So if you want to hand control of your life entirely over to someone else, you’d move to the dictatorship or the socialist community. Mind you, once inside you’re probably not going to be allowed to leave. Likewise if you’re born there, which would be a real bitch. Unless you escape. If you want to live in the anarcho-capitalist community and take drugs and whatever else takes your fancy you’re welcome there as well, you just have to pay a fee at the border before you enter to cover the cost of the air you breathe whilst you’re living in that town.

    Choice is what it comes down to. Something we don’t currently have.
     
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  12. leo25

    leo25 Well-Known Member Silver Stacker

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    ^ The book Brave New World is another example. Two different types of lifestyles, one highly planned and the rest unstructured.
     
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  13. mmm....shiney!

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

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    Huxley was a pessimist. ;)
     
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  14. mmm....shiney!

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

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    A paper from 2011.

    http://www.paecon.net/PAEReview/issue58/Koo58.pdf

    It’s the Keynesian answer to the economic crisis, which is quite interesting really because if governments are not going to let their economies crash, and we’re not going to get a decentralised free-market economy, then the only solution may be to increase government spending during times when we’re facing a balance sheet crisis as private sector debt to GDP falls.
     
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  15. leo25

    leo25 Well-Known Member Silver Stacker

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    Though "Keynesian" never read much of what John Maynard Keynes wrote. Keynes was very much against constant deficits and government spending, i guess they all somehow missed that part. :)

    You summed up what he talking about. If private sector stops spending and therefore creating a depression, then government should spend into the general economy to fill the short fall. Then government should stop and let the market take over again. The money government spent is now the private sector new savings.
     
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  16. Silver260

    Silver260 Well-Known Member Silver Stacker

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    Excellent, I've downloaded this and will definitely be reading it. Thank you.

    Interestingly, since I posted that, I've stumbled upon someone who has confirmed my own thoughts, on the reasoning behind our ( Australia's ) lacklustre growth. Ironically, which ScoMos $1000 handout proved.

    It's about consumer debt. Think about it. Wage growth is none existent, yet personal debt is growing ( edit : beyond the multiplier effect ) . The more you owe, the less disposable income you have. Consumer spending is the backbone of every economy, about 70%, in fact. We used the recent $1000 handout to pay down debt. This has already been acknowledged.

    I posted this video elsewhere, but it's worth reposting here. This was recorded in January 2018, note his predictions about the US Fed rates....

     
    Last edited: Nov 24, 2019
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  17. Silver260

    Silver260 Well-Known Member Silver Stacker

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    I'd actually like to expand on this hypothesis.

    Maybe I'm not considering this clearly, but here goes :)

    Traditional economics would say that "some" people are borrowing money "some" of the time. So the interest they are paying is helping fund the next round of borrowers.

    Under this understanding, I borrow $1000 @ 10% for 12 months. $1000 is injected into the economy instantly. Over the next year I effectively remove $100 ( the interest payment ) from the economy.

    Now, if I'm only a small portion of an economy ( as borrowers) , this won't matter. Because the banks can simply lend my $100 to someone else, who will inject it into the economy. Thereby adding $100 to the economy ( multiplied by the reserve ratio ).

    But what if we are all borrowing to our maximum capacity?
     
    Last edited: Nov 24, 2019
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  18. leo25

    leo25 Well-Known Member Silver Stacker

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    simple, government can spend :) The RBA keeps saying this, but ScoMo doesn't want to listen. Unlike the private sector, government never have to pay off its debt and can always borrow/issue more. That’s just how the system is setup today.

    Kevin rudd Understood this. He also made the choice to give the money to the people instead of just putting money into the pockets of the already rich. Trickle down theory is BS.
     
    Last edited: Nov 24, 2019
  19. mmm....shiney!

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

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    That's coz there is no trickle down theory. It's just a phrase someone made up.
     
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  20. Shaddam IV

    Shaddam IV Well-Known Member Silver Stacker

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    right action (probably) but for the wrong reasons. Rudd is obsessive about wanting to be liked and adored. He didn’t hand out the money for the good of the economy, he handed it out for social media “like” button action.
     
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