Modern Monetary Theory

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

  1. leo25

    leo25 Well-Known Member Silver Stacker

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    Someone should have told Ronald Reagan, unless he was the one that made it up :)
     
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  2. mmm....shiney!

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

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    Gleaning from Koo (correct me if I'm wrong), during times when the economy is healthy there is no maximum borrowing capacity as one person's debt is another person's income. As there is no limit to the amount of income that is ever broadly in demand then there is no limit to the amount of broad debt that can be borrowed.

    When bubbles burst actors in the economy are reluctant to borrow, therefore income is quelled. And that's where @leo25's comment comes in.

    Our modern monetary system relies on debt to drive income.

    I'm an Austrian not a Keynesian. I'm of the school that savings drives productivity therefore without savings you don't have economic progress. We hold that this is the most sustainable way for an economy to grow as it avoids the artificial rises in asset prices and the consequential overcorrections.

    Obviously this is not the way our modern system is designed to work so for now, until we have a reset (if ever) our central planners should at leat implement whatever theory they're following in its entirety and follow-through to the end. Koo in the article linked above says that in modern democracies it's near impossible to fully implement the Keynesian solution because citizens both dislike profligate government spending and there is no mutual agreement on where money should be spent. It's easy in a wartime economy because everyone agrees where the money should go, but not in times of peace (hence why post-war Japan was so successful because it wasn't really a democracy). So politicians driven by the desire to win votes adopt models piecemeal, only enough to win them them the next election or avoid getting kicked out.

    So if we're going to follow the Keynesian model, then we should at least do it properly.
     
    Last edited: Nov 24, 2019
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  3. leo25

    leo25 Well-Known Member Silver Stacker

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    Ok I’ll call it dumb luck for now on, maybe I gave him too much credit.

     
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  4. mmm....shiney!

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

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    Just to expand on the Austrian v Keynesian debate a bit, wealth (or prosperity) can be defined as the amount of needs and desires that are satisfied. Keynesians, or at least those advocating a modern Keynesian economic theory believe that rises in the price of assets such as housing is a rise in an individual's wealth. But just because house prices rise it doesn't mean we're wealthier. We only become more prosperous when we manage to satisfy more of our needs and desires. And humans are far more prosperous than we were 10, 20 or 100 years ago and it's got nothing to do with inflated asset prices.
     
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  5. leo25

    leo25 Well-Known Member Silver Stacker

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    This is a good basic video talking about what you mentioned. These basic things are something everyone should be taught in school.

     
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  6. leo25

    leo25 Well-Known Member Silver Stacker

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    Good video by Steve Keen, he does a great job explaining many things. Wish they had stuff like this on the MSM.
     
  7. harry_mr

    harry_mr Active Member

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    It does appear that other Central banks are devaluing their own currency based on the FEDs moves either trying to keep ahead or in sync with them.
     
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  8. Silver260

    Silver260 Well-Known Member Silver Stacker

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    Yea, it appears its becoming a race to the ( interest rate) bottom.

    The US is simply the best looking horse in the knackers yard. So I think they'll struggle to devalue their currency.


    BTW, it looks like we should all be invested in Turkish Bonds... :D.

    What could go wrong o_O

    https://www.global-rates.com/interest-rates/central-banks/central-banks.aspx
     
    Last edited: Nov 25, 2019
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  9. mmm....shiney!

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

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    Real Vision is one of 3 Youtube subscriptions I have, I look at it every day. One of the others being the Rockhampton Jockey Club barrier trials though they don't publish daily. :p
     
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  10. Lovey80

    Lovey80 Well-Known Member

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    I think the USD’s value is partly, if not largely due to its reserve status and its need to be used to purchase oil and other commodities. One part is trade and the other savings, yes. But lose trade and you lose savings, at least in part.

    there’s absolutely no good reason for OPEC. To demand USD for oil on economic grounds. If they allowed say the G20 to buy oil at current exchange rates in their own currencies the exchange rate shift overnight would be huge.
     
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  11. mmm....shiney!

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

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    Then explain why there are over periods of time huge swings in exchange rates even while the USD’s reserve status is maintained.
     
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  12. Silver260

    Silver260 Well-Known Member Silver Stacker

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    I'd suggest the primary reason is predominantly political?

    Tariffs, Import restrictions, Subsidies, and direct manipulation all impact on a countries exchange rate. Normally, the motivation being to drive up exports.

    Countries have been arm wrestling over exchange rates, before, and since brenton woods.
     
    Last edited: Nov 25, 2019
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  13. mmm....shiney!

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

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    Economic and political conditions within a country in relation to other countries. Pretty much like what I argued here: https://www.silverstackers.com/foru...ern-monetary-theory.93079/page-8#post-1111440

    A Libertarian perspective:

    Read the whole article here:
    https://www.ussc.edu.au/analysis/th...d-future-role-in-the-world-economy#conclusion
     
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  14. Silver260

    Silver260 Well-Known Member Silver Stacker

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    An interesting perspective / article . One I'm starting to lean towards, personally.

    Quote : ( excuse the caps, that's how it's typed in the article, honestly ... Lol )

    IN PRINCIPLE, THE US DOLLAR’S ROLE COULD BE SUPPLANTED BY OTHER CURRENCIES. BUT THE US DOLLAR’S NEAREST POTENTIAL ARE BESET WITH PROBLEMS.
     
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  15. leo25

    leo25 Well-Known Member Silver Stacker

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    New video from Real Vision. Talks about MMT. Gives some good reasons why inflation is a concern in the futures. Atm everyone is negative in the economy, but if that changes then you can see inflation pick up fast.

     
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  16. Silver260

    Silver260 Well-Known Member Silver Stacker

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    I think everyone here would be interested in his comments at the 20:05 Mark.

    I found the the correlation he drew, between the quantity of negative yielding bonds and gold, very insightful.
     
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  17. mmm....shiney!

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

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    Interesting comment. Generally when yields and low returns in mainstream investments are discussed commentators usually make mention that investors turn to higher risk assets. :p
     
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  18. GoldenEye

    GoldenEye Well-Known Member Silver Stacker

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    Interesting article on Zerohedge: The Hidden Link Between Fiat Money And The Increasing Appeal Of Socialism

    What causes the seemingly unfounded confidence in socialism we encounter more and more in the news media and among political activists? In the Extinction Rebellion movement, for example, activists are quite certain they have learned that there is an alternative to markets as the means to economic prosperity. It's a means that does not involve meeting the legitimate needs of one's fellow men in the marketplace.

    It is likely not a coincidence that most people living today have lived most of their lives in a world dominated by fiat money. It has now been nearly fifty years since the United States broke all ties between the dollar and gold. It's been even longer since other major currencies were tied to gold at all. Consequently we now live in a world where the creation of wealth is seen by many as requiring little more than the creation of more money. In this kind of world, why not have socialism? If we run out of money, we can always print more.

    Unlimited Money Feeds the Myth of Unlimited Real Resources
    The world was on a watered down version of a gold standard until 1971 when the US abandoned its solemn promise — the 1944 Bretton Woods Agreement — to back the dollar with gold at $35 per ounce. Gold backing of a currency provided a solid intellectual foundation of reality that few even recognized existed within themselves; (i.e., that we live in a world of scarcity and uncertainty). This reinforced the idea that wealth has to be built. It cannot be conjured out of thin air, just as gold cannot be conjured out of thin air.

    But fiat currency can be conjured out of thin air and in enormous amounts. The longer a fiat currency is the coin of the land, the more one is led to believe that nothing should be in short supply, since everything is bought with money and money need not be in short supply. Those who know only unlimited fiat money soon demand free healthcare and free higher education as a right. And why not? Unlimited money will pay for it. Into this never-never land comes demands for scrapping the fossil fuel underpinnings of our modern economy by those who understand nothing of how an economy works. But, apparently one does not need to understand technical limitations, because there are no technical limitations. The "barbarous relic" (gold) had once limited the money supply and thusly seemed to limit the supply of vendible goods. Gold has been replaced by unlimited fiat money. Now it seems that unlimited aggregate demand can be funded by unlimited fiat money, leading to a world of plenty.

    Fiat Money Turns the World Upside Down
    The psychological impact of a lifetime within a fiat money economy cannot be underestimated. One's world is turned upside down. For many, financial success becomes prima facie evidence of exploitation of the masses rather than something to be admired and to which one could aspire also. With more wealth seemingly available at the click of a computer button, only an Ebenezer Scrooge would deny funding the latest demanded government program. If wealth is so easy to create, many conclude only greed and cruelty are what stand between us and far greater prosperity for all.

    But that is the very reason that fiat money is so subversive to the social order. In a sound money economy any new spending program can be funded only by an increase in taxes, an increase in debt, or by cutting existing funding. There is a real cost to each of these options. There is a real cost to printing money, too, but the cost is hidden. One does not see malinvestment at the time of money printing. Price increases are delayed and uneven, due to the Cantillon Effect whereby the early receivers of new money are able to purchase goods and services at existing prices. Later receivers or those who do not receive the new money at all suffer higher prices and a reduction in their standard of living. Even then most people do not link higher retail prices with a previous expansion of the money supply.

    It would be hard to invent a more effective method for the destruction of modern society. As Pogo would say, "We have met the enemy and he is us."

    https://www.zerohedge.com/economics/hidden-link-between-fiat-money-and-increasing-appeal-socialism
     
  19. JohnnyBravo300

    JohnnyBravo300 Well-Known Member

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    When you hear people blame capitalism it tells alot.
     
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  20. mmm....shiney!

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

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    Yep, usually means they’re as dumb as dogshit.
     

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