Quite BS imo
Reserve currency status does afford increased deficit-spending capacity. But it isn’t an immutable, environmental variable. Deficits and reserve currency status interact. If a country runs up large deficits in the name of its reserve currency it affects others’ inclinations to hold the currency in reserve.
Precisely where this happens is difficult to predict. It involves many levels of animal instincts. That it happens, however, is well evidenced.
By analogy: we know the plane will safely travel at a 300 flight level. There is theoretical work for higher FLs. Do you point up the nose of a fully-loaded plane until the wings or engine or fuselage fail?
Piloting federal fiscal policy on MMT is akin to steering the plane to FL 100 and keeping an eye out for a stall. You might get lucky. But you should have experimented in smaller and more-controlled settings first.
Not necessarily. Reserve currencies facilitate international trade and finance, things which may not exist in their present form without the United States. There is no rule saying the world must have one.
Everyone could wind up owning their trading partners’ currencies. We could revert to a commodity standard. Or free trading zones could emerge with synthetic currencies.
https://qz.com/africa/1291372/chinas-yuan-gets-support-from-...
In the early days its easy to be unimpressed and rightfully so, but its certainly a signal of potential change in the order of things.
Through monetary policy. When the Fed creates a dollar it destroys a dollar of assets, e.g. by buying a bond.
Fiscal policy is different. When Congress appropriates it creates new money. That impacts the real economy differently. (This is why every crisis involves central bankers calling for fiscal stimulus. It is more powerful.)
[0] since we are discussing MMT, we should note that the term “fiscal” is a reference to metaphor that is not at all appropriate to modern fiat currency systems, and that so-called fiscal policy isn’t constrained by a fisc and is just as monetary as what is traditionally called “monetary” policy. But it's easier to use the classic terms than “taxation and spending” in place of fiscal and “central bank credit” in place of “monetary”.
Nobody who decides the policy will have read the theory anyway, so that doesn't really matter.
It requires a suspension of disbelief to accept that economic policy is decided based on theory. It is the same fig-leaf as copyright supporting artists, then the law clearly being written by groups like Disney based on their own convenience.
Not decided on. But influenced by. Or at least, who gets to be influential is influenced by it.
MMT’s political bullet point of “deficits don’t matter so spend like crazy” empowers a unique set of policies. So those actors push it so voters will accept the cost of their goodies.
> the same fig-leaf as copyright supporting artists, then the law clearly being written by groups like Disney
Disney helped draft the Constitution?
Good job that isn't what MMT says then isn't it.
Quite why people insist on putting up that straw man I don't know. It just makes them look ridiculous.
MMT says when you run out of things to buy at a price worth paying the spending automatically stops, and that means you can only really buy the unemployed.
If you want anything else you have to tax first to make what you want to buy unemployed. Then you can buy it.
It's no longer a matter of running out of money, as that is impossible, it's a matter of running out of unemployed to deploy.
Reserve currency is essentially a myth. It's just an artefact of double entry bookkeeping in banks.
There are lots of reserve currencies. Every floating rate currency held outside its native borders is "reserve". It's just somebody holding the money - aka savings.
Many countries do that for mercantile reasons to avoid a dutch disease at home. Norway is one, China is the main other.
"Piloting federal fiscal policy on MMT is akin to steering the plane to FL 100 and keeping an eye out for a stall"
It's just excess savings, which are automatically offset by a Job Guarantee. Basic accounting really.
Deficits are just an accounting residual causes by people choosing to save. For there to be a deficit at all somebody has to choose to hold the money. Or there won't be one.
This is empirically false. Offshore currency holdings make offshore financing in your currency easier. That makes financing deficits less likely to produce domestic inflation.
Quantity and diversity of the offshore holders of one's currency matter. There is a qualitative difference between the U.S. dollar and Argentinian peso.
It isn't. It is accounting fact. Every currency held outside its borders is a foreigner saving that currency. That's all a reserve is.
Lots of people like to hold US dollars. Fewer Argentine pesos even within the country.
Actually having fewer people hold you currency makes it easier to run. You just make your budget in that currency balanced by increasing taxes. If you have lots of people saving your currency then let them - and accommodate the savings.
> Reserve currency status does afford increased deficit-spending capacity.
The key point of MMT isn't that fiscal balance (deficit v surplus) doesn't inherently matter as much because there are conditions (whether “reserve currency status” that you've focussed on it something else) that Trump it for the countries of concern, it's that fiscal balance is ultimately an illusion based on a metaphor (the fisc, a finite purse filled by revenue and depleted by spending) that simply fails to reflect reality for a country whose budget operates in its own fiat currency, and that the financial constraints on such a country have to do with monetary effects of decisions, not fiscal balance.
> If a country runs up large deficits in the name of its reserve currency it affects others’ inclinations to hold the currency in reserve.
Sure, the sum effect of the governments decision making on demand for the currency, and those value of the currency, (the kind of reserve considerations you discuss here are an aspect of this, not categorically special) is exactly the kind of monetary consideration that MMT holds is a real constraint. But fiscal balance itself isn't a useful yardstick for that.
> Piloting federal fiscal policy on MMT is akin to steering the plane to FL 100 and keeping an eye out for a stall.
No, it's more like guiding nap-of-the-earth flight with a radar altimeter rather than a barometric altimeter calibrated to the long-term average global pressure at sea level. Monetary effects are the actual hard constraints, fiscal balance is a distant, murky proxy with an uncertain and time-and-conditions-variable relation to the actual constraint that obfuscates rather than clarifies.
She says the deficit doesn't matter because a government that prints its own money can wipe out the debt with a few clicks of the button (if they so choose). The debt number doesn't really matter. It can be paid off by a large injection of printed cash. But that has other implications. Ultimately, it's inflation that we really care about, not the deficit. And there are better tools for controlling inflation that hurt fewer people than the current monetary policies in place.
This is the part of her argument that I found unconvincing. The tools sort of work. But once you have inflation and inflation expectations a tremendous amount of political capital and pain must be spent to get out of it. A system which regularly subjects itself to such a test will eventually fail it.
Housing prices are going up = average citizen is happy, or at least not concerned
Fiscal austerity & inflation = average citizen is alarmed and votes you out of office
So yes, it's essentially a magician's version of the hard choices government has to make.
It's required for both; the fact that Congress has delegated monetary policy and not recalled it, and not done the same with fiscal policy doesn't change that, it's just the mechanism by which it provides ongoing consent to the Feds decisions in monetary policy.
Now spend $100. Tax it at 1%. Then the next person gets $99 income. Spend it all again. Tax that at 1%. Then the next person gets $99.01. Tax that at 1%. And so on like a stone skipping across a pond.
When you get to the end of the sequence and total up the tax take, what is the value?
You'll be surprised.
Now work out why that doesn't happen in the actual world. The answer is that somebody didn't spend everything they earned straight away. And that's what a deficit is.
You think we had it bad, check out what happened here: https://alphahistory.com/weimarrepublic/great-depression/
I seem to remember something else, rather alarming, that happened after that...
The arguments are unconvincing because the USD could lose that status.
The same applies to the UK, Japan, Canada, Australia and the Eurozone among others.
"Rather than ramping up spending, Bruning increased taxes to reduce the budget deficit. He then implemented wage cuts and spending reductions, an attempt to lower prices. Bruning’s policies were rejected by the Reichstag but the chancellor was backed by President Paul von Hindenburg, who in mid-1930 issued his policies as emergency decrees.
Bruning’s measures failed and only contributed to increased unemployment and public suffering in 1931-32. They also revived government instability and bickering between parties in the Reichstag."
Or from wikipedia:
"From 1930 onwards, President Paul von Hindenburg used emergency powers to back Chancellors Heinrich Brüning, Franz von Papen and General Kurt von Schleicher. The Great Depression, exacerbated by Brüning's policy of deflation, led to a surge in unemployment.[8] In 1933, Hindenburg appointed Adolf Hitler as Chancellor with the Nazi Party being part of a coalition government."
One thing I heard Stephanie Kelton and other MMTers has always emphasized about MMT is that the main question of the theory isn't "Should we print the money?", but "HOW should we use the printed money?" The money-printing is already conceptually independent from yearly budgets; the big question is how we're going to use that money so that uncontrollable inflation does not occur (which the Keynesians failed to answer with stagflation). If the newly printed money improves the strength of the "actually existing" national economy, then its currency will become competitive with others and a hyperinflation moment like Weimar would probably not happen.
2. Hyperinflation isn't a natural result of regular inflation. There have been countless governments that have engaged in deliberately inflationary policies. Basically none of them resulted in a hyperinflation spiral.
3. Hyperinflation isn't even caused by spending policies in the first place! It is the result of a collapse in national revenue, forcing a government to print money to honor debts that it can't otherwise pay. This leads to a collapse in confidence in the currency, and more printing, thus the spiral. I'm not aware of any nation anywhere that "printed money" for new spending and ended up in a hyperinflation state. You have a counterexample?
However, I lived in Africa. One of my best friends (at the time) lived in Zimbabwe. I lived in Uganda (I think that nation made the news, as well).
There's another country that has had a hyperinflation problem: Venezuela (I think it's still going on).
When you have to use a wheelbarrow to carry money to buy a loaf of bread, then something ain't right.
Hyperinflation doesn't cause despots, but good old-fashioned misery for the masses goes a long way towards it.
It's really easy to be clinical and analytical, when we don't have to pay the price, ourselves, but I can tell you, from personal experience, that walking past psychotic young men, carrying loaded machine guns, backed by the government, every day, kinda sucks.
A lot of people in the world have to do exactly that.
The one issue that I have with the tech social media scene, is how divorced we become from simple, basic humanity. Everything becomes strawmen and examples.
See http://bilbo.economicoutlook.net/blog/?p=3773 for the true story about Weimar.
Inflation (in controlled amounts) can act as a redistribution mechanism between debtors and creditors (basically a way to lessen the huge inequality gap we have today).
It encourages irresponsibility and debt, and discourages people from saving, planning for their future, and over all acting in a way that is not filled with instant gratification, or extremely leveraging themselves
That provides good short term growth, but then you have recessions and depressions because at some point those balance sheets have to be balanced
Unexpected inflation is. Predictable inflation is easy to account for.
I live in New York. My basket of goods included until recently rapidly-increasing real estate prices. That is the benchmark against which my money managers are judged. It is true that this forces them to invest more riskily. But that is a systemic lever inflation and interest rates are designed to tweak: low interest rates beget risk taking.
What is happening today, the marginal rate @ or below zero there are no savers, that is equally as bad as high interest rates where no one was taking any risks
Based on what? Savings are the rue of Keynesian economics. And they at best do nothing in monetarist frameworks.
> the marginal rate @ or below zero
Marginal nominal rates are between 0.09% (1 mo.) and 1.63% (30 y.) [1]. Real rates are negative [2], but to the tune of -1.22% (5 y.) to -0.26% (30 y.), which hardly discourages rainy-day saving. For anything more than that, surplus capital should be invested, not hoarded.
[1] https://www.treasury.gov/resource-center/data-chart-center/i...
[2] https://www.treasury.gov/resource-center/data-chart-center/i...
It's naive to think that people will still value the dollar and assets which earn revenue denominated in dollars when everyone knows that the value of the dollar is always approaching 0.
I think something big is going to happen when big investors collectively realize that it's not just the dollar which is losing value, it's also all assets whose earnings are denominated in those dollars.
If gold was worthless, then all gold mines would also be worthless. Somehow people still haven't gotten their heads around that.
Quite BS imo.
Why are you against additional saving?
Well he said it was MMT, didn't he? ;)