That's hilariously accurate.
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> "QE involves a shift in the focus of monetary policy to the quantity of money: the central bank purchases a quantity of assets, financed by the creation of broad money and a corresponding increase in the amount of central bank reserves. The sellers of the assets will be left holding the newly created deposits in place of government bonds."
> "QE has a direct effect on the quantities of both base and broad money because of the way in which the Bank carries out its asset purchases. The policy aims to buy assets, government bonds, mainly from non-bank financial companies, such as pension funds or insurance companies. Consider, for example, the purchase of £1 billion of government bonds from a pension fund. One way in which the Bank could carry out the purchase would be to print £1 billion of banknotes and swap these directly with the pension fund. But transacting in such large quantities of banknotes is impractical. These sorts of transactions are therefore carried out using electronic forms of money."
It's rare for the federal government to run a surplus, but it did have one for four years straight in 1998, 1999, 2000, and 2001[1]. During that that time, the monetary base increased 32%[2] and the M2 money supply increase 23%[3].
No matter how you look at it, despite the government running a surplus, the money supply continued to increase. How do you square that with your claim that surpluses remove money from the economy?
[1] https://fred.stlouisfed.org/series/FYFSD
I actually completely agree, but with a caveat. It may not cause inflation in terms of this years price level being higher than last years price level, but it will cause a decline in the purchasing power of the dollar. For example, let's say in the absence of intervention the price level would fall by 2%, but with intervention the price level would stay the same. That's still a 2% decline in purchasing power.
> The "monetary base" increases because of the way they define the monetary base.
The monetary base is defined as the sum of all currency (including coin) plus bank deposits. It increases or decreases completely at the Fed's discretion, because the Fed has the unique ability to create reserves. This isn't some semantic trickery.
Honestly I don't know what point you're trying to make, or what deficits or surpluses have to do with anything. A deficit or surplus is merely the delta between total revenues and an arbitrarily defined budget.
Inflation is caused by additional dollars chasing the same number of goods. Printing money does not create goods and services - it merely decreases the value of each dollar relative to everything else. If I had a machine that could create an unlimited amount of gold at zero cost, the price of gold would approach zero if I made and sold enough of it. I don't know why you would think dollars would be any different.
> Yes, but the assets the Fed buy (when practicing QE) are in the accounts of the commercial banks in the Fed. After buying them, those assets are not there anymore, and, instead there is money (1). And money is basically a government bond that pay 0% interest.
Yes, the bank exchanges an asset (like a treasury) in exchange for reserves (base money). The question you need to ask yourself is, where did those reserves come from? Another question you need to ask is, when Fed engages in QE, why does the monetary base increase?
This is one of the most absurd claims of the supposedly "descriptive" MMT. Taxation does not delete money from the economy. When the federal government collects taxes, it doesn't take that money and burn it in a giant pit. It turns around and immediately spends that money.
Yes, the federal government does not need your tax dollars. Yes, they technically have the ability to print an infinite amount of dollars. But that doesn't support the claim that taxation removes money from the economy.
> Some of the MMT professors also do a good job explaining how QE (quantitative easing) doesn't create new net financial assets into the system, it just shifts around assets in accounts at the Fed.
This is completely false. The Fed creates new reserves (base money) in order to buy assets.
Exactly. I bet if Facebook offered a paid, ad-free version of their service, 99.9% of people would not use it. The monetary value of Facebook is $0 for most people.
But you still haven't provided an argument as to why you believe taxation destroys money. Taxation merely transfers dollars from one entity to another. It doesn't change the amount of base money in existence.
No it's not. The effect of taxation is the same as theft. The thief gains and the victim loses, but the overall purchasing power of the dollar is unchanged. Destroying money would increase the purchasing power of the dollar.
> On the other side of the transaction, for the government, as you recognize, taxation presents no increase in buying power.
Taxation is one of three ways the government can earn revenue (taxation, selling bonds, or printing money), so yes it does increase buying power.
> To directly compare the two scenarios - taxation and burning money - private entities can no longer use the money and government can still spend as much as it wants subject to self imposed limitations. There is no functional difference.
Those two aren't comparable. Burning money would mean that nobody can spend that money. Money gained through taxation can still be spent (and is spent).
If the government collected taxes but never spent that money, I would concede that the net effect is the same as destroying money. But that clearly doesn't happen. The government DOES spend the money it garners through taxation. So the claim that taxation destroys money doesn't make any sense.
Yes, taxation is one of the ways to create demand for an otherwise worthless fiat currency. So are legal tender laws. This still does not explain your assertion that the government destroys dollars through taxation.
Dollars enter the economy when the Federal Reserve creates reserves out of thin air and trades those new reserves for treasuries or other assets.
Dollars are destroyed when the Federal Reserve sells off assets on its balance sheet.
Taxation plays absolutely no role in this process. The Federal Reserve controls the monetary base. This would be true even if the federal government levied zero taxes.
> Governments don't need to tax in order to spend, they are the issuers of the currency.
Governments can earn revenue entirely from selling bonds or printing money - you're absolutely right that they don't need to tax in order to spend. However, this statement doesn't back up your assertion that governments destroy money through taxation.
Taxes don’t take dollars out of circulation. The government spends those tax dollars immediately after collecting them.
The only way the monetary base can be decreased is by the central bank unwinding its balance sheet.
Price inflation is not some force of nature - it’s deliberately induced by the central bank out of a belief that falling prices are bad. The trend in market economies is for everything to get cheaper every year. Look at TVs for example.
There’s no “magic” in inflation. If you have more dollars chasing the same number of goods, those dollars will have less purchasing power. Because the Fed creates new money if the form of bank reserves, the things that to tend to be inflated the most are assets purchased with loans (real estate, equities, businesses, etc). Nobody takes out a loan to buy tomatoes but they will take out a loan to fund a new business.
That being said, our bookings been hit pretty hard by the coronavirus. We’ve hade multiple cancellations recently, and the month of April is basically wide open. We usually have an occupancy rate for 85%. I think we’ll be lucky to have 50% of the next couple months.