“But it’s not terribly difficult to predict what’s going to happen next: the Federal Reserve will drop the secrecy and start buying US debt openly.” What is the difference, really, between openly monetizing the debt and lending money, virtually interest-free to the very banks which own the Fed, to do so on their own? These banks also run Wall Street’s largest casino, with winnings going into their pockets and losses added to the national debt.
This video was posted back in 2009. Is it time, yet to blow off the dust from this video?
https://www.youtube.com/watch?v=yge311sFhC8
It does have a catchy beat. Doesn’t it?
“What’s MMT say? Basically the government can create whatever money it wants with no restrictions to spend on whichever programs it likes.”
No. That’s not what MMT says. It says that inflation, and resources, are constraints, or at least theoretical constraints. The practical extent of the theoretical constraint must of course be worked out in practice (cannot be predicted).
I’ve noticed that a number of MMT theorists (I daresay most) seem to be quite afraid of inflation. They are stuck for example on the Federal Job Guarantee (FJG) versus Universal Basic Income because, they claim, the FJG provides built-in protection against inflation. Their fear of inflation is highly paradoxical, to put it mildly; I would even say it is irrational, and inconsistent with what they OUGHT to know (i.e. that the quantity theory of money is problematic at best and pure bunk at worst). But that is only some of them. Others are different.
“How is that different from what they are doing now?”
MMT is not about doing something different. It is not a program at all. It is a theory. Theories describe reality. They might be wrong, but that is their intent. MMT describes (attempts to describe) the reality we’ve been living in for many decades.
Phrases like “MMT is already here!” and “MMT is actually happening!” have no meaning. Either the theory is right, and it correctly describes reality for many decades (at least since Bretton Woods), or it is wrong, and it doesn’t. It is not something that “happens” or not.
Saying “let’s DO MMT!” is like saying “let’s DO the theory of evolution!”. (Except that the theory of evolution has WAY more evidence in favor than does MMT. MMT might be wrong; evolution almost certainly is not wrong.)
True that MMT is associated with a lot of ideas about spending and the role of government. But it is itself not those ideas. The theory itself (the last letter of MMT, after all, means Theory) should be properly distinguished from the practical and presumably desirable courses suggested by the theory, or that the theory would seem to make possible. I touch on those matters in the post to follow.
“QE benefits the well-off, MMT the have-nots.”
I think that’s a good way of looking at it. I mean, leaving aside a pedantic correction, in keeping with my previous post:
“QE benefits the well-off, [policies implied or suggested by this theory that we call ‘MMT’] the have-nots.”
MMT provides theoretical groundwork in support of a long march back to FDR-esque social democracy, justice, decency and sanity after the generations-long assault on our society by the twin plagues of monetarism and neoliberalism (and their toxic spawn: austerianism).
Areas of terrible damage that must be repaired include: trashing of the public sector generally; destruction of the unions; abandonment of humane employment (full employment) policies; privatization of schools, utilities and pensions; cutbacks in social services, health care, education, transportation; wage stagnation and an abysmal minimum wage; stagnation of fundamental social support systems (e.g. Social Security benefit amounts); lack of single-payer health care system; and on and on, it is a long list.
MMT silences or at least muffles the voices of the niggardly austerians with their constant yammering “but how will we pay for it?” – often with respect to things we are already paying for, just in different ways (sometimes disastrous, bloody ways), and always with the pretension that a national economy is analogous to a household economy (it isn’t; this is explained in clear detail by MMTers). It opens up possibilities for public financing of numerous critical projects to deal with the intersecting crises facing us, including but not limited to climate, climate justice, and economic and social justice.
It may have a wart or three, but on balance a very good thing. Two cheers for MMT.
(Of course none of the above will come to pass without a major political movement, which is becoming constituted in the Bernie campaign as we speak, and which will continue to grow in the coming decades. Among Bernie’s advisors, incidentally, are Stephanie Kelton and Pavlina Tcherneva, noted MMTers. The latter is one of the leading scholars of the job guarantee, whose writings are indispensable if you are interested in that subject.)
…
on an adjacent tab in my browser, something you might like:
https://boingboing.net/2019/10/09/shattering-overton-window.html
CORY DOCTOROW / OCT 9, 2019
Washington establishment freaks out as Modern Monetary Theory gains currency
the quote at the end is cool:
"The decline of the deficit fear-factor [peddled by the people I call "austerians" --alan2102] is palpable in Washington, said Coronado, a former Federal Reserve economist. “You can see it politically, it’s already happening,” she said. “The progressive camp is frustrated, they have had it, and are saying ‘You guys are wrong, you have been wrong about everything and now it’s going to be our turn.’”Here here! PS: "Washington establishment freaks out as Modern Monetary Theory gains currency" -- did anyone else notice the pun in that title? Just noticed it myself.
Money only holds value if it has something of value backing it. Otherwise the people reject it as a savings vehicle and supply and demand forces devalue it. Historically this was done predominantly through gold backing since it is scarce and people always held it in high regards.
Today it doesnt have gold. Over the last 3 decades of the 1990’s it had a genuinely growing debt-based economy providing value to the money since interest rates were real and positive.
Since 2001 real interest rates have been negative so it no longer has that, although the continual dropping of rates over the last 20 odd years provided value to bonds. Interest rates cant really go much lower so the bond run is over.
Today all there is backing the value of money is the faith of the majority of the population in that money. And the petro-reserve currency which backs the western currencies with oil. But due to the completely unfundable future liabilities that the current dollar system is burdened with, there will inevitably have to be a devaluation because the resources arent available to provide for that. This will destroy the public’s confidence in money.
What will then prevent a hyperinflationary outcome with nothing of value backing the currency thereafter, other than the “full faith and confidence in the US government” issuing it (LOL)? That faith wont last long…
The only thing I can think of is if they ban cash and institute electronic controls to force people to use the currency and prevent mass rejection. That’s hardly a socially just and sustainable option.
I think these mmt theorists have developed their hypotheses in the environment of the US having the global reserve currency which allowed it to do financially whatever it wants. That will soon end. They live in a fantasy world.
“I think these mmt theorists have developed their hypotheses in the environment of the US having the global reserve currency … That will soon end.”
You are right that it is in decline; I don’t know about “soon end”. It has been in slow decline for decades, and that will probably continue. At the turn of the century, central bank reserves were 70-80% in dollars (I’ve read different numbers, never nailed it down), now that is down to 62%. In decades prior to the turn of the century, the percentage was even higher. In other words, the U.S. dollar has already lost a LOT of its reserve status, all the way down to 62%.
How important is this? It does not seem to have had much effect so far. Unless you could, let’s say, somehow attribute some huge negative thing (like the GFC) to this decline in reserve status.
Another matter, possibly relevant, is the rise in absolute numbers. The chart at the link below illustrates this. The dollar’s position as go-to reserve currency has declined as a slice of the pie, but the pie itself has increased greatly – about 8X! – so that in absolute terms the dollar is more powerful than ever:
https://si.wsj.net/public/resources/images/FT-AA445A_DOLLA_9U_20170920143913.jpg
The immediate question that occurs to me is: WHY? Why are banks holding so much more (8X) cash than they did just 20 years ago? The global GDP grew but not nearly that much, maybe 2.5X.
In relation to this discussion, the question is: what is the significance (to the value and ultimate fate of the dollar), if any, of this huge increase in global bank currency holdings, including a huge increase in dollar holdings?
Another way to put it: since banks are now holding such humongous piles of dollars (far more than 20 years ago), in absolute terms, would this be a negative influence, or any influence, on their ability to de-dollarize or “dump the dollar” (assuming they desire to do so) going forward?
Not only do I have no answer to the questions I just asked, I don’t even have a clue. These questions are way above my pay grade.
However, I’ll venture this: relative de-dollarization will probably continue, slowly, like in the past, and relative dollar reserves will drift downward from current 62% to 50% and eventually 40%. De-dollarization is an (apparently generational) process, not an event. What impact will this have on the value of the dollar? Who knows?
“Money only holds value if it has something of value backing it… Historically this was done predominantly through gold backing”
A long long time ago, yes. And it did not work.
The gold standard has been pushed by Austrian/libertarian types like Ron Paul and many others, for decades. Austrianism and the gold standard are joined at the hip. But their entire school of thought is in tatters – a good thing because it was never more than an elaborate apologia for extreme wealth concentration, power-over, ruthless extraction, and immiseration or even murder of anyone who would stand in the way.
Comprehensive debunking of Austrianism is in numerous articles archived here:
Debunking Austrian Economics 101, Updated
For debunking of the gold standard specifically, do this google search:
“gold standard” site:socialdemocracy21stcentury.blogspot.com
… then scroll through the hits and read 6-8 of the most promising ones.
And/or read this item:
https://www.reuters.com/article/us-gold-standard/why-conservatives-spin-fairytales-about-the-gold-standard-idUSBRE98G07E20130917 SEPTEMBER 17, 2013 Why conservatives spin fairytales about the gold standard Charles Postel "In the years after 1913, the need for a flexible and regulated money supply was widely accepted across the political spectrum. By mid-century, only a small band of right-wing ideologues clung firmly to the gold standard. In a 1990 paper, Milton Friedman, the 20th century's most influential conservative economist, aptly described such holdouts as "monetary monomaniacs." But that was then. Today gold is king of conservative economic thinking." snip "Supposedly, gold will provide an anchor of stability in a rough economic sea. But, like any other commodity, gold is subject to speculative bubbles. Over the last five years gold prices have been tossed high and low, more like froth in the wind than a sturdy anchor. Supposedly, "ending the Fed" will return us to the firm ground of prosperity of the last gold standard era from 1873 to 1914. But claims that the old gold standard made for a more stable economy have no basis in the historical record. Those years witnessed the terrible depressions of the 1870s and 1890s, and some of the most severe financials busts and economic storms in U.S. history. What the historical record does show is that the politics of gold and hard money bitterly divided the country and contributed to unprecedented levels of economic inequality. This experience helps make sense of the gold fever gripping conservatives today. Then, as now, hard money was the preferred policy of the corporate 1 percent." snip "Conservatives from business, politics and academia rallied to the gold standard. They were known as gold bugs because of the militant faith that they placed on this precious metal as the key to preserve their wealth, power and way of life. For Republican industrialist Mark Hanna, the political kingmaker behind President William McKinley, the danger lay in the "communistic spirit" of soft money. For Harvard economist Francis A. Walker, paper money would lead to "effeminacy" weakening the control fathers and husbands had over their wives and children. For the journalist William Allen White, Bryan's attack on the gold standard amounted to "riot, destruction and carnage."" snip "the possibility that the U.S. will revert to a gold-backed currency is little to none. The gold standard is a relic of history. Yet, the cries of the "monetary monomaniacs" grow louder. Paul, Bachmann, Forbes, Beck and other conservatives now warn that it is either gold or the abyss. They do so because today's gold bugs share the same goals as their conservative ancestors. They, too, understand that hard money serves power and wealth."Put me down, dear comrades, as someone who proudly embraces the communistic spirit of soft money. ................ AND, if you feel like really taking a Walk On The Wild Side, try Anthony Migchels' rants against the gold standard. I cite these mostly for amusement purposes, but they are also somewhat thought-provoking, and he certainly does get some things right:
https://realcurrencies.wordpress.com/2019/10/14/the-crunch-is-back-theres-going-to-be-a-gold-standard-and-it-will-be-disastrous/ OCTOBER 14, 2019 The Crunch Is Back, There’s Going To Be A Gold Standard, And It Will Be Disastrous by Anthony Migchels The next round in the Crunch is here, and Central Banks have suddenly started saying that a Gold Standard will be necessary to start anew. The Gold Standard will force an excruciating deleveraging, austerity, deflation, and depression, and bring immense pain to the masses. The Real Populists have been warning against the coming Gold Standard as the Banker Master Plan to destroy America for decades. The Libertarians in the Truth Movement have a lot of explaining to do, for continuing selling the Banker Plan to the uninitiated. https://realcurrencies.wordpress.com/2012/01/28/phoenix-rising-the-return-of-the-gold-standard/ Phoenix Rising, the Return of the Gold Standard by Anthony Migchels on January 28, 2012 What has been in the cards for decades is now fully on the agenda: the returning Gold Standard. Gold as currency is a weapon. It is a wealth transfer to those holding Gold and will precipitate a massive deflation. The ensuing chaos will help usher in their coveted New World Order and World Currency. https://realcurrencies.wordpress.com/2012/02/19/why-gold-is-so-strongly-deflationary/ Why Gold is so strongly deflationary by Anthony Migchels on February 19, 2012 ‘You are aware that the gold standard has been the ruin of the States which adopted it, for it has not been able to satisfy the demands for money, the more so that we have removed gold from circulation as far as possible.’ Protocol 20 One of the key problems with Gold as currency is that it is strongly deflationary. Austrian Economics both denies deflation is disastrous and that Gold is deflationary and this is one of its major weaknesses.
It kinda did work for 700 years. That would be long enough for me.
https://www.ancient.eu/Byzantine_Coinage/