15 ms·

Banks, QE, and Money-Printing

212 points by fuoqi 6y ago

UncleSlacky 6y ago
I recommend Stephanie Kelton's "The Deficit Myth" for more background on MMT: https://www.amazon.com/Deficit-Myth-Monetary-Peoples-Economy/dp/1541736184 https://www.amazon.com/Deficit-Myth-Monetary-Peoples-Economy...
- siwatanejo 6y ago
  The point of that woman is simply: let the deficit go up ad infinitum (in USD value), it doesn't matter because as the central bank keeps printing money, the value of the deficit actually goes down (because the USD value goes down), so the value of the deficit is stable even if we don't perceive it to be this way. Quite BS imo
  - octoberfranklin 6y ago
    > Quite BS imo Well he said it was MMT, didn't he? ;)
  - daniel-s 6y ago
    Have you in the process also just wiped out everyone on a fixed income and who keep their savings in the bank?
    - donatj 6y ago
      Yep, and it’s arguably half the point as a means to keep the workforce working, depending on the leaning of who you talk to.
    - xwdv 6y ago
      Isn’t that what people want? To eliminate rent-seeking behavior?
      - ath92 6y ago
        This doesn't eliminate rent-seeking behavior because the dollar value of assets (e.g. houses, and with it rent) will just go up as well.
    - lasagnaphil 6y ago
      It also erases the debt for the people who have it. And quite many people in the US have enormous amounts of household debt: https://en.wikipedia.org/wiki/Household_debt#United_States https://en.wikipedia.org/wiki/Household_debt#United_States 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).
  - ChrisMarshallNY 6y ago
    Printing money is a bad idea. You think we had it bad, check out what happened here: https://alphahistory.com/weimarrepublic/great-depression/ https://alphahistory.com/weimarrepublic/great-depression/ I seem to remember something else, rather alarming, that happened after that...
    - VMG 6y ago
      MMT proponents will have a list of reasons why this will not happen with the USD (because it is a reserve currency etc) The arguments are unconvincing because the USD could lose that status.
      - neilwilson 6y ago
        Nothing to do with reserve status. Everything to do with a non-convertible floating rate currency. The same applies to the UK, Japan, Canada, Australia and the Eurozone among others.
    - BenoitEssiambre 6y ago
      While printing money to the extent MMTs advocate is bad,lack of printing during financial crisis is off the scale bad. It puts a gridlock in the economy as everyone, businesses and and banks aggressively reduce real economic activity in favor of collectively hoarding government paper (money and bonds). As your own link explains: "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."
    - 6y ago
  - xwdv 6y ago
    What’s BS about it? Using inflation to cheapen debts is pretty common knowledge.
    - frockington1 6y ago
      Long story short, if you keep printing money, eventually nobody wants your money. If nobody wants your money, trade becomes much more expensive
    - syshum 6y ago
      It is also a Tax on Saving, Retirements, and responsible behavior 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
      - JumpCrisscross 6y ago
        > It is also a Tax on Saving, Retirements, and responsible behavior 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.
        syshum 6y ago
        A healthy economy needs both savers and risk takers, 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
        JumpCrisscross 6y ago
        > healthy economy needs both savers 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/interest-rates/Pages/TextView.aspx?data=yield https://www.treasury.gov/resource-center/data-chart-center/i... [2] https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield https://www.treasury.gov/resource-center/data-chart-center/i...
  - xuki 6y ago
    Yet it’s very tempting for politicians to implement exactly that, because to tax people to pay for stuff is not very popular politically. They will always, always, always kick the can down the road.
    - travisoneill1 6y ago
      Yeah, I get the feeling that this theory is mostly based on the fact that the consent of elected representatives is required to raise taxes, but not to print money.
      - ethbr0 6y ago
        Not just the consent of representatives, but the very attention of the public. 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.
      - dragonwriter 6y ago
        > Yeah, I get the feeling that this theory is mostly based on the fact that the consent of elected representatives is required to raise taxes, but not to print money. 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.
    - sdfin 6y ago
      Just look at Argentina's economic history.
    - neilwilson 6y ago
      Take a tax rate of 1% 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.
  - JumpCrisscross 6y ago
    MMT is a neat theory. The mathematics are quite elegant. Unfortunately, like a lot of beautiful macroeconomics, it isn’t a policy prescription. (Though it provides ivory tower cover for bad policy.) 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.
    - arethuza 6y ago
      Presumably for the USD to lose reserve currency status some other currency would have to become more attractive as a long term bet? Are there any obvious candidates at the moment?
      - mmm_grayons 6y ago
        Red China and her policies of debt-trap diplomacy are making increased use of her currency more attractive.
      - JumpCrisscross 6y ago
        > for the USD to lose reserve currency status some other currency would have to become more attractive as a long term bet? 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.
      - 6y ago
  - cryptica 6y ago
    Yep, I agree it's clearly a disaster. The government shouldn't be the one deciding who gets all the new money and on what terms... That's essentially what communism does with coupons. 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.
  - deleted 6y ago
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  - sauwan 6y ago
    Have you read the book? That's quite the oversimplification. 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.
    - JumpCrisscross 6y ago
      > 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.
      - deleted 6y ago
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    - boringg 6y ago
      Printing money and issuing debt are almost interchangeable in terms of what they perform. My sense is that modern economics is steering towards full employment with an eye on inflation. Multiple goal setting and balancing makes more sense the strictly the 2% inflation goal.
  - question000 6y ago
    Yeah too bad it actually explains reality instead of the weird "debt is just bad." ideas that predict a crisis every single quarter.
  - OGWhales 6y ago
    This is an intentional misinterpretation of MMT. Quite BS imo.
  - bryanlarsen 6y ago
    According to MMT, inflation is the metric that matters. Since the deficit and inflation are very closely linked, then deficits do matter.
  - neilwilson 6y ago
    Deficits are just the accounting counterparty of people saving in the currency of issue. Why are you against additional saving?
- boringg 6y ago
  MMT discussed by economists about the truths and fallacies of MMT (link at bottom). It is lacking in real data and has a lot of very siren-like qualities to it. https://capitalisnt.com/episodes/the-right-and-wrong-of-mmt-modern-monetary-theory https://capitalisnt.com/episodes/the-right-and-wrong-of-mmt-...
cryptica 6y ago
Money printing is always inflationary. Either it causes CPI inflation immediately or it's stored up for later. When money printing does not cause immediate CPI inflation, surplus money is stored in scarce assets which creates asset price inflation and increasing fragility which will inevitably lead to CPI inflation later. The fact that new money is mostly backed by debt is irrelevant because those who own a lot of capital assets know that they will always be able to use their assets as collateral to take increasingly large loans in the future... Wealthy capital holders can always take new, bigger loans to pay off old smaller loans. Those who value growth above independence must enslave themselves to banks in order to guarantee that they can keep borrowing in perpetuity. If you know that you can borrow in perpetuity to buyback your stock and make repayments on your old loans, then you can rest assured that debt is never going to be a problem for you. You can just do what the government does with treasury bonds; issue new bonds to pay off your old bonds; the government is not the only institution which can do this.
- x87678r 6y ago
  >Money printing is always inflationary. Either it causes CPI inflation immediately or it's stored up for later. Japan and Europe disagree.
  - cryptica 6y ago
    Wealthy entities in those countries must be accumulating surplus fiat currency at a loss to themselves in order to suppress CPI inflation (maybe to artificially prevent the economy from crashing). But that's temporary. Whoever these entities are will eventually realize that this loss in value is not going to be recoverable and they will be forced to dump their fiat eventually. All the stored up CPI inflation will be released in a very short amount of time. You can't increase the supply of a currency (or anything else) without it losing value unless the supply of goods can keep up with the supply of currency but that doesn't appear to be the case these days. The best you can do is hide the surplus currency from the markets as long as possible. But eventually, something will happen which will force the hidden currency to enter the markets. Also, there is a myth that technology is causing exponential growth in efficiency but the reality of the last 10 years is that everything has been getting more bureaucratic and less efficient (I'm a software engineer so I've seen this first hand).
turbinerneiter 6y ago
If they print money to build new roads, bridges, (clean) power plants, schools -> good. If they print money to put in stocks and real estate -> bad. The one thing creates real value and enables more real value creation in the future. The other one has no effect on the real economy and wages. Driving real estate prices is even bad: at some point, no real economic strategy (aka. business model) is able to sustain the needed profits to pay for it, and no company can be profitable enough to justify the high stock prices. It therefore literally becomes to expensive to do business, because nobody can match the returns of the central bank buying up your garbage!
- zelos 6y ago
  As someone who really doesn't understand economics: if the government prints money to build infrastructure, where does the value they've added come from? I can't follow the logic of it: the government makes some money and pays a load of workers to build a bridge. It seems like the bridge is 'free', paid for with bits of paper they printed. Is the real cost the increased price of bridge building for everyone else, because demand for bridge builders is pushed up?
  - JumpCrisscross 6y ago
    > if the government prints money to build infrastructure, where does the value they've added come from? Increased real productivity. Imagine a toy town where only two goods are produced on opposite sides of a river. To trade them, risky river crossings risking product and person must be attempted. A bridge removes that risk and cost. The town will become wealthier for having the bridge despite its cost. (Same for e.g. ancient Mesopotamian, Mesoamerican and Hohokam canals.) > the government makes some money If the government prints money to fund its deficit then inflation “taxes” everyone. It is analogous to a company selling stock to do something useful. The share count went up but the aggregate value (hopefully) will too.
    - gassius 6y ago
      Increased real productivity might occur due to public spending, but its less likely that it was in the 1800s, if the Govt "bet" on that bridge does not payoff, then is each dollar printed to bet on it is diluting the value. I wouldn't trust the public sector to correctly allocate the resources to increase the real economic output over the private sector, for self evident historical lessons. And now that the low fruit has been taken, they might be tempted to build bridges to nowhere https://www.alaska.org/detail/bridge-to-nowhere https://www.alaska.org/detail/bridge-to-nowhere
known 6y ago
While China outgrows the US, and the US pursues ultra loose monetary and even more expansionary .#fiscal policy, an enduringly weak renminbi scarcely seems unduly threatening https://archive.is/rHE3t https://archive.is/rHE3t
mtgx 6y ago
Well, if you thought Congress was co-dependent on corporations to fund their campaigns before and that the US has become a country "by the corporations, for the corporations" (something Larry Lessig would probably say), then it's going to be even more true now that the Fed is illegally buying corporate bonds. I guess that for the foreseeable future Congress will continue to rescue large corporations with taxpayer money ad nauseam - tax money to which the same corporations contribute almost nothing these days, too. Wonderful.
deleted 6y ago
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frankus 6y ago
Generally enjoyed this, but I thought it was kind of odd to finger wag at businesses for being “over-leveraged” because a lot of them were in distress after a global pandemic shut down the economy. A huge exogenous shock with no potential for moral hazard seems like a pretty clear case where a sort of social insurance (i.e. a government bailout) would be the optimal solution.
kqvamxurcagg 6y ago
The fundamental issue with this article is that the inflation number is a lie. Housing costs are the key cost for every consumer but are excluded from CPI. Western countries have been running fiscal deficits consistently for decades, QE and low interest rates for 10 years. Yet for academics and central bankers the only answer to growth is more debt. Low interest rates benefit only the asset rich. They deprive everyone else of investment income. They also prevent essential restructuring as zombie companies stay alive instead of going bust. High housing costs, caused by low interest rates, are causing a demographic crisis in the west. People literally can’t afford to start a family. Our economies and culture have a skills crisis not a growth crisis. --- Edit: To provide some clarity on the comments below highlighting that housing costs are included in CPI. Each country calculates inflation statistics to various methodologies. CPI in the US includes a rent equivalent value which is independent of the actual cost of purchasing a home. The weighting allocated to housing is also unrepresentative as those entering the job market in cities now are facing housing costs representing 50% of income when most inflation metrics have it at 50%.
- newdude116 6y ago
  " Yet for academics and central bankers the only answer to growth is more debt." The uttermost definition of capitalism. "Our economies and culture have a skills crisis not a growth crisis." Capitalism can't survive without growth by definition. https://ourfiniteworld.com/2011/02/21/there-is-no-steady-state-economy-except-at-a-very-basic-level/ https://ourfiniteworld.com/2011/02/21/there-is-no-steady-sta...
  - JumpCrisscross 6y ago
    > Capitalism can't survive without growth by definition Capitalism prefers growth. It causes growth, which is good. (Growth does not have to mean resource intensity.) It does not require growth. Zero-grow and shrinking economies can allocate resources well through markets.
    - atmosx 6y ago
      You mean intellectual growth then? Because for everything else someone somewhere will need very tangible resources e.g. raw materials to build that phone you are using do X or Y.
pvsukale3 6y ago
Aside: I am new to a lot of the economic terms mentioned in the article but I am curious about its content. Can someone please share some good primer articles about monetary policy, QE and how central banks work? Thanks!
- moralsupply 6y ago
  Read "The Princes of the Yen", by Richard Werner. He coined (no pun intended) the term QE and his analysis of the Japanese, European and American government/central banks monetary interventionism is spot on. There's a documentary based on his book, which may be a quick introduction to the content (although I'd still recommend the book): https://www.youtube.com/watch?v=5-IZZxyb1GI https://www.youtube.com/watch?v=5-IZZxyb1GI
chid 6y ago
Interestingly the RBA (Reserve Bank of Australia) has announced similar measures earlier today. https://www.rba.gov.au/media-releases/2020/mr-20-28.html https://www.rba.gov.au/media-releases/2020/mr-20-28.html or https://www.abc.net.au/news/2020-11-03/rba-cuts-interest-rates-record-low-coronavirus-pandemic/12838760 https://www.abc.net.au/news/2020-11-03/rba-cuts-interest-rat... We've finally joined the club.
nathias 6y ago
Inflation is another tax on the poor. The poor are more dependent on money because most our capital is in money and the wages are lagging behind inflation even in the best of cases.
- dredmorbius 6y ago
  Inflation is a tax on interest-bearing, interest-indexed, or financial instruments; loans, bonds, debt, and insurance claims (policies are priced in uninflated currency, claims are paid in inflated currency, see the 1980s liability insurance crisis triggered by high inflation, though blamed on much else). Wage-earners, and fixed-income households if inflation indexed are largely untouched by inflation.
  - nathias 6y ago
    Sure, but I don't see how wage-earners are untouched by inflation?
    - dredmorbius 6y ago
      Fixed payents (bonds, etc) are fixed. Wage-earners see wages increase with inflation. Possible slight lag, but effectively little. Cash savings of course devalue. Asset holdings (real estate, equities) appreciate with inflation. Debts are reduced -- values fall as money is diluted (the gain side of banks' loss).
      - nathias 6y ago
        That's what I mean when I say poor - no debts, no assets just little savings in money and wages. Possible slight lag is not only possible and not slight, every increase in wages must be battled for while inflation comes automatically, money also represents 100% of the capital and therefore affects the poor completely.
        jcfrei 6y ago
ghastmaster 6y ago
Imagine how much consumer process would rise of companies were not able to subsidize profits with leverage! Assets rise at a higher rate due to USD devaluation(printing) and the cash being directed mostly to asset holders. Directing cash to consumers will have a more significant impact on CPI. I've read a lot of economics articles and this article was hard to follow. The writing was just not clear and concise. For example, she defines several types of inflation early on, and then does not define which type she is referring to later in the article. Wolf Richter is my favorite current economics pundit at the moment.
melenaboija 6y ago
It is funny this is from an Investment Strategy site where the strategies it is explaining are taking advantage of the system (how she/he manages the portfolio). What a paradox is this capitalism, the system is supposedly trying to "help" people, but some people is trying to make money out of it while some others need it to be alive and nobody can live without the others. And loop. Besides that as time goes by it seems more clear to me this is obviously non sustainable, although I might be wrong as I have been thinking this for years and keeps working :)
sleepysysadmin 6y ago
There isn't debate on what is money printing. If there is any money printing it is immediately can be discerned in high inflation. Which we don't have and therefore no money printing is occurring. Flipside, bond rates serve 2 purposes. First, it's what the government borrows money at; the second is what everyone else borrows at. These are counter points, if the economy needs boosting you lower rates but at some point the giant pension funds stop buying. This almost always occurs right around where bonds real yields are negative or 0. That is to say the Inflation target of 2% is higher than the bond yields. When those big funds stop buying, like they mostly have at the moment. The central bank is the last place for the government to fund itself. This is a strong sign the country has become bankrupt. https://tradingeconomics.com/united-states/central-bank-balance-sheet https://tradingeconomics.com/united-states/central-bank-bala... The US government is obviously bankrupt. Inflation is a hidden tax on savings. The boomers did not save enough money, they wanted to retire based on debt given to later generations. Extreme inflation is coming and will be taxing their savings to pay off the debt.
seibelj 6y ago
Lyn Alden is great. Another recent article - “3 Reasons I’m Investing in Bitcoin” https://www.lynalden.com/invest-in-bitcoin/ https://www.lynalden.com/invest-in-bitcoin/
gwbas1c 6y ago
> Many folks thought this would be hyperinflationary, Weimar Republic style. The Weimar Republic was the German government after WWI. Many of us forget a simple detail about Weimar's hyperinflation: It was deliberate so they could pay off their reparations. Worth reading: https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_R... > The strategy that Germany had been using to pay war reparations was the mass printing of bank notes to buy foreign currency, which was then used to pay reparations, but this strategy greatly exacerbated the inflation of the paper mark. Since the mark was, by fall of 1922, practically worthless, it was impossible for Germany to buy foreign exchange or gold using paper marks. After Germany failed to pay France an installment of reparations on time in late 1922, French and Belgian troops occupied the Ruhr valley, Germany's main industrial region, in January 1923. Reparations were to be paid in goods, such as coal, and the occupation was supposed to ensure reparations payments. > The German government's response was to order a policy of passive resistance in the Ruhr, with workers being told to do nothing which helped the invaders in any way. While this policy, in practice, amounted to a general strike to protest the occupation, the striking workers still had to be given financial support. The government paid these workers by printing more and more banknotes, with Germany soon being swamped with paper money, exacerbating the hyperinflation even further.
hikerclimb 6y ago
Hopefully qe leads to us failing and destroyies us economy
hardwaresofton 6y ago
If you're interested in this stuff you might like: - MacroVoices Podcast[0] - The Market Huddle podcast[1] Lyn has been a guest on the Market Huddle (so you can hear her talk through this article) and Stephanie Kelton has been interviewed on MacroVoices. [0]: https://www.macrovoices.com/ https://www.macrovoices.com/ [1]: https://www.youtube.com/channel/UCTNgTBKATr18Z7kR32rKOBw https://www.youtube.com/channel/UCTNgTBKATr18Z7kR32rKOBw
- anm89 6y ago
  The macro voices podcast is incredible especially their content with Lyn Alden and Jeffrey Snider.
arminiusreturns 6y ago
"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered." - Thomas Jefferson
- deleted 6y ago
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dsbleia 6y ago
I think the best definition I've heard for "money" comes from Mike Green of Logica (paraphrasing): "money is that which can repay debts or be collected by the Tax Man."
hikerclimb 6y ago
Good. I hope the us economy fails and goes into depression.

212 points by fuoqi 6y ago

I recommend Stephanie Kelton's "The Deficit Myth" for more background on MMT: https://www.amazon.com/Deficit-Myth-Monetary-Peoples-Economy/dp/1541736184 https://www.amazon.com/Deficit-Myth-Monetary-Peoples-Economy...

siwatanejo 6y ago
The point of that woman is simply: let the deficit go up ad infinitum (in USD value), it doesn't matter because as the central bank keeps printing money, the value of the deficit actually goes down (because the USD value goes down), so the value of the deficit is stable even if we don't perceive it to be this way. Quite BS imo
- octoberfranklin 6y ago
  > Quite BS imo Well he said it was MMT, didn't he? ;)
- daniel-s 6y ago
  Have you in the process also just wiped out everyone on a fixed income and who keep their savings in the bank?
  - donatj 6y ago
    Yep, and it’s arguably half the point as a means to keep the workforce working, depending on the leaning of who you talk to.
  - xwdv 6y ago
    Isn’t that what people want? To eliminate rent-seeking behavior?
    - ath92 6y ago
      This doesn't eliminate rent-seeking behavior because the dollar value of assets (e.g. houses, and with it rent) will just go up as well.
  - lasagnaphil 6y ago
    It also erases the debt for the people who have it. And quite many people in the US have enormous amounts of household debt: https://en.wikipedia.org/wiki/Household_debt#United_States https://en.wikipedia.org/wiki/Household_debt#United_States 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).
- ChrisMarshallNY 6y ago
  Printing money is a bad idea. You think we had it bad, check out what happened here: https://alphahistory.com/weimarrepublic/great-depression/ https://alphahistory.com/weimarrepublic/great-depression/ I seem to remember something else, rather alarming, that happened after that...
  - VMG 6y ago
    MMT proponents will have a list of reasons why this will not happen with the USD (because it is a reserve currency etc) The arguments are unconvincing because the USD could lose that status.
    - neilwilson 6y ago
      Nothing to do with reserve status. Everything to do with a non-convertible floating rate currency. The same applies to the UK, Japan, Canada, Australia and the Eurozone among others.
  - BenoitEssiambre 6y ago
    While printing money to the extent MMTs advocate is bad,lack of printing during financial crisis is off the scale bad. It puts a gridlock in the economy as everyone, businesses and and banks aggressively reduce real economic activity in favor of collectively hoarding government paper (money and bonds). As your own link explains: "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."
  - 6y ago
- xwdv 6y ago
  What’s BS about it? Using inflation to cheapen debts is pretty common knowledge.
  - frockington1 6y ago
    Long story short, if you keep printing money, eventually nobody wants your money. If nobody wants your money, trade becomes much more expensive
  - syshum 6y ago
    It is also a Tax on Saving, Retirements, and responsible behavior 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
    - JumpCrisscross 6y ago
      > It is also a Tax on Saving, Retirements, and responsible behavior 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.
      - syshum 6y ago
        A healthy economy needs both savers and risk takers, 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
        JumpCrisscross 6y ago
        > healthy economy needs both savers 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/interest-rates/Pages/TextView.aspx?data=yield https://www.treasury.gov/resource-center/data-chart-center/i... [2] https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield https://www.treasury.gov/resource-center/data-chart-center/i...
- xuki 6y ago
  Yet it’s very tempting for politicians to implement exactly that, because to tax people to pay for stuff is not very popular politically. They will always, always, always kick the can down the road.
  - travisoneill1 6y ago
    Yeah, I get the feeling that this theory is mostly based on the fact that the consent of elected representatives is required to raise taxes, but not to print money.
    - ethbr0 6y ago
      Not just the consent of representatives, but the very attention of the public. 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.
    - dragonwriter 6y ago
      > Yeah, I get the feeling that this theory is mostly based on the fact that the consent of elected representatives is required to raise taxes, but not to print money. 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.
  - sdfin 6y ago
    Just look at Argentina's economic history.
  - neilwilson 6y ago
    Take a tax rate of 1% 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.
- JumpCrisscross 6y ago
  MMT is a neat theory. The mathematics are quite elegant. Unfortunately, like a lot of beautiful macroeconomics, it isn’t a policy prescription. (Though it provides ivory tower cover for bad policy.) 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.
  - arethuza 6y ago
    Presumably for the USD to lose reserve currency status some other currency would have to become more attractive as a long term bet? Are there any obvious candidates at the moment?
    - mmm_grayons 6y ago
      Red China and her policies of debt-trap diplomacy are making increased use of her currency more attractive.
    - JumpCrisscross 6y ago
      > for the USD to lose reserve currency status some other currency would have to become more attractive as a long term bet? 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.
    - 6y ago
- cryptica 6y ago
  Yep, I agree it's clearly a disaster. The government shouldn't be the one deciding who gets all the new money and on what terms... That's essentially what communism does with coupons. 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.
- deleted 6y ago
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- sauwan 6y ago
  Have you read the book? That's quite the oversimplification. 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.
  - JumpCrisscross 6y ago
    > 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.
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  - boringg 6y ago
    Printing money and issuing debt are almost interchangeable in terms of what they perform. My sense is that modern economics is steering towards full employment with an eye on inflation. Multiple goal setting and balancing makes more sense the strictly the 2% inflation goal.
- question000 6y ago
  Yeah too bad it actually explains reality instead of the weird "debt is just bad." ideas that predict a crisis every single quarter.
- OGWhales 6y ago
  This is an intentional misinterpretation of MMT. Quite BS imo.
- bryanlarsen 6y ago
  According to MMT, inflation is the metric that matters. Since the deficit and inflation are very closely linked, then deficits do matter.
- neilwilson 6y ago
  Deficits are just the accounting counterparty of people saving in the currency of issue. Why are you against additional saving?
boringg 6y ago
MMT discussed by economists about the truths and fallacies of MMT (link at bottom). It is lacking in real data and has a lot of very siren-like qualities to it. https://capitalisnt.com/episodes/the-right-and-wrong-of-mmt-modern-monetary-theory https://capitalisnt.com/episodes/the-right-and-wrong-of-mmt-...

cryptica 6y ago

Money printing is always inflationary. Either it causes CPI inflation immediately or it's stored up for later. When money printing does not cause immediate CPI inflation, surplus money is stored in scarce assets which creates asset price inflation and increasing fragility which will inevitably lead to CPI inflation later. The fact that new money is mostly backed by debt is irrelevant because those who own a lot of capital assets know that they will always be able to use their assets as collateral to take increasingly large loans in the future... Wealthy capital holders can always take new, bigger loans to pay off old smaller loans. Those who value growth above independence must enslave themselves to banks in order to guarantee that they can keep borrowing in perpetuity. If you know that you can borrow in perpetuity to buyback your stock and make repayments on your old loans, then you can rest assured that debt is never going to be a problem for you. You can just do what the government does with treasury bonds; issue new bonds to pay off your old bonds; the government is not the only institution which can do this.

x87678r 6y ago
>Money printing is always inflationary. Either it causes CPI inflation immediately or it's stored up for later. Japan and Europe disagree.
- cryptica 6y ago
  Wealthy entities in those countries must be accumulating surplus fiat currency at a loss to themselves in order to suppress CPI inflation (maybe to artificially prevent the economy from crashing). But that's temporary. Whoever these entities are will eventually realize that this loss in value is not going to be recoverable and they will be forced to dump their fiat eventually. All the stored up CPI inflation will be released in a very short amount of time. You can't increase the supply of a currency (or anything else) without it losing value unless the supply of goods can keep up with the supply of currency but that doesn't appear to be the case these days. The best you can do is hide the surplus currency from the markets as long as possible. But eventually, something will happen which will force the hidden currency to enter the markets. Also, there is a myth that technology is causing exponential growth in efficiency but the reality of the last 10 years is that everything has been getting more bureaucratic and less efficient (I'm a software engineer so I've seen this first hand).

turbinerneiter 6y ago

If they print money to build new roads, bridges, (clean) power plants, schools -> good. If they print money to put in stocks and real estate -> bad. The one thing creates real value and enables more real value creation in the future. The other one has no effect on the real economy and wages. Driving real estate prices is even bad: at some point, no real economic strategy (aka. business model) is able to sustain the needed profits to pay for it, and no company can be profitable enough to justify the high stock prices. It therefore literally becomes to expensive to do business, because nobody can match the returns of the central bank buying up your garbage!

zelos 6y ago
As someone who really doesn't understand economics: if the government prints money to build infrastructure, where does the value they've added come from? I can't follow the logic of it: the government makes some money and pays a load of workers to build a bridge. It seems like the bridge is 'free', paid for with bits of paper they printed. Is the real cost the increased price of bridge building for everyone else, because demand for bridge builders is pushed up?
- JumpCrisscross 6y ago
  > if the government prints money to build infrastructure, where does the value they've added come from? Increased real productivity. Imagine a toy town where only two goods are produced on opposite sides of a river. To trade them, risky river crossings risking product and person must be attempted. A bridge removes that risk and cost. The town will become wealthier for having the bridge despite its cost. (Same for e.g. ancient Mesopotamian, Mesoamerican and Hohokam canals.) > the government makes some money If the government prints money to fund its deficit then inflation “taxes” everyone. It is analogous to a company selling stock to do something useful. The share count went up but the aggregate value (hopefully) will too.
  - gassius 6y ago
    Increased real productivity might occur due to public spending, but its less likely that it was in the 1800s, if the Govt "bet" on that bridge does not payoff, then is each dollar printed to bet on it is diluting the value. I wouldn't trust the public sector to correctly allocate the resources to increase the real economic output over the private sector, for self evident historical lessons. And now that the low fruit has been taken, they might be tempted to build bridges to nowhere https://www.alaska.org/detail/bridge-to-nowhere https://www.alaska.org/detail/bridge-to-nowhere

known 6y ago

While China outgrows the US, and the US pursues ultra loose monetary and even more expansionary .#fiscal policy, an enduringly weak renminbi scarcely seems unduly threatening https://archive.is/rHE3t https://archive.is/rHE3t

mtgx 6y ago

Well, if you thought Congress was co-dependent on corporations to fund their campaigns before and that the US has become a country "by the corporations, for the corporations" (something Larry Lessig would probably say), then it's going to be even more true now that the Fed is illegally buying corporate bonds. I guess that for the foreseeable future Congress will continue to rescue large corporations with taxpayer money ad nauseam - tax money to which the same corporations contribute almost nothing these days, too. Wonderful.

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frankus 6y ago

Generally enjoyed this, but I thought it was kind of odd to finger wag at businesses for being “over-leveraged” because a lot of them were in distress after a global pandemic shut down the economy. A huge exogenous shock with no potential for moral hazard seems like a pretty clear case where a sort of social insurance (i.e. a government bailout) would be the optimal solution.

kqvamxurcagg 6y ago

The fundamental issue with this article is that the inflation number is a lie. Housing costs are the key cost for every consumer but are excluded from CPI. Western countries have been running fiscal deficits consistently for decades, QE and low interest rates for 10 years. Yet for academics and central bankers the only answer to growth is more debt. Low interest rates benefit only the asset rich. They deprive everyone else of investment income. They also prevent essential restructuring as zombie companies stay alive instead of going bust. High housing costs, caused by low interest rates, are causing a demographic crisis in the west. People literally can’t afford to start a family. Our economies and culture have a skills crisis not a growth crisis. --- Edit: To provide some clarity on the comments below highlighting that housing costs are included in CPI. Each country calculates inflation statistics to various methodologies. CPI in the US includes a rent equivalent value which is independent of the actual cost of purchasing a home. The weighting allocated to housing is also unrepresentative as those entering the job market in cities now are facing housing costs representing 50% of income when most inflation metrics have it at 50%.

newdude116 6y ago
" Yet for academics and central bankers the only answer to growth is more debt." The uttermost definition of capitalism. "Our economies and culture have a skills crisis not a growth crisis." Capitalism can't survive without growth by definition. https://ourfiniteworld.com/2011/02/21/there-is-no-steady-state-economy-except-at-a-very-basic-level/ https://ourfiniteworld.com/2011/02/21/there-is-no-steady-sta...
- JumpCrisscross 6y ago
  > Capitalism can't survive without growth by definition Capitalism prefers growth. It causes growth, which is good. (Growth does not have to mean resource intensity.) It does not require growth. Zero-grow and shrinking economies can allocate resources well through markets.
  - atmosx 6y ago
    You mean intellectual growth then? Because for everything else someone somewhere will need very tangible resources e.g. raw materials to build that phone you are using do X or Y.

pvsukale3 6y ago

Aside: I am new to a lot of the economic terms mentioned in the article but I am curious about its content. Can someone please share some good primer articles about monetary policy, QE and how central banks work? Thanks!

moralsupply 6y ago
Read "The Princes of the Yen", by Richard Werner. He coined (no pun intended) the term QE and his analysis of the Japanese, European and American government/central banks monetary interventionism is spot on. There's a documentary based on his book, which may be a quick introduction to the content (although I'd still recommend the book): https://www.youtube.com/watch?v=5-IZZxyb1GI https://www.youtube.com/watch?v=5-IZZxyb1GI

chid 6y ago

Interestingly the RBA (Reserve Bank of Australia) has announced similar measures earlier today. https://www.rba.gov.au/media-releases/2020/mr-20-28.html https://www.rba.gov.au/media-releases/2020/mr-20-28.html or https://www.abc.net.au/news/2020-11-03/rba-cuts-interest-rates-record-low-coronavirus-pandemic/12838760 https://www.abc.net.au/news/2020-11-03/rba-cuts-interest-rat... We've finally joined the club.

nathias 6y ago

Inflation is another tax on the poor. The poor are more dependent on money because most our capital is in money and the wages are lagging behind inflation even in the best of cases.

dredmorbius 6y ago
Inflation is a tax on interest-bearing, interest-indexed, or financial instruments; loans, bonds, debt, and insurance claims (policies are priced in uninflated currency, claims are paid in inflated currency, see the 1980s liability insurance crisis triggered by high inflation, though blamed on much else). Wage-earners, and fixed-income households if inflation indexed are largely untouched by inflation.
- nathias 6y ago
  Sure, but I don't see how wage-earners are untouched by inflation?
  - dredmorbius 6y ago
    Fixed payents (bonds, etc) are fixed. Wage-earners see wages increase with inflation. Possible slight lag, but effectively little. Cash savings of course devalue. Asset holdings (real estate, equities) appreciate with inflation. Debts are reduced -- values fall as money is diluted (the gain side of banks' loss).
    - nathias 6y ago
      That's what I mean when I say poor - no debts, no assets just little savings in money and wages. Possible slight lag is not only possible and not slight, every increase in wages must be battled for while inflation comes automatically, money also represents 100% of the capital and therefore affects the poor completely.
      - jcfrei 6y ago

ghastmaster 6y ago

Imagine how much consumer process would rise of companies were not able to subsidize profits with leverage! Assets rise at a higher rate due to USD devaluation(printing) and the cash being directed mostly to asset holders. Directing cash to consumers will have a more significant impact on CPI. I've read a lot of economics articles and this article was hard to follow. The writing was just not clear and concise. For example, she defines several types of inflation early on, and then does not define which type she is referring to later in the article. Wolf Richter is my favorite current economics pundit at the moment.

melenaboija 6y ago

It is funny this is from an Investment Strategy site where the strategies it is explaining are taking advantage of the system (how she/he manages the portfolio). What a paradox is this capitalism, the system is supposedly trying to "help" people, but some people is trying to make money out of it while some others need it to be alive and nobody can live without the others. And loop. Besides that as time goes by it seems more clear to me this is obviously non sustainable, although I might be wrong as I have been thinking this for years and keeps working :)

sleepysysadmin 6y ago

There isn't debate on what is money printing. If there is any money printing it is immediately can be discerned in high inflation. Which we don't have and therefore no money printing is occurring. Flipside, bond rates serve 2 purposes. First, it's what the government borrows money at; the second is what everyone else borrows at. These are counter points, if the economy needs boosting you lower rates but at some point the giant pension funds stop buying. This almost always occurs right around where bonds real yields are negative or 0. That is to say the Inflation target of 2% is higher than the bond yields. When those big funds stop buying, like they mostly have at the moment. The central bank is the last place for the government to fund itself. This is a strong sign the country has become bankrupt. https://tradingeconomics.com/united-states/central-bank-balance-sheet https://tradingeconomics.com/united-states/central-bank-bala... The US government is obviously bankrupt. Inflation is a hidden tax on savings. The boomers did not save enough money, they wanted to retire based on debt given to later generations. Extreme inflation is coming and will be taxing their savings to pay off the debt.

seibelj 6y ago

Lyn Alden is great. Another recent article - “3 Reasons I’m Investing in Bitcoin” https://www.lynalden.com/invest-in-bitcoin/ https://www.lynalden.com/invest-in-bitcoin/

gwbas1c 6y ago

> Many folks thought this would be hyperinflationary, Weimar Republic style. The Weimar Republic was the German government after WWI. Many of us forget a simple detail about Weimar's hyperinflation: It was deliberate so they could pay off their reparations. Worth reading: https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_R... > The strategy that Germany had been using to pay war reparations was the mass printing of bank notes to buy foreign currency, which was then used to pay reparations, but this strategy greatly exacerbated the inflation of the paper mark. Since the mark was, by fall of 1922, practically worthless, it was impossible for Germany to buy foreign exchange or gold using paper marks. After Germany failed to pay France an installment of reparations on time in late 1922, French and Belgian troops occupied the Ruhr valley, Germany's main industrial region, in January 1923. Reparations were to be paid in goods, such as coal, and the occupation was supposed to ensure reparations payments. > The German government's response was to order a policy of passive resistance in the Ruhr, with workers being told to do nothing which helped the invaders in any way. While this policy, in practice, amounted to a general strike to protest the occupation, the striking workers still had to be given financial support. The government paid these workers by printing more and more banknotes, with Germany soon being swamped with paper money, exacerbating the hyperinflation even further.

hikerclimb 6y ago

Hopefully qe leads to us failing and destroyies us economy

hardwaresofton 6y ago

If you're interested in this stuff you might like: - MacroVoices Podcast[0] - The Market Huddle podcast[1] Lyn has been a guest on the Market Huddle (so you can hear her talk through this article) and Stephanie Kelton has been interviewed on MacroVoices. [0]: https://www.macrovoices.com/ https://www.macrovoices.com/ [1]: https://www.youtube.com/channel/UCTNgTBKATr18Z7kR32rKOBw https://www.youtube.com/channel/UCTNgTBKATr18Z7kR32rKOBw

anm89 6y ago
The macro voices podcast is incredible especially their content with Lyn Alden and Jeffrey Snider.

arminiusreturns 6y ago

"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered." - Thomas Jefferson

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dsbleia 6y ago

I think the best definition I've heard for "money" comes from Mike Green of Logica (paraphrasing): "money is that which can repay debts or be collected by the Tax Man."

hikerclimb 6y ago

Good. I hope the us economy fails and goes into depression.