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Prior to the 17th century there was never any interest on sovereign debt. It was the personal debt of the sovereign, imposed upon the ruling class and died with

Prior to the 17th century there was never any interest on sovereign debt. It was the personal debt of the sovereign, imposed upon the ruling class and died with the sovereign. Paying interest on sovereign debt is a relatively recent invention that came about with the rise of banks. If you're Islamic then paying interest remains a sin. That is what Erdogan is following. Having said that paying interest on sovereign debt is, effectively, a basic income for people who have money. Getting rid of it is a tax on rich people with savings. However if you do that, then you have to set government taxation and spending policies for a Full Liquidity model of an economy, not a Full Funding model of an economy. Erdogan has not done that. Other than interest he is still Chicago School from what I can tell. And that way leads to disaster.

boole1854 4y ago
> Having said that paying interest on sovereign debt is, effectively, a basic income for people who have money. Getting rid of it is a tax on rich people with savings. A zero nominal interest rate, while possible, generally requires the central bank to implement a policy of deflation (see [1]). For example, in the US, the long term real interest rate on US treasury securities is 1.74%, so setting the nominal interest rate to 0% would require a deflation at a rate of (1.0174)^-1 per year (~1.71%). While this would eliminate some of the interest earned by "people who have money" it also has the counterbalancing effect of increasing the real value of the money which those people have saved, due to the deflation. [1] https://en.wikipedia.org/wiki/Friedman_rule https://en.wikipedia.org/wiki/Friedman_rule
- neilwilson 4y ago
  The central bank is not in charge of the economy. They are servant, not master. Unfortunately that 'Friedman rule' belief relies upon there being a fixed amount of money and a one-to-one relationship between money and stuff. There isn't a fixed amount of money. There isn't a one-to-one relationship between money and stuff. Money grows and shrinks depending upon the transaction requirements of the real economy. A Full Liquidity rule, on the other hand, allows the government sector to adjust its taxation and spending positions and reduce the level of taxation required in a full employment environment.
  - boole1854 4y ago
    > Unfortunately that 'Friedman rule' belief relies upon there being a fixed amount of money and a one-to-one relationship between money and stuff. I'm not sure what you mean by this. The Friedman rule does not assume there is a fixed amount of money -- the rule itself recommends in some circumstances that the central bank should increase the supply of money.
    - neilwilson 4y ago
      The central bank is not in control of the quantity of money. Money is created dynamically by all entities in society as and when it is needed. That's what trade credit is all about, for example.

boole1854 4y ago

> Having said that paying interest on sovereign debt is, effectively, a basic income for people who have money. Getting rid of it is a tax on rich people with savings. A zero nominal interest rate, while possible, generally requires the central bank to implement a policy of deflation (see [1]). For example, in the US, the long term real interest rate on US treasury securities is 1.74%, so setting the nominal interest rate to 0% would require a deflation at a rate of (1.0174)^-1 per year (~1.71%). While this would eliminate some of the interest earned by "people who have money" it also has the counterbalancing effect of increasing the real value of the money which those people have saved, due to the deflation. [1] https://en.wikipedia.org/wiki/Friedman_rule https://en.wikipedia.org/wiki/Friedman_rule

neilwilson 4y ago
The central bank is not in charge of the economy. They are servant, not master. Unfortunately that 'Friedman rule' belief relies upon there being a fixed amount of money and a one-to-one relationship between money and stuff. There isn't a fixed amount of money. There isn't a one-to-one relationship between money and stuff. Money grows and shrinks depending upon the transaction requirements of the real economy. A Full Liquidity rule, on the other hand, allows the government sector to adjust its taxation and spending positions and reduce the level of taxation required in a full employment environment.
- boole1854 4y ago
  > Unfortunately that 'Friedman rule' belief relies upon there being a fixed amount of money and a one-to-one relationship between money and stuff. I'm not sure what you mean by this. The Friedman rule does not assume there is a fixed amount of money -- the rule itself recommends in some circumstances that the central bank should increase the supply of money.
  - neilwilson 4y ago
    The central bank is not in control of the quantity of money. Money is created dynamically by all entities in society as and when it is needed. That's what trade credit is all about, for example.