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Off Topic but wow! Jay Carney said this yesterday!

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Posted: 1/12/2013 6:43 AM

Off Topic but wow! Jay Carney said this yesterday! 


With the nation teetering on the brink of economic disaster, we're currently roughly 16.5 trillion in debt, White House Secretary Jay Carney said in a Whitehouse press conference, "decifict reduction is not a worthy goal unto itself." 

http://video.foxnews.com/v/208...id=928378949001

We're going down folks and Morons like this is exactly why.  In the same press conference a German reporter asked why Europeans had to worry about deficit spending and the current President seem to think he did not and Carney basically ignored the question. Not good folks.

"You cannot teach what you do not know and you cannot lead where you do not go."

Last edited 1/13/2013 9:49 AM by cartyseay

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Posted: 1/12/2013 6:56 AM

Re: Off Topic but wow! Jay Carney said this yesterday! 


Yep! incredibly sad what is happening to this country, people really need to start thinking carefully about the current direction we are taking in this once great nation and the futures of our children - pretty scarey!
Recruting 101: He is 100% committed but still considering other schools
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Posted: 1/12/2013 7:16 AM

RE: Off Topic but wow! Jay Carney said this yesterday! 


Here is a possible solution. We need to collect all the money from these bag men that they are spending on these high school football recruits. Yep, Eddie Gran, Ron Pruitt, Ed Orgeron, Lane Kiffin, Rodney Garner, and of course the whole Clem$on and F$U staff. This money would sure put a dent in the National Debt.
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Posted: 1/12/2013 7:18 AM

Re: Off Topic but wow! Jay Carney said this yesterday! 


They have a political forum here on the site............
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Posted: 1/12/2013 8:52 AM

Re: Off Topic but wow! Jay Carney said this yesterday! 


We have met the enemy and they are the ones that didn't vote in the last election.
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Posted: 1/12/2013 9:06 AM

Re: Off Topic but wow! Jay Carney said this yesterday! 


I am aged, of social security age.  I am willing to accept reductions in social security.  Are others ready to see an increase in taxes so that my grandchildren won't have to live in Greek austerity.  We all need to do our share and it cannot all be done with taxes and it cannot all be done by cutting medicare etc.

Mods---please move this to the political forus.
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Posted: 1/12/2013 9:43 AM

Re: Off Topic but wow! Jay Carney said this yesterday! 



yankgator wrote: I am aged, of social security age.  I am willing to accept reductions in social security.  Are others ready to see an increase in taxes so that my grandchildren won't have to live in Greek austerity.  We all need to do our share and it cannot all be done with taxes and it cannot all be done by cutting medicare etc.

Mods---please move this to the political forus.
The notion that the US government should govern its finances like a household is one greatest deceptions of our time. Read up on Modern Monetary Theory.
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Posted: 1/12/2013 10:03 AM

Re: Off Topic but wow! Jay Carney said this yesterday! 



jhale850 wrote: They have a political forum here on the site............
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Posted: 1/12/2013 10:17 AM

RE: Off Topic but wow! Jay Carney said this yesterday! 


Stay to the politics forum with this crap. There's plenty of stupid discussions down there (don't worry, I'm a part of them).
"Find out what's really important in life, and then laugh at everything else."
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Posted: 1/12/2013 10:18 AM

Re: Off Topic but wow! Jay Carney said this yesterday! 



gatorsinthetimeofcholera wrote:
yankgator wrote: I am aged, of social security age.  I am willing to accept reductions in social security.  Are others ready to see an increase in taxes so that my grandchildren won't have to live in Greek austerity.  We all need to do our share and it cannot all be done with taxes and it cannot all be done by cutting medicare etc.

Mods---please move this to the political forus.
The notion that the US government should govern its finances like a household is one greatest deceptions of our time. Read up on Modern Monetary Theory.
So you're saying that we should just spend more than we take in?  Whether it's household finances, a small business or the government, that isn't sustainable long term.

I suppose we could always keep printing more money but at some point, our dollar will be totally worthless.  Perhaps we should just return to the barter system.
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Posted: 1/12/2013 11:47 AM

Re: Off Topic but wow! Jay Carney said this yesterday! 


Mods, please move this to it's proper location.  Keep the politics, liberal & conservative, away from the sports.  I come here to get away from all that.
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Posted: 1/12/2013 1:38 PM

Re: Off Topic but wow! Jay Carney said this yesterday! 



Coolgtr wrote:
gatorsinthetimeofcholera wrote:
yankgator wrote: I am aged, of social security age.  I am willing to accept reductions in social security.  Are others ready to see an increase in taxes so that my grandchildren won't have to live in Greek austerity.  We all need to do our share and it cannot all be done with taxes and it cannot all be done by cutting medicare etc.

Mods---please move this to the political forus.
The notion that the US government should govern its finances like a household is one greatest deceptions of our time. Read up on Modern Monetary Theory.
So you're saying that we should just spend more than we take in?  Whether it's household finances, a small business or the government, that isn't sustainable long term.

I suppose we could always keep printing more money but at some point, our dollar will be totally worthless.  Perhaps we should just return to the barter system.
People that frequently hold their hand out for gubment freebies get REAL touchy when you talk about cutting them off of the teet. And we are VERY close to the point of no return if we keep spending money at the pace we are right now. There is SO much waste and fraud...too bad that the liberals dont have the words "cut spending" in their entire vocabulary.

 

Last edited 1/12/2013 1:38 PM by capronney

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Posted: 1/12/2013 3:39 PM

RE: Off Topic but wow! Jay Carney said this yesterday! 


what would you expect from comrade obama and his sumbitches

And that's a First Down!!

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Posted: 1/12/2013 5:43 PM

Re: Off Topic but wow! Jay Carney said this yesterday! 


Could you please keep your political thoughts off this SPORTS forum.
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Posted: 1/13/2013 7:42 AM

RE: Off Topic but wow! Jay Carney said this yesterday! 


Roll tide Obama
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Posted: 1/13/2013 12:16 PM

RE: Off Topic but wow! Jay Carney said this yesterday! 


This is what I'm getting at. We're being sold a bill of goods about how the US Government should manage its spending. Also, keep in mind that the US is very different from Greece  because Greece gave up its monetary sovereignty  when it joined the EU. The US maintains its sovereignty  Also, the dollar is the world reserve currency and it will remain so, IMO, as long as we remain the world elite military power:
http://hir.harvard.edu/debt-de...monetary-theory


Debt, Deficits, and Modern Monetary Theory

By Winston Gee  |  October 16, 2011  |  3:56 AM

Bill Mitchell is the Research Professor in Economics and the Director of the Centre of Full Employment and Equity at the University of Newcastle, Australia. The following is an edited transcript of the interview, conducted August 15, 2011.

 

Thanks for joining us, Professor Mitchell. I wanted to talk with you today about Modern Monetary Theory (MMT)—the theoretical approach you’ve been integral in developing—and its relevance to current debates over public finances. I know you’ve been quite scathing of mainstream economic discourse. For example, you wrote in your blog recently that “the economics media is dominated with financial issues – too much public debt; debt ceilings; fiscal sustainability; sovereign risk; and all the rest of the non-issues that have taken center-stage.” Could you take a moment to explain why MMT renders these things non-issues?

The most important misperception is that MMT is in some way outlining an ideal or a new regime that could be introduced. The reality is that MMT just describes the system that most countries in the world live under and have lived under since 1971, when the US president at the time, Richard Nixon, suspended the convertibility of the US dollar into gold. At that point, the system of fixed exchange rates—in which all countries agreed to fix their currencies against the US dollar, which was in turn benchmarked in price against gold—was abandoned. So since that day, most of us have been living in what we call a fiat currency system.

In a fiat currency system, the currency has legitimacy because of legislative fiat: the government tells us that’s the currency and then legislates it as such. The currency has no intrinsic value. What gives it value, what motivates us to use the currency that the government suggests, is the fact that all tax obligations are denominated in and have to be extinguished with that currency. We have no choice. If you live in America, for example, you have to pay American taxes to the IRS with American dollars. So demand for the currency, otherwise worthless bits of paper, is driven by the fact that all tax obligations have to be extinguished with that currency. Once you consider that, then you immediately realize that the national government is the monopoly issuer of that currency. That means that the national government in such a system can never be short of that currency; it can never run out of money. It doesn’t need you or I to lend it money or you and I to pay taxes to get more money. It can never run out of money. That’s the first basic insight of MMT: governments are not constrained in their spending by a need to raise revenue.

If you extend that logic a little further, you might ask, “Well, don’t we pay taxes and buy bonds so that the government can spend?” Well, you first have to ask yourself the question, “Where do you get the money to pay taxes and buy bonds?” And the answer is that we can’t get our hands on the currency until the national government spends it. Spending is the prior act in a fiat monetary system; taxing and borrowing are following acts. In effect, the government is only taxing what it has already spent, and it’s only borrowing back money that it has already spent. Once you start pursuing this logic, you realize that most of the propositions that are occupying the current debate around the world are based upon false premises.

Another basic premise of MMT is that we now live in a world of floating exchange rates, so all of the imbalances in the foreign exchange market are resolved by the price of the currency fluctuating. What that means is that domestic policy instruments—the central bank and fiscal policy—are free to target domestic policy goals knowing that the exchange rate will resolve the currency imbalances arising from trade deficits, trade surpluses, et cetera.

 

I want to touch on a few things there. The first is MMT’s basic insight that governments don’t have to tax or borrow in advance of spending. Given the recent furor over credit rating downgrades, one might wonder: if that's true, why do governments continue to issue debt and bother themselves with the discipline of the bond markets and the credit rating agencies?

Yes, it’s an interesting question, and it’s one of the things that really trips people up in trying to understand MMT. Under the so-called Bretton Woods system—the fixed-exchange rate system that prevailed in the post-WWII period until 1971—governments were revenue-constrained because the central bank could only allow so much money in the economy according to its holdings of gold and the currency value. So if the government wanted to spend more, it had to make sure that it took money from someone else in the economy so that the overall money supply would be constant. In that sort of monetary system, the government had to tax or borrow to spend. This sort of reasoning has crept into the modern monetary system, where it no longer holds because we use fiat currencies instead of convertible currencies.

But there’s probably more to it than that. One set of explanations is that the profession hasn’t worked out the implications of a fiat monetary system. I don’t subscribe to that because people aren’t that silly. So I think you’ve got to dig deeper as to why we’re holding onto gold standard–type behaviour in a system where we don’t need that sort of behavior.

If you look back through history and examine discussions in various government documents, what you pick up is a solid indication that governments have combined institutional arrangements such as issuing debt with certain accounting practices to make it look as though the debts were actually funding government spending. These institutional arrangements were strengthened in the late 1970s and the 1980s because the mainstream economics profession knew that those arrangements would place constraints on the freedom of governments to spend. The mainstream believes that taxation distorts individual incentives, that government borrowing pushes interest rates up and thereby undermines private sector investment, and that ultimately the danger of government spending is hyperinflation.

 

So is it all ideology, or is it also a lack of understanding about how the modern monetary system actually operates?

Well, there is certainly a mischaracterization among mainstream economists about how the modern monetary system operates. In mainstream textbooks you’ll find a chapter about the role of the central bank, and that chapter will describe how the central bank’s main function is to control the supply of money through open market operations—that is, buying and selling government bonds to regulate the demand of money relative to the supply. Through this process, the story goes, the central bank is able to target interest rates.

That textbook explanation is quite wrong. Central banks cannot control the money supply. And not many central banks past the mid-1980s gave any credibility to monetary targeting. They realized that central banks can control only interest rates, not the money supply. After this realization, monetary policy became expressed through setting a short-term interest rate by managing the liquidity in the overnight cash markets.

Each of the commercial banks have an account with the central bank—a reserve account—and those reserves accounts are used on a daily basis to make sure that the cheques we all sign clear each day. Typically reserves don’t earn any interest from the central bank, so if the volume of reserves exceeds what each bank thinks is required on a daily basis, the bank is stuck with dead money. Now in some countries that’s not true, but even in countries such as Australia where the central bank has always paid a return on overnight reserves, the return is less than the lending rate.

In the US and Japan, for example, there has historically been zero return on those reserves. So banks will try to lend out excess reserves to other banks that may be deficient in reserves. The competition in this market, called the interbank market, starts to drive interest rates down, because the banks will take any return instead of zero. If the central bank allows that process to continue, it loses control of monetary policy.

The way the central bank can maintain control of its target interest rate is to manage that liquidity that’s embodied in these reserves. So if the central bank perceives that the banks consider their reserves to be excessive on any particular day, it drains those reserves out of the system by offering an interest-bearing asset in the form of a government bond. The role of government bonds, then, is to provide the central bank with the capacity to ensure that there is no competitive pressure on the target interest rate. So you can see that the function of government bonds is something quite other than to lend the government money.

 

You'll hear many politicians speak of “paying down the national debt.” What do you make of this refrain?

The historical reality is that national governments very rarely run down their overall stock of debt. A debt instrument is a commitment by the national government to pay a certain principal at a specified time, and in the meantime pay some yield or interest on that debt. So governments pay back debt in that individualized context, but overall, in a macroeconomic sense, governments generally don’t run down their overall stock of debt.

There are some rare instances where governments have run down their overall stock of debt, like in Australia between 1996 and 2007. The conservative government of the period was enamored of this neoliberal idea that it would get rid of all its holdings of outstanding debt, and so it started running very large surpluses and paying back its debt. After about five years, the public bond markets became so thin—that is, there was such a small amount of debt left in the system—that the big investment banks started to protest, since they relied on government debt as a risk-free asset upon which to benchmark all other risk. Curiously, the Austrialian federal government agreed that even though it would continue to run budget surpluses, it would also continue to issue debt at a certain amount to ensure that the corporate sector would have its risk-free asset. So while the Wall Street Journal runs op-eds condemning the evils of debt, the reality is that the financial sector can’t get enough of it. This is a very beautiful example of the function of debt in modern times.

In MMT, we see public debt as private wealth and the interest payments as private income. The outstanding public debt is really just an expression of the accumulated budget deficits that have been run in the past. These budget deficits have added financial assets to the private sector, providing the demand for goods and services that have allowed us to maintain income growth. And that income growth has allowed us to save and accumulate financial assets at a far greater rate than we would have been able to without the deficits.

The only issues a progressive person might have with public debt would be the equity considerations of who owns the debt and whether there an equitable provision of private wealth coming from the deficits. There is a debate to be had about that, but there is no reason to obsess over the level of outstanding public debt. The government can always honor its debt; it can never go bankrupt. There’s no question that the debt obligations will be met. There’s no risk. What’s more, this debt provides firms, households, and others in the private sector a vehicle to park their saved wealth in a risk-free form.

 

Put simply, when should governments begin to run budget surpluses?

Particular budget outcomes should never be a policy target. What the government should be targeting is real goals, by which I mean a sustainable growth rate buoyed by full employment.

Why do we want governments? We want them because they can do things that improve our welfare that we can’t do individually. In that context, it becomes clear that public policy should be devoted wholly to making sure that there are enough jobs, that poverty is eliminated, that the public health and public education systems are first class, that people who are less well off are able to become better off, etc.

From a macroeconomic point of view, the spending and tax decisions of government should be such that total spending in the economy is sufficient to produce the level of real output at which firms will employ the available labor force. This is the goal, and the particular budget outcomes must serve this goal.

None of this is to say that budget deficits don’t matter at all. The fundamental point that the original developers of MMT would make—myself or Randall Wray or Warren Mosler— is that the risk of budget deficits is not insolvency but inflation. In saying that, however, we would also stress that inflation is the risk of any kind of overspending, whether investment, consumption, export, or government spending. Any component of aggregate demand could push the economy to that point where we get inflation. Excessive government spending is not always to blame.

In sum, we’re quite categorical that we believe that budget deficits can be excessive and can be deficient as well. Deficits can be too large, just as they can be too small, and the aim of government is to make sure that they’re just right to employ all available productive capacity.

 

How does this differ from the dominant New Keynesian paradigm?

Well, the New Keynesian paradigm is built upon a series of false premises that affect policy prescriptions. False premise number 1: government has to borrow to fund spending. False premise number 2: there’s a fixed supply of savings available at any point in time. False premise number 3: the government, by borrowing from that fixed supply of savings, denies private sector borrowers those funds, and competition for those funds drives up interest rates.

MMT says the following:

There is no finite pool of savings in the economy. Savings is a function of national income. When you have rising national income, you have rising savings. So if government spending stimulates economic activity, and thereby GDP and national income, savings will rise simultaneously. That’s the first part of the story.

The second part of the story is that private sector borrowing is not dependent upon a fixed supply of savings. The concept of a bank in the New Keynesian model is that the bank sits there waiting for depositors to come with their savings, and only once the bank attracts those deposits is it in a position to lend. In other words, the New Keynesian conception is that banks are constrained by their existing reserves. In reality, however, banks always have the capacity to create loans for credit-worthy borrowers because they can always get more reserves. Banks can get reserves from a number of sources, but at the end of the evening the banks know they can cover their reserves by borrowing from the central bank. So the conception of banking in MMT is much different from the stylized treatment in New Keynesian economics.

The third story is what happens when the government runs a budget deficit. What happens in the money market is as follows: the US government buys something from the private sector. They pay the manufacturer, who then pays the workers. A whole range of transactions follows from that initial government purchase. All of those transactions work their way through the system and find their way to the reserves of the banks each day. Typically—though not at the present because we are in an extraordinary situation where the central bank is paying interest on reserves—those reserves would just sit there and earn zero interest for the banks. And so typically, as I’ve explained before, banks try to get rid of those reserves, driving down the interest rate in the interbank market in the process. What you can understand from that is that budget deficits, independent of any monetary operations, drive interest rates down, not up. This is the complete opposite of what orthodox economists claim is the case, and it’s confirmed by the present combination of record low interest rates and very large budget deficits.

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Posted: 1/13/2013 12:23 PM

Re: Off Topic but wow! Jay Carney said this yesterday! 



Coolgtr wrote:
gatorsinthetimeofcholera wrote:
yankgator wrote: I am aged, of social security age.  I am willing to accept reductions in social security.  Are others ready to see an increase in taxes so that my grandchildren won't have to live in Greek austerity.  We all need to do our share and it cannot all be done with taxes and it cannot all be done by cutting medicare etc.

Mods---please move this to the political forus.
The notion that the US government should govern its finances like a household is one greatest deceptions of our time. Read up on Modern Monetary Theory.
So you're saying that we should just spend more than we take in?  Whether it's household finances, a small business or the government, that isn't sustainable long term.

I suppose we could always keep printing more money but at some point, our dollar will be totally worthless.  Perhaps we should just return to the barter system.
How does our gov't finance wars? How did our Gov't pay tarp? They created money out of  thin air. Did inflation spin out of control?  The US is unique in that it can do this stuff.  Other countries cannot.
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Posted: 1/13/2013 12:33 PM

RE: Off Topic but wow! Jay Carney said this yesterday! 



gatorsinthetimeofcholera wrote: This is what I'm getting at. We're being sold a bill of goods about how the US Government should manage its spending. Also, keep in mind that the US is very different from Greece  because Greece gave up its monetary sovereignty  when it joined the EU. The US maintains its sovereignty  Also, the dollar is the world reserve currency and it will remain so, IMO, as long as we remain the world elite military power:
http://hir.harvard.edu/debt-de...monetary-theory


Debt, Deficits, and Modern Monetary Theory

By Winston Gee  |  October 16, 2011  |  3:56 AM

Bill Mitchell is the Research Professor in Economics and the Director of the Centre of Full Employment and Equity at the University of Newcastle, Australia. The following is an edited transcript of the interview, conducted August 15, 2011.

 

Thanks for joining us, Professor Mitchell. I wanted to talk with you today about Modern Monetary Theory (MMT)—the theoretical approach you’ve been integral in developing—and its relevance to current debates over public finances. I know you’ve been quite scathing of mainstream economic discourse. For example, you wrote in your blog recently that “the economics media is dominated with financial issues – too much public debt; debt ceilings; fiscal sustainability; sovereign risk; and all the rest of the non-issues that have taken center-stage.” Could you take a moment to explain why MMT renders these things non-issues?

The most important misperception is that MMT is in some way outlining an ideal or a new regime that could be introduced. The reality is that MMT just describes the system that most countries in the world live under and have lived under since 1971, when the US president at the time, Richard Nixon, suspended the convertibility of the US dollar into gold. At that point, the system of fixed exchange rates—in which all countries agreed to fix their currencies against the US dollar, which was in turn benchmarked in price against gold—was abandoned. So since that day, most of us have been living in what we call a fiat currency system.

In a fiat currency system, the currency has legitimacy because of legislative fiat: the government tells us that’s the currency and then legislates it as such. The currency has no intrinsic value. What gives it value, what motivates us to use the currency that the government suggests, is the fact that all tax obligations are denominated in and have to be extinguished with that currency. We have no choice. If you live in America, for example, you have to pay American taxes to the IRS with American dollars. So demand for the currency, otherwise worthless bits of paper, is driven by the fact that all tax obligations have to be extinguished with that currency. Once you consider that, then you immediately realize that the national government is the monopoly issuer of that currency. That means that the national government in such a system can never be short of that currency; it can never run out of money. It doesn’t need you or I to lend it money or you and I to pay taxes to get more money. It can never run out of money. That’s the first basic insight of MMT: governments are not constrained in their spending by a need to raise revenue.

If you extend that logic a little further, you might ask, “Well, don’t we pay taxes and buy bonds so that the government can spend?” Well, you first have to ask yourself the question, “Where do you get the money to pay taxes and buy bonds?” And the answer is that we can’t get our hands on the currency until the national government spends it. Spending is the prior act in a fiat monetary system; taxing and borrowing are following acts. In effect, the government is only taxing what it has already spent, and it’s only borrowing back money that it has already spent. Once you start pursuing this logic, you realize that most of the propositions that are occupying the current debate around the world are based upon false premises.

Another basic premise of MMT is that we now live in a world of floating exchange rates, so all of the imbalances in the foreign exchange market are resolved by the price of the currency fluctuating. What that means is that domestic policy instruments—the central bank and fiscal policy—are free to target domestic policy goals knowing that the exchange rate will resolve the currency imbalances arising from trade deficits, trade surpluses, et cetera.

 

I want to touch on a few things there. The first is MMT’s basic insight that governments don’t have to tax or borrow in advance of spending. Given the recent furor over credit rating downgrades, one might wonder: if that's true, why do governments continue to issue debt and bother themselves with the discipline of the bond markets and the credit rating agencies?

Yes, it’s an interesting question, and it’s one of the things that really trips people up in trying to understand MMT. Under the so-called Bretton Woods system—the fixed-exchange rate system that prevailed in the post-WWII period until 1971—governments were revenue-constrained because the central bank could only allow so much money in the economy according to its holdings of gold and the currency value. So if the government wanted to spend more, it had to make sure that it took money from someone else in the economy so that the overall money supply would be constant. In that sort of monetary system, the government had to tax or borrow to spend. This sort of reasoning has crept into the modern monetary system, where it no longer holds because we use fiat currencies instead of convertible currencies.

But there’s probably more to it than that. One set of explanations is that the profession hasn’t worked out the implications of a fiat monetary system. I don’t subscribe to that because people aren’t that silly. So I think you’ve got to dig deeper as to why we’re holding onto gold standard–type behaviour in a system where we don’t need that sort of behavior.

If you look back through history and examine discussions in various government documents, what you pick up is a solid indication that governments have combined institutional arrangements such as issuing debt with certain accounting practices to make it look as though the debts were actually funding government spending. These institutional arrangements were strengthened in the late 1970s and the 1980s because the mainstream economics profession knew that those arrangements would place constraints on the freedom of governments to spend. The mainstream believes that taxation distorts individual incentives, that government borrowing pushes interest rates up and thereby undermines private sector investment, and that ultimately the danger of government spending is hyperinflation.

 

So is it all ideology, or is it also a lack of understanding about how the modern monetary system actually operates?

Well, there is certainly a mischaracterization among mainstream economists about how the modern monetary system operates. In mainstream textbooks you’ll find a chapter about the role of the central bank, and that chapter will describe how the central bank’s main function is to control the supply of money through open market operations—that is, buying and selling government bonds to regulate the demand of money relative to the supply. Through this process, the story goes, the central bank is able to target interest rates.

That textbook explanation is quite wrong. Central banks cannot control the money supply. And not many central banks past the mid-1980s gave any credibility to monetary targeting. They realized that central banks can control only interest rates, not the money supply. After this realization, monetary policy became expressed through setting a short-term interest rate by managing the liquidity in the overnight cash markets.

Each of the commercial banks have an account with the central bank—a reserve account—and those reserves accounts are used on a daily basis to make sure that the cheques we all sign clear each day. Typically reserves don’t earn any interest from the central bank, so if the volume of reserves exceeds what each bank thinks is required on a daily basis, the bank is stuck with dead money. Now in some countries that’s not true, but even in countries such as Australia where the central bank has always paid a return on overnight reserves, the return is less than the lending rate.

In the US and Japan, for example, there has historically been zero return on those reserves. So banks will try to lend out excess reserves to other banks that may be deficient in reserves. The competition in this market, called the interbank market, starts to drive interest rates down, because the banks will take any return instead of zero. If the central bank allows that process to continue, it loses control of monetary policy.

The way the central bank can maintain control of its target interest rate is to manage that liquidity that’s embodied in these reserves. So if the central bank perceives that the banks consider their reserves to be excessive on any particular day, it drains those reserves out of the system by offering an interest-bearing asset in the form of a government bond. The role of government bonds, then, is to provide the central bank with the capacity to ensure that there is no competitive pressure on the target interest rate. So you can see that the function of government bonds is something quite other than to lend the government money.

 

You'll hear many politicians speak of “paying down the national debt.” What do you make of this refrain?

The historical reality is that national governments very rarely run down their overall stock of debt. A debt instrument is a commitment by the national government to pay a certain principal at a specified time, and in the meantime pay some yield or interest on that debt. So governments pay back debt in that individualized context, but overall, in a macroeconomic sense, governments generally don’t run down their overall stock of debt.

There are some rare instances where governments have run down their overall stock of debt, like in Australia between 1996 and 2007. The conservative government of the period was enamored of this neoliberal idea that it would get rid of all its holdings of outstanding debt, and so it started running very large surpluses and paying back its debt. After about five years, the public bond markets became so thin—that is, there was such a small amount of debt left in the system—that the big investment banks started to protest, since they relied on government debt as a risk-free asset upon which to benchmark all other risk. Curiously, the Austrialian federal government agreed that even though it would continue to run budget surpluses, it would also continue to issue debt at a certain amount to ensure that the corporate sector would have its risk-free asset. So while the Wall Street Journal runs op-eds condemning the evils of debt, the reality is that the financial sector can’t get enough of it. This is a very beautiful example of the function of debt in modern times.

In MMT, we see public debt as private wealth and the interest payments as private income. The outstanding public debt is really just an expression of the accumulated budget deficits that have been run in the past. These budget deficits have added financial assets to the private sector, providing the demand for goods and services that have allowed us to maintain income growth. And that income growth has allowed us to save and accumulate financial assets at a far greater rate than we would have been able to without the deficits.

The only issues a progressive person might have with public debt would be the equity considerations of who owns the debt and whether there an equitable provision of private wealth coming from the deficits. There is a debate to be had about that, but there is no reason to obsess over the level of outstanding public debt. The government can always honor its debt; it can never go bankrupt. There’s no question that the debt obligations will be met. There’s no risk. What’s more, this debt provides firms, households, and others in the private sector a vehicle to park their saved wealth in a risk-free form.

 

Put simply, when should governments begin to run budget surpluses?

Particular budget outcomes should never be a policy target. What the government should be targeting is real goals, by which I mean a sustainable growth rate buoyed by full employment.

Why do we want governments? We want them because they can do things that improve our welfare that we can’t do individually. In that context, it becomes clear that public policy should be devoted wholly to making sure that there are enough jobs, that poverty is eliminated, that the public health and public education systems are first class, that people who are less well off are able to become better off, etc.

From a macroeconomic point of view, the spending and tax decisions of government should be such that total spending in the economy is sufficient to produce the level of real output at which firms will employ the available labor force. This is the goal, and the particular budget outcomes must serve this goal.

None of this is to say that budget deficits don’t matter at all. The fundamental point that the original developers of MMT would make—myself or Randall Wray or Warren Mosler— is that the risk of budget deficits is not insolvency but inflation. In saying that, however, we would also stress that inflation is the risk of any kind of overspending, whether investment, consumption, export, or government spending. Any component of aggregate demand could push the economy to that point where we get inflation. Excessive government spending is not always to blame.

In sum, we’re quite categorical that we believe that budget deficits can be excessive and can be deficient as well. Deficits can be too large, just as they can be too small, and the aim of government is to make sure that they’re just right to employ all available productive capacity.

 

How does this differ from the dominant New Keynesian paradigm?

Well, the New Keynesian paradigm is built upon a series of false premises that affect policy prescriptions. False premise number 1: government has to borrow to fund spending. False premise number 2: there’s a fixed supply of savings available at any point in time. False premise number 3: the government, by borrowing from that fixed supply of savings, denies private sector borrowers those funds, and competition for those funds drives up interest rates.

MMT says the following:

There is no finite pool of savings in the economy. Savings is a function of national income. When you have rising national income, you have rising savings. So if government spending stimulates economic activity, and thereby GDP and national income, savings will rise simultaneously. That’s the first part of the story.

The second part of the story is that private sector borrowing is not dependent upon a fixed supply of savings. The concept of a bank in the New Keynesian model is that the bank sits there waiting for depositors to come with their savings, and only once the bank attracts those deposits is it in a position to lend. In other words, the New Keynesian conception is that banks are constrained by their existing reserves. In reality, however, banks always have the capacity to create loans for credit-worthy borrowers because they can always get more reserves. Banks can get reserves from a number of sources, but at the end of the evening the banks know they can cover their reserves by borrowing from the central bank. So the conception of banking in MMT is much different from the stylized treatment in New Keynesian economics.

The third story is what happens when the government runs a budget deficit. What happens in the money market is as follows: the US government buys something from the private sector. They pay the manufacturer, who then pays the workers. A whole range of transactions follows from that initial government purchase. All of those transactions work their way through the system and find their way to the reserves of the banks each day. Typically—though not at the present because we are in an extraordinary situation where the central bank is paying interest on reserves—those reserves would just sit there and earn zero interest for the banks. And so typically, as I’ve explained before, banks try to get rid of those reserves, driving down the interest rate in the interbank market in the process. What you can understand from that is that budget deficits, independent of any monetary operations, drive interest rates down, not up. This is the complete opposite of what orthodox economists claim is the case, and it’s confirmed by the present combination of record low interest rates and very large budget deficits.

This is a Moronic diatribe. The IMF establishes exchange rates and any nation is able to declare whatever they would like regarding the value of their currency, within their borders.  You find out the real value of your currency when it's contrasted with other countries currencies, this takes the form of exchange rates. 

The US system of currency and the "dollar" being used as the primary worldwide medium for exchange is coming to end my friend because of idiots like this. When the Chinese stop buying our treasurey bills (t-bills), and that day is coming my friend, it's game over.  I would bet my life you're a registered Democrat and work for the state or Federal government in some capacity.  This diatribe is void of logic and any fiscal reality whatsover, ala. Jay Carner (Whites Press Secretary) saying just yesterday, paying off the debt should not be a goal of the administration in and of itself." What a frickin clown!

"You cannot teach what you do not know and you cannot lead where you do not go."

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Posted: 1/13/2013 1:18 PM

RE: Off Topic but wow! Jay Carney said this yesterday! 


Greece, here we come!!! LMAO So ridiculous.....
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Posted: 1/13/2013 2:08 PM

RE: Off Topic but wow! Jay Carney said this yesterday! 



Gatorsincebirth77 wrote: Greece, here we come!!! LMAO So ridiculous.....

I agree...but you all elected obummer anyway.

 

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