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Money Printing

Discussion in 'Off-Topic' started by Hygro, Dec 6, 2016.

  1. Hygro

    Hygro soundcloud.com/hygro/

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    GENERALLY

    Money is printed two ways: banks issue loans, governments spend it into existence.

    Money is unprinted two ways: the loans are paid back, taxes are paid.

    There are exceptions, caveats, and complexities.

    The purpose of printed money is to finance, finance whatever the loan or the spending is for.
     
    Lexicus likes this.
  2. Lexicus

    Lexicus Deity

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    Well I'll start a new thread perhaps in good time, but I want to respond to this a bit more specifically.
    1) I never said printing money creates wealth on its own, that is absurd
    2) Private savings do certainly 'have to' come from government deficit spending in the sense that government spending ends up in private bank accounts as savings.
    3) MMT doesn't entail "no bad consequences can ever come from leaning on the printing machine!" Indeed, most if not all MMT'ers (as Bootstoots has already pointed out) will readily point out the negative consequences that can spring from this.
     
  3. Lexicus

    Lexicus Deity

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    Yes, and so the way I see it a crucial task is ensuring that money created is being invested in stuff that is actually productive.

    One question I have is, I kind of have a notion that there's a pretty firm line between productive and speculative investment. Is this accurate or is there more blurring than I think there is?
     
  4. Hygro

    Hygro soundcloud.com/hygro/

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    A productive investment would be one that employs resources now, a speculative investment is one that seeks to employ later resources at a currently agreed upon bargain, no?
     
  5. Lexicus

    Lexicus Deity

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    Well I was thinking more in terms of adding to (or I guess more accurately, shifting around) financial wealth vs building real wealth.
     
  6. Farm Boy

    Farm Boy Deity

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    Icyhot vs Viagra?
     
  7. Hygro

    Hygro soundcloud.com/hygro/

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    Financial wealth is an institution from which we organize society including producing physical wealth, so as you say, blurry lines. But @Mise made a good conceptual case in the savings thread from a while back that you are effectively loaning money to the corporation you own shares of, even though that money isn't directly funding operations. Further, the stock market movements correlate tightly to the real economy (I don't know if this is ancient or recent). So even if you draw a line, it's still intimately part of the equation.


    Hmm which is which?
     
  8. Bootstoots

    Bootstoots Deity Retired Moderator

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    Let's say President Trump employs an extreme guns-and-butter approach. He cuts taxes for wealthy people by even more than expected, cuts taxes for low-and-middle-income people by a little bit, greatly increases military spending, and starts a yuge infrastructure project. The deficit reaches $2.5 trillion/year.

    What happens next, besides some inflation? Is it possible for a government with its own currency to be caught in a cycle where the yield on its bonds rises faster than inflation? Also, can it be caught in a cycle where the yields rise in at least nominal terms, forcing it to issue more debt to cover its interest payments, causing nominal yields to go up (whether to cover rising inflation or whatever else), causing the government to have to issue more debt, and so on until you get runaway inflation?

    Is there any solution besides austerity for stagflation, such as the developed world on the eve of the Volcker shock or Brazil today? If you were Paul Volcker in 1979-82, what would you have done?
     
  9. Farm Boy

    Farm Boy Deity

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    I was leaning Viagra then Icyhot, but I may not be openminded enough. You might need the Icyhot for after you're done, too?
     
  10. Lexicus

    Lexicus Deity

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    MMT is a theoretical perspective, it's not a set of policy prescriptions or a political outlook.
     
  11. Bootstoots

    Bootstoots Deity Retired Moderator

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    Sure, I know. But still, as a theoretical perspective, it presumably should have some effect on what policies people who think within an MMT framework would support, as opposed to ones who think it's garbage. I've never heard of an MMT hawk, for instance.
     
  12. Lexicus

    Lexicus Deity

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    "You know, Paul, Reagan proved that deficits don't matter."
    -Dick Cheney

    OK, that was tongue-in-cheek. Technically speaking you may be right, because MMT is a recent enough development that it just doesn't have all that many adherents, but there have been plenty of hawkish adherents of some of MMT's constituent ideas. An understanding of chartal principles for example has been fairly widespread throughout history - the Chinese government was aware from an early period that it could monetize things by accepting them in payment of taxes, and they were fairly hawkish. I would actually posit the Nazis and other 20th century fascists as another quasi-example - they were pretty good on functional finance and totally rejected the contemporary version of neoliberal orthodoxy as a guide to running their economies.

    Anyway though, even today MMT doesn't really have a political valence. I'm not aware of any MMT'ers who are actually right-wing, but there are many who are to the right of me. The thing about MMT is that it makes the conventional justifications for right-wing vampirism more difficult to sustain - when you can't use "the government is broke" as an excuse to cut social services to poor people, it becomes much harder to justify it.
     
  13. innonimatu

    innonimatu Deity

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    And we have to go back to the beginnings of modern money as debt, the credit notes that first became common in the 17th century, to understand what to finance means...
     
  14. Perfection

    Perfection The Great Head.

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    Money can be exchanged for goods and services.
     
  15. Farm Boy

    Farm Boy Deity

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    Sheep have many uses.
     
  16. Hygro

    Hygro soundcloud.com/hygro/

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    Money is printed to meet the logical needs of the printing establishment. In a correctly functioning system, we can employ resources (capital aka tools, and labor aka people) either unemployed (unused) or appropriatable (suboptimally used) by financing their employment. This can be done with existing money (savings) or with new money.

    If no existing money swoops on the opportunity, then in this theoretical functioning system, a bank has the opportunity to underwrite the project that requires the employment of resources (including time as a resource, in its meta-tradable form). If the bank does so, then the corresponding capital and labor is employed for the bank's investment in the project. That loan is new money. Paying back the loan is its deletion. The interest paid is a transfer.


    A sovereign currency issuer, aka The Government, can also employ resources. It's the government, so it can do whatever we let it/use it for. In this case it might recognize an investment need, or an employment opportunity, and go make something happen by spending it into existence. This doesn't work well when everyone is already busy working. Paying taxes deletes the amount of spending equal to the taxation.

    If you tax more than you have already spent by Government Fiat, you start taxing your net bank loans, requiring you to issue more loans.
     
  17. luiz

    luiz Trendy Revolutionary

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    As promised...

    OK so I have no way of telling what you really believe (nor Hygro), and I can't argue against positions I don't know. What I can do is argue that the "main postulates" of MMT are completely inconsequential accounting identities and tautologies; and that the policy implications usually derived by those silly tautologies by MMTers are dead wrong. It's what happens when accounting principles are uncritically applied to macro.

    Starting from the start, MMT's founding idea is that a government that issues its own currency (and whose debt is on that same currency) can't be forced to default, because they can just print more money to cover their outstanding debt. To which I say: yeah, duh. This has been known since fiat currency was created. But it doesn't mean a whole lot. If a government abuses its printing press prerogatives, if lenders lose confidence that they will get the full value (only accountants care about pure numbers) of their loan back, demand for the government's bonds will fall. If economic actors lose confidence in a currency, demand for that currency will collapse (MMTers argue that the government creates demand for its currency by taxing in that currency, which is true, but people and corporations can always store their savings in other currencies and then convert the amount needed just to pay taxes. We've seen this happen to many currencies, and they become essentially worthless).

    So yes, the government can finance it's deficit by money issue instead of bond issue if it finds no demand for its bonds. But MMTers don't seem to realize that deficit financed by money is much more inflationary than by bonds, as the money is lent, and indeed a large deficit financed by money-issue can quickly lead to hyperinflation (as it has many times).

    The point being that there are limits to the amount of resources the government can appropriate through seigniorage. It matters whether the deficit is financed by bonds or the printing press. Yes, financed. Taxes in the future indeed pay for deficit now, so essentially they are financing the deficit (that MMTers deny this is rather shocking, but we have to remember they think as accountants. If they can't follow the beans going from one cup to another, they don't understand it).

    MMTers think the deficit only becomes a problem when it generates "too much" aggregate demand, but that's clearly nonsense, as the financing is demonstrably important as well. So while the government can't technically "go broke", on accounting terms, on practical terms it can very well go broke. Several have, even in full control of their printing press. There are limits to how much they can borrow and spend, and those limits are given by the real resources and technological level in an economy. Having a printing press gives the government a lot economic flexibility, it allows it to better cope with shocks, but it doesn't give the government magical powers. It can't always guarantee full employment, or pay for all social services we can dream of.

    In one line: MMT is wrong because the financing of the government deficit matters.
     
    Last edited: Dec 7, 2016
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  18. luiz

    luiz Trendy Revolutionary

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    On a related note, Noah Smith posted this sometime ago, and it is amusing.

    Modern Monetary Theorists
    "Sorry, just to expand that further.....the currency would appreciate, but as there would be no market for government debt the govt would be forced to monetize. The increase in currency in circulation would offset the appreciation due to Acme share price increase. Assuming that the rise in Acme share price was due to the vast increase in demand for those shares as a consequence of the total rejection of govt debt as a savings vehicle, it is possible that the effect on the currency would be neutral..."

    How they see themselves:


    How the world sees them:

    Favorite blog: yours

    Favorite dead economists: G.F. Knapp, Wynne Godley

    Will appear in response to posts regarding: Government debt

    Craziest idea: That all of economics can be derived from a few simple accounting identities

    Special attack: Jargon, jargon, and more jargon

    Secret weaknesses: Mark-to-market accounting, logic
     
  19. Lexicus

    Lexicus Deity

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    I don't know, a lot of this post seems to be the classic strawman that MMT'ers don't understand the difference between real and financial wealth. MMT'ers of course fully acknowledge that a government can mismanage its economy to the extent that its currency becomes worthless. The things is, they tend to notice that it takes a lot more than simply 'abusing the printing press' to cause people to lose confidence in a currency, and they also probably have some disagreements with you over what constitutes abuse of the printing press.
    The entire point MMT is setting up by pointing out that the government cannot go broke is that the appropriate limits to spending are real, and not financial. I feel like you must not have very much exposure to actual MMT proponents if you are actually under the impression that they don't understand this.
    I would also say MMT'ers understand that whether the government issues bonds or not matters. That's why they have positions on the matter...

    As for the other stuff:
    I would ask you to into more detail as to why governments can't always guarantee full employment (we'll leave "all the social services we can dream of" since that's...shall we say...a loaded phrase).
    Meanwhile, re: future taxes finance the deficit - this is plainly false. In accounting terms, that just isn't true - which you've already conceded - and the future is not going to send us real resources to pay for our deficit spending today, so it is also not true in real terms. In any case if higher taxes are made necessary in the future by current deficit spending, I'd argue that's a good thing - it means we got to full employment and had to increase taxes to reduce inflation.
     
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  20. Bootstoots

    Bootstoots Deity Retired Moderator

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    Is there any actual policy difference between MMT (or rather, most MMTers) and ordinary, garden-variety Keynesianism? Is MMT just a different way of looking at the metaphysics (metaeconomics?) behind what goes on in the actual, observable world which doesn't actually make any testable predictions that differ from Keynesian expectations?
     

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