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Money Printing

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

  1. Cutlass

    Cutlass The Man Who Wasn't There.

    Jan 13, 2008
    US of A

    What was going on with those rates is that Volker committed the Fed to what was known as "the Monetarist experiment". That is, he was attempting to use the classical Monetarist approach of abandoning interest rate targeting, and target the monetary base instead. On the theory that in the long run inflation is always and everywhere a monetary phenomenon. The reason that interest rates were so high and erratic during that time was that the Monetarists were fundamentally wrong on how the monetary base works. They oversimplified to MV=PQ, where they assumed V and Q were constants. They are not. V is in fact not just variable, but in fact highly volatile. The erratic interest rates were the result of the fact that trying to hit a monetary base target really isn't connected to trying to hit an inflation target. Not in the short run at any rate.
    Bootstoots and schlaufuchs like this.
  2. Hygro

    Hygro soundcloud.com/hygro/

    Dec 1, 2002
    So here's some notes I was keeping on what makes MMT its own addition to the framework. Again, MMT is a political-persuasion brand of mostly post-Keynesian school economics (aka scientific/research economics), so a lot of it is the packaging. How they hammer home points clears up some ambiguity as economists like to fudge away money as its own economic agent rather than a passive medium of exchange, even supposed Keynesian ones who fear bond vigilantes for first world economies with free floating currencies.

    shows what a trade deficit is (they leave out tech on one hand, but talk about time/labor, how we're getting real stuff for printed money).

    The accounting matters. When/why surpluses and deficits do and don't matter and what has to follow by the laws of accounting sectors correctly. Government surpluses either cause growth contraction (or recession) absent an increase private sector leverage which contributes to instability. Sectoral balances show how "growth austerity" is another way of saying "we didn't pay attention to the Current Account balance" (aka foreign trade money flows).

    Why raising interest rates and running surpluses lead to sudden crashes rather than smoothing business cycle peaks. They love their Minsky.

    IS-LM critique (boo). I take issue with this. But understanding MMT did help me understand IS-LM better. This is coming from someone who studied IS-LM more than any other economic model.

    Money creation is endogenous. Most money is created by banks to chase demand given the opportunities afforded by the rate of interest, a lot of growth and contraction of printed money (in bonds) Money chasing demand rather than bank limits based on reserve requirements (aka QE does virtually nothing). Bank the banking sector doesn't "loan out" their reserves at a rate dictated by the amount fractional reserve requirements allow. Instead, they will not leverage all when times are too cold (post 2008), and when times are hot, they are not restrained lest the central bank surrender their interest rate target, ergo then can always chase demand as the central bank can, will, must accommodate.

    Macroeconomic cause-effects at the interest rate Zero Lower Bound is the rule rather than the exception (ergo, IS-LM is fine, urgh). This is because loanable funds is bogus and backward. loans create deposits, not the other way around.

    That bonds count as money, ergo net positions of financial assets are the same with bond sales vs money printing (monetarism states that only monetizing the debt increases positions). Aka equating money and bond issue (romers say it's only true at 0%, MMT states its just a marginally different form of institution-sized liquid money)

    MMT is a beacon for the disparate economists seeking to amplify their understanding.

    MMT is for priming (primer); send people toward MMT to catch them up.

    Clarifying that prime rates are set exogenously by the central bank.

    The value of MMT is reflected by us talking now arguing MMT, rather than asserting how bad a deficit is.

    Keynes was responding to neoclassicalists and didn't hammer home his understandings to those who were thinking from a more tangible frame, aka branding/priming.
    Bootstoots and schlaufuchs like this.

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