77 Deadly Innocent Misinterpretations (77 DIMs #50-56)

Deadly Innocent Misinterpretation #50: Every time that the Federal Reserve Bank pays interest on excess reserves, they are subsidizing the banks.

Fact: Every time that the Federal Reserve Bank pays interest on excess reserves, they are not subsidizing the banks.

“It’s a bit of a misnomer to think that there’s a subsidy there. We aren’t paying an interest that is above the general level of short term rates. We are paying rates to the banks that they can get from other banks or from elsewhere in the short-term money markets. In addition, those Treasury bonds and MBSs (our assets), are yielding much more than the interest we are paying on those reserves (our liabilities), so it is not a subsidy to the banks—and in fact it is a huge profit to the federal taxpayers.”—Fed Chair Jay Powell’s comment after the FOMC unanimously raised the target range for the federal funds rate to 1-1/2 to 1-3/4 percent, 03/21/2018

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Deadly Innocent Misinterpretation #51: The Labor Force Participation Rate remaining roughly unchanged is a sign that the job labor market is terrible because disenfranchised people have given up.

Fact: The Labor Force Participation Rate remaining roughly unchanged is not necessarily a sign that the job labor market is terrible because disenfranchised people have given up.

“The LFPR remaining roughly unchanged is actually another sign of improvement of the current strength of the labor force given the downward pressure of our aging population.”—Fed Chair Jay Powell’s comment after the FOMC unanimously raised the target range for the federal funds rate to 1-1/2 to 1-3/4 percent, 03/21/2018

“The recent year’s strengthening of our labor force participation has been an upside surprise that most people didn’t see coming and is extremely welcome.”—Fed Chair Jay Powell, FOMC Statement press conference, 03/20/2019

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Deadly Innocent Misinterpretation #52: The Fed is trying to fight inflation by creating unemployment.

Fact: The Fed is not trying to fight inflation by creating unemployment.

The Fed targets (the Fed sets) the overnight interest rate between banks (known as the Federal Funds Rate)—and adjusts that rate as it sees fit in order to (as mandated by Congress) maintain price stability and achieve MAXIMUM employment. The Fed also makes ‘predictions’ (known as the Summary of Economic Projections) of what the Fed’s committee guesses what the unemployment rate will be in the future. This ‘dot plot’ of projections is dangerously, innocently and fraudulently misunderstood by the entire MMT community as meaning that the Fed is ‘targeting the unemployment rate’ and ‘intentionally creating unemployment’.

Anyone (from the new MMT student all the way to the veteran MMT academic) who says that ‘the Fed is trying to fight inflation by creating unemployment’ during The Longest Jobs Growth And The Longest Economic Expansion In UNITED STATES HISTORY—many thanks to the Fed—is being a tad fantastical.

Anyone saying ‘the Fed is intentionally creating unemployment’ has no idea how out of touch they are with how capitalism works nor has any idea how ridiculous they sound. It’s understandable when ‘entertainers’ over the airwaves today (playing to a specific ‘audience’) create stories to fit an anti-Fed narrative (because the first rule of feeding a conspiracy theory is that you never let facts, math & data get in the way of a good story). However, it’s another thing when political ‘prescription’ MMTers make things up. The Fed is mandated by Congress. Do ideologically-extreme MMT ‘scholars’ who think that the Fed is ‘intentionally causing involuntary unemployment’ think that Congress is in on this conspiracy too?

By the way, ‘involuntary’ means ‘forced’. Think bread lines during the 1930s—people were forced to be unemployed because THERE WERE NO JOBS—and then think about today’s 7,000,000 JOLTS. Meaning that there are more than 7 million jobs available! Meanwhile MMTers (with PhDs in Econ) think it would be a good idea to address those 7,000,000 open jobs currently going unfilled with a $500B federal ‘job’ guarantee (to ‘create’ more ‘jobs’). If you think that’s probably a bad idea then you will be reprimanded for being worried about ‘how will we pay for it’ and that you need to #learnmmt.

Another ‘prescription’ MMT proposal is to take away the Fed’s power of adjusting the overnight interest rate (resulting in the Fed no longer having that tool at its disposal to immediately respond in the event of financial emergencies). Many voices of reason, including the central banker in Japan—the so-called ‘poster child’ of MMT—have let the world know what they think of that proposal (and of today’s radicalized version of MMT).

“To be fair, both sides of the spectrum love to hate the ‘mysterious’ Fed and blame it for everything that is wrong—including sunspots. The better the Fed gets at the job assigned to it by Congress the more they are hated by each side. Although I would really like to see the Fed stop assigning a number to maximum employment as the NAIRU does not exist or at least changes its address so often as to be useless as a policy indicator. I think if one reads between the lines, Fed Chair Powell is there, but openly saying the NAIRU is dead by a Fed Chair would likely be very jarring to markets. I know the Chair of Economic Advisors Larry Kudlow has said the Phillips Curve which underlies the NAIRU is dead.”—Charles ‘Kondy’ Kondak

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Deadly Innocent Misinterpretation #53: Higher rates = higher interest payments to the economy.

Fact: Higher rates = higher interest payments to the bondholders (to the top 5% of the economy).

In a 03/06/19 discussion on Twitter, a comment by Monetary Wonk (@monetarywonk) that “MMTers want a permanent ZIRP [want to anchor the overnight fed funds rate to 0%] because they believe that Treasury [bond] rates are net neutral and don’t influence [aggregate] demand,” got this reply from Warren Mosler:

“No, the private sector credit is nominally ‘net neutral’ regarding non gov interest paid and earned, but the Treasury and fed—the gov sector—are net payers of interest to the economy. Higher rates = higher interest payments to the economy.”

Meaning that whenever you or I deficit spend (whenever the non federal gov’t creates money), that is an actual debt (for users of dollars), which is intended to be paid back (‘net-out’); so Mr. Mosler is correctly pointing out that it isn’t the case when the federal gov’t deficit spends (whenever the issuer of dollars creates money), since the federal gov’t is a ‘net payer’ because that money creation, is a net addition of dollar-denominated assets aka Net Financial Assets being added into the banking system, that is not intended to be paid back (to ever ‘net-out’).

That money creation by federal gov’t deficit spending is a stimulus to the economy. The reason why Fed Chair Eccles coined federal gov’t money creation ‘High Powered Money’ is because unlike federal gov’t surplus spending that DOES NOT add NFAs (which has a deflationary bias); federal gov’t deficit spending DOES add NFAs (which has an inflationary bias).

However, it is a bit of a stretch to also say that higher interest rates are a stimulus to the economy in the same way that more federal gov’t deficit spending is since (as the logic goes) ‘higher interest rates = higher interest payments to the economy’. According to this logic, the Fed is mistaken because it thinks that rate hikes are effective at slowing the economy—and therefore ‘the fed has the pedals backwards’.

That logic would be correct if most Americans were bond holders (if most were savers and only a few were borrowers), but in reality the opposite is true (making that logic seem ‘backwards’).

When the Fed raises rates, only the top 5%—the savers—are receiving higher interest; while the 95%—the borrowers—are paying higher interest to service debt +/or to deficit spend any further.

That’s why when the Fed sees too much inflation coming, they raise rates (a ‘net neutral’ dollar drain from borrowers to savers) as a disincentive to the 95%; and conversely, when the Fed sees too little inflation coming, they lower rates (a ‘net neutral’ dollar drain from savers to borrowers) as an incentive to the 95%.

“A change in money prices and money income does have ‘real effects’. If you increase the cost of money, that is a cost for debtors and an income source for creditors. This is real. By making debtors worse off and making creditors better off, there will be changes in the distribution of income, there will be changes in demand and in output. Real magnitudes in the economy will change.”—Steve Keen, ‘Can We Avoid Another Financial Crisis?’, 2017

Furthermore, when fiscal policy makers are not in agreement (like during a Republican ‘sequester’ or when Democrats are being ‘obstructionists’), the Federal Reserve Bank and their monetary policy makers become, as Mohamed El Erian put it in his book, ‘The Only Game In Town’. Meaning that monetary policy may not the best tool to stimulate the economy (and why so many are always critical of the Fed), but in absence of action from fiscal policy makers—when time is of the essence—the Fed becomes the Policymaker Of Last Resort.

With all due respect, anyone calling for taking those price-stabilizing abilities away from central bankers; or calling for a federal job guarantee program which takes employment decisions out of the hands of the private sector; or saying back in early 2016 that “it looks like the Fed began liftoff during a recession” may be the ones getting it backwards.

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Deadly Innocent Misinterpretation #54: A monetarily sovereign gov’t can issue all the bonds that it needs in its own local currency without the worry of default risk.

Fact: Even if issued by a monetary sovereign and denominated in their own local currency, there is still a default risk of bonds.

“It is a complete fallacy that a gov’t with monetary sovereignty can issue all the bonds that it needs in local currency without worry of default risk. It is also untrue that because you are a monetarily sovereign gov’t (that because you have the monopoly of issuing the currency) you can issue all the money that you want to finance deficit spending without risk of high inflation. The reason why a gov’t, that is monetarily sovereign, issues bonds (adds debt) that is denominated in a foreign currency—rather than in its own local currency—is not because they don’t understand MMT. It’s because there’s no longer any real demand for their own local currency. If an investor knows that a gov’t will continuously depreciate the currency (if an investor knows that a gov’t thinks it can create its own bonds without risk of default and create its own currency without risk of hyperinflation), then that investor will simply not want that local currency either. The reason why citizens nor investors don’t want their own local currency—the reason why they reject it—is because they don’t want to suffer the currency risk. There is evidence of more than 20 defaults of bonds denominated in local currency of gov’t with monetary sovereignty since the 1960s. In addition, throughout history there are more than 150 cases of fiat currencies, that because of high inflation, have disappeared—and in none of those cases did that gov’t decide to stop creating more currency (or issuing more bonds).”—Daniel Lacalle

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Deadly Innocent Misinterpretation #55: US Treasury bond coupon rates are not determined by market forces, they are instead set by the Treasury.

Fact: All US Treasury bond coupon rates are determined by market forces at origination.

A post on the Intro to MMT page on Facebook by Jim Gaddis (author of the book ‘Richard Gatlin and the Confederate Defense of Eastern North Carolina’) posed the question whether or not federal gov’t bond coupons were ‘set’ by the Treasury prior to auction or ‘set’ by market forces during the auction.

That was an excellent question.

The answer is both.

The Treasury used to set the coupon rate of all new bonds by an explicit pronouncement but that all got changed in the ’51 Accord. Now the market sets the coupon rate. It’s a ‘dutch’ auction for newly-issued Treasury securities. That’s where the highest bidder—the lowest interest rate (the lowest yield) that the bidder is willing to receive—gets filled first, then the next highest and etc, etc, until all the bonds are sold. The coupon becomes the average of all the yields accepted, rounded down to the nearest eighths of a percentage point.  

Anyone can go to the TreasuryDirect.gov website and after clicking the ‘upcoming auctions’ tab, they can see the ‘announcement’ (the details) of all marketable US Treasury bonds that are about to be sold to the public.

The coupon of any newly-issued Treasury bond is quote “to be determined” unquote during the auction (meaning whatever the market will bear).

There is an exception.

The coupon may however, be ‘set’, before the auction, but ONLY in the case that a Treasury bond is being ‘re-issued’ (aka ‘re-opened’).

If you look at the announcement details of a re-issued Treasury bond, the COUPON is already ‘set’ because the Treasury bond already exists and the YIELD (the final price that buyers will pay) for that additional batch is quote “to be determined’ unquote based on prevailing market yields. For example, if at origination (at initial offering) a 10-year Treasury note gets a 3% coupon (determined by market forces) and then the following month it is re-opened; if prevailing rates have dropped to 2.5%, then buyers of that batch will pay a premium because of that ‘set’ 3% coupon. In other words, the price that the investors will pay (the effective yield of that batch) is going to be in the neighborhood of 2.5% (determined by market forces).

The reason why the Treasury offers more of the same bond for sale is because federal gov’t deficits are rising, so they are increasing the frequency of bond sales. For example, the 10-year Treasury note usually is offered every 3 months. If deficits are rising quickly, the Treasury will re-issue that same 10-yr note the following month (technically as a 9-yr 11-month note auction).

If deficits keep rising, we may even see the Treasury bring back the issuance of the 4yr note or the 7yr note or maybe even the 20yr bond again (meaning less ‘re-openings’ of existing bonds needed).

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Deadly Innocent Misinterpretation #56: When a Non-bank (a ‘non formal bank’) lends EXISTING money to a borrower, it is NOT a credit creation. Only when a Bank (a ‘formal or traditional bank’) lends newly-created money is it a credit creation.

Fact: ALL borrowing is a credit creation (an expansion denominated in dollars).

“While Non-banks grant credit, it would be misleading to speak of ‘credit creation’ by Non-banks.”—Richard Werner, German economist, ‘International Review of Financial Analysis’, Volume 36, Pages 71-77, December 2014 (Mr. Werner earned a BSc at the London School of Economics. Further studies at Oxford University were interrupted by a year studying at the University of Tokyo—Japan’s most prestigious university—after which his doctorate in economics was conferred by Oxford. In Tokyo he was also a Visiting Researcher at the Institute for Monetary and Economic Studies at the Bank of Japan; plus he was a Visiting Scholar at the Institute for Monetary and Fiscal Studies at Japan’s Ministry of Finance. Mr. Werner coined the term ‘quantitative easing’. As chief economist of Jardine Fleming Securities Asia he used this expression during presentations to institutional clients in Tokyo in 1994).

He wrote that because when the Non-Bank (short for ‘non-formal bank’ like a shadow bank) is lending (which by UK law must always—only—lend with existing money), the Non-Bank gives up the same amount of their cash (-$100) in exchange for the same amount of the borrower’s IOU (+$100).

Thus, as this logic goes, since there is no change in the Non-Bank lender’s balance-sheet totals at the end of the day then that means there’s no credit creation.

(Speaking of being ‘misleading’, what about the borrower’s balance sheet that expanded—that went up from $0 to +$100)?

Perhaps, in Mr. Werner’s view, when the opposite happens, when formal banks that are lending with newly-created money, that is a different (read: lower) ‘hierarchy’ of borrowing. He calls newly-created bank deposits ‘fictitious’ and ‘imaginary’. That implies that he thinks only a loan using already-existing money is ‘sound’. Which is an ‘unsound’ argument because it makes no difference whether any money that was lent out was either newly-created or already-existing—because it mostly has to do with the ‘soundness’ of the person the money was lent to.

“They [AMI & ‘positive money’ folks] are wrong because as Minsky argued—and my models demonstrate—crises can still occur even if all lending was entirely ‘responsible’, meaning it was for productive purposes.”—Steve Keen, ‘Can We Avoid Another Financial Crisis?’, 2017

As per Mr. Werner, it is only when lending is done using newly-created money is it a ‘credit creation’. Apparently, if just lending with already-existing money, that’s totally different, that’s not extending credit, that’s not credit-creation, that’s ‘fronting’ someone money (or something like that).

Which completely ignores the fact that when someone gives you cash out of their pocket for you to borrow, not only do you the borrower receive an asset, so does the lender—and THAT’S the expansion, that’s the creation (of credit). The lender receives a NEWLY-CREATED IOU that goes in the lender’s pocket. Even if there is no actual IOU written out and handed over—if it is just ‘fictitious’ and ‘imaginary’—rest assured, that IOU is a real and potent thing because it’s a damsel named Faith (hooking up with a stud called Creditworthiness).

The only difference is that, unlike a credit creation using already-existing money, a credit creation using newly-created dollars involves a middleman (an underwriter). Whether funded by newly-created money or not, it is that promise to pay back the money with interest, it’s that newly-created IOU, that ‘bond’—that you conjured up out of thin air—that makes ALL borrowing a credit creation. The added account receivable, that asset, that credit creation, is always happening with any bond issuance, with any borrowing—with any extension of credit. When you pay the money back (when you put the bond in the ‘shredder’), that is the destruction. Those bonds being newly-created and newly-destroyed expand and contract the balance sheets. This leveraging v. deleveraging is the ‘beating heart’ and understanding that allows you to feel the ‘pulse’ of the economy.

Since the days of credit creation using tally sticks in medieval England, the lender’s faith in the borrower’s ability to pay back the money is a pillar of the economy. That’s why even to this day, a fiat dollar bill which is not backed by gold is still very valuable and why we say it’s backed by the full faith and credit—because it’s backed by the full faith and credit of the person who printed that piece of paper.

When it comes to borrowing in the private sector, it is WE who ‘print’ that bond, not the Bank and not the Non-Bank—they are only facilitating YOUR ‘printing’ of credit (represented by your newly-created bond). For example, VISA doesn’t contact you to let you know when they’re ready for you to go out to eat and pay on credit; and VISA doesn’t tell you whether to make the minimum monthly-balance payment, or tell you to pay the balance in full and destroy the credit creation—it’s the other way around. Anyone saying that credit creation is ‘only in the case of when borrowing newly-created money’ is missing the bigger picture. When someone lends, it is a granting of purchasing power—no matter if it involves any actual banks or any actual newly-created money or not. Whether banks are involved, or whether newly-created money is created or isn’t created, that is only a subset of the credit-creation process. As Dr. Steve Keen correctly wrote in his 2017 book, “credit is equivalent to the growth in private debt”. Meaning that EVERY time someone borrows, they are increasing private-sector debt (they are ALWAYS expanding private-sector balance sheets).

“Is Minsky (1986) right and ‘everyone can issue money'”?—Richard Werner

That’s close. Everyone can issue (can extend) credit. In other words, everyone can grant purchasing power and all borrowing by everyone is a credit creation (an expansion denominated in dollars). To believe otherwise is fictitious and imaginary.

Thanks for reading,

Pure MMT for the 100% https://www.facebook.com/PureMMT/

If you want to know how money works, it helps to know how money trades…Follow MineThis1 and his REAL MACRO instructors at https://www.facebook.com/InvestingMMT/

All Borrowing is Credit Creation (is an expansion denominated in dollars)

“While Non-banks grant credit, it would be misleading to speak of ‘credit creation’ by Non-banks.”—Richard Werner, German economist (Mr. Werner earned a BSc at the London School of Economics. Further studies at Oxford University were interrupted by a year studying at the University of Tokyo—Japan’s most prestigious university—after which his doctorate in economics was conferred by Oxford. In Tokyo, he was also a Visiting Researcher at the Institute for Monetary and Economic Studies at the Bank of Japan; plus he was a Visiting Scholar at the Institute for Monetary and Fiscal Studies at Japan’s Ministry of Finance. Mr. Werner coined the term ‘quantitative easing’. As chief economist of Jardine Fleming Securities Asia he used this expression during presentations to institutional clients in Tokyo in 1994).

He wrote that because when the Non-Bank (short for ‘non-formal bank’ like a shadow bank) is lending (which by UK law must always—only—lend with existing money), the Non-Bank gives up the same amount of their cash (-$100) in exchange for the same amount of the borrower’s IOU (+$100).

Thus, as this logic goes, since there is no change in the Non-Bank lender’s balance-sheet totals at the end of the day then that means there’s no credit creation.

(Speaking of being ‘misleading’, what about the borrower’s balance sheet that expanded—that went up from $0 to +$100)?

Perhaps, in Mr. Werner’s view, when the opposite happens, when formal banks that are lending with newly-created money, that is a different (read: lower) ‘hierarchy’ of borrowing. He calls newly-created bank deposits ‘fictitious’ and ‘imaginary’. That implies that he thinks only a loan using already-existing money is ‘sound’.

Which is an ‘unsound’ argument because it makes no difference whether any money that was lent out was newly-created or already-existing—because it mostly has to do with the ‘soundness’ of the person the money was lent to.

As per Mr. Werner, it is only when lending is done using newly-created money is it a ‘credit creation’. Apparently, if just lending with already-existing money, that’s totally different, that’s not extending credit, that’s not credit-creation, that’s ‘fronting’ someone money (or something like that).

Which completely ignores the fact that when someone gives you cash out of their pocket for you to borrow, not only do you the borrower receive an asset, so does the lender—and THAT’S the expansion, that’s the creation (of credit). The lender receives a NEWLY-CREATED IOU that goes in the lender’s pocket. Even if there is no actual IOU written out and handed over—if it is just ‘fictitious’ and ‘imaginary’—rest assured, that IOU is a real and potent thing because it’s a damsel named Faith (hooking up with a stud called Creditworthiness).

The only difference is that, unlike a credit creation using already-existing money, a credit creation using newly-created dollars involves a middleman (an underwriter). Whether funded by newly-created money or not, it is that promise to pay back the money with interest, it’s that newly-created IOU, that ‘bond’—that you conjured up out of thin air—that makes ALL borrowing a credit creation. The added account receivable, that asset, that credit creation, is always happening with any bond issuance, with any borrowing—with any extension of credit. When you pay the money back (when you put the bond in the ‘shredder’), that is the destruction. Those bonds being newly-created and newly-destroyed expand and contract the balance sheets. This leveraging v. deleveraging is the ‘beating heart’ and understanding that allows you to feel the ‘pulse’ of the economy.

Since the days of credit creation using tally sticks in medieval England, the lender’s faith in the borrower’s ability to pay back the money is a pillar of the economy. That’s why even to this day, a fiat dollar bill which is not backed by gold is still very valuable and why we say it’s backed by the full faith and credit—because it’s backed by the full faith and credit of the person who printed that piece of paper.

When it comes to borrowing in the private sector, it is WE who ‘print’ that bond, not the Bank and not the Non-Bank—they are only facilitating YOUR ‘printing’ of credit (represented by your newly-created bond). For example, VISA doesn’t contact you to let you know when they’re ready for you to go out to eat and pay on credit; and VISA doesn’t tell you whether to make the minimum monthly-balance payment, or tell you to pay the balance in full and destroy the credit creation—it’s the other way around. Anyone saying that credit creation is ‘only in the case of when borrowing newly-created money’ is missing the bigger picture. When someone borrows, it is a granting of purchasing power—no matter if it involves any actual newly-created money or not.

A bank loan being financed with existing money may not have the same monetary-inflationary bias or blow as many asset-price bubbles that a bank loan being financed with newly-created money would (a legitimate concern for anyone fearing that bank-created money isn’t ‘sound’); however, one should not confuse that with both not being a credit creation. Whether newly-created money is created or isn’t created, that is only a subset of the credit-creation process. As per Dr. Steve Keen in his 2017 book titled ‘Can We Avoid Another Financial Crisis?’, “credit” he writes, “is equivalent to the growth in private debt”. Every time someone borrows, they are increasing private-sector debt and they are expanding private-sector balance sheets.

“Is Minsky (1986) right and ‘everyone can issue money'”?—Richard Werner

That’s close. Everyone can extend (issue) credit and all borrowing is a credit creation (an expansion denominated in dollars). To believe otherwise is fictitious and imaginary.

Thanks for reading,

Pure MMT for the 100% https://www.facebook.com/PureMMT/

P.S.

If you want to know how money works, it helps to know how money trades. Follow MineThis1 and his REAL MACRO instructors @ https://www.facebook.com/InvestingMMT/

Source: ‘How do banks create money, and why can other firms not do the same? An explanation for the coexistence of lending and deposit-taking?’ https://www.sciencedirect.com/science/article/pii/S1057521914001434?fbclid=IwAR0bB904qYxwdq9on1iWEXZ7zyxyvuAk9QCMo3KLi7VOQubrVFwpbX5tM-s

P.S.

03/13/19:

No, I do not agree with anyone that says that the Fed is a private cartel. The Fed is part of the federal gov’t. As the Fed puts it on their website, the Fed is “independent within the federal gov’t”.

To believe otherwise is fictitious and imaginary.

P.S.S.

05/06/19:

“Take the money out and look at it in terms of production.”—Mike Morris

BINGO…MMTers will see how the monetary system really works more clearly if they take the financial middlemen—if they take the ‘lookalike bank credit’, the ‘reserves’, the ‘Endo’, the ‘Exo’, the ‘M0’, all of that—OUT of the picture for a second. Take out the loans and just look at the newly-created bonds (the newly-created IOUs conjured up out of thin air by a counter party called Creditworthy) that create deposits (of newly-created IOUs into the pocket of another counter party named Faith )—which are net increases of assets going into the economy. Focus on that; and also focus on the PRODUCTIVITY of Faith (selling goats) & Creditworthy (selling goat cheese), which increases their net equity, which encourages more IOU creations, more exchanges of those bonds, more ‘atomization’ of productivity and even more expansions of balance sheets, which expands the economy—which organically rises all boats.
(see 77DIM #59 )

February 2019 was not a good month for political ‘prescription’ MMT

It was not a good February 2019 for political ‘prescription’ MMT (nor for their anti-central bank, anti-capitalist, gloom-and-doom choir).

On February 1st, Keith Weiner wrote a piece titled ‘Modern Monetary Theory Is A Cult’, referencing the real-life islander tribe known as the ‘cargo cult’. Just like a fake MMTer who doesn’t fully-understand concepts like ‘value’ or ‘productivity’, the cargo cult assumed that all they had to do was to build a runway (just ‘keyboard’ it in) and then airplanes full of cargo would come.

Nonfarm Payrolls (monthly unemployment figures) blew away expectations, meaning that the Longest Job Expansion In United States History—now 100 straight months strong—continued. Which (yet once again) kicked the ass of anyone still left that actually thinks a $500B federal program that creates ‘job’ guarantees DURING A LABOR SHORTAGE is a good idea.

‘The Intercept’ dropped this on the gullible MMT community (who still didn’t get the hint after Democrats re-instituted PayGo and Speaker Nancy Pelosi frustrated Green New Deal proponents by not giving them the kind of committee they wanted): “Pelosi Aide Privately Tells Insurance Executives Not To Worry About Democrats Pushing Medicare For All”—Ryan Grim

Which didn’t go over too well with MMT academics: “Democrats, Do you deny that you are the PARTY OF SATAN?”—Bill Mitchell

If Professor Mitchell had fully-understood the article, he would have realized there were more reasons than just that gold-standard era “Monies are needed for other priorities” excuse. The Democrats had simply made the decision that M4A was a political loser and that for now policymakers should focus their messaging on lowering drug prices. “The comfort level with a broader base of the American people (for single payer) is not there yet,” as per Speaker Pelosi (read: She will be aligned with private insurers and will oppose Big Pharma).

When asked if federal deficits will be mentioned in the February 5th SOTU Address, White House chief of staff Mulvaney said ‘no’ because ‘nobody cares’.

Is it because of that Progressive ‘revolution’ that nobody cares about deficits? 

Nope…

Here’s why: 

“Republicans…are the biggest MMT people we’ve seen in our lifetime.”—Logan Mohtashami

“One of the funny things that happened is that in a way, the Republicans…kind of advanced the MMT agenda.”—Stephanie Kelton

Then during the SOTU speech, after the president said “We were born free and we will stay free…The United States will never be a socialist nation,” even some over on the Democrat side of the aisle cheered (while Sen. Sanders fumed).

Meanwhile, another bullet hole in ‘bulletproof’ MMT is that, just like the cargo cult, the political ‘prescription’ MMT community has the blinders on when it comes to inflation. They think that consumer prices are the only thing to measure (that only consumer price inflation is the risk) and refuse to see anything else (like asset price inflation being fed by deficits that is worsening wealth inequality). Fake MMTers just look at consumer price inflation and not at the asset price inflation (stocks, bonds, real estate, aka the ‘savings bubble’).

“They are fond of saying ‘deficit spending should be large enough to satisfy the desire of the private sector to save’ as if there is a limit on the price of financial assets.”—Charles Kondak

Bingo…Either the political ‘prescription’ MMT community is not fully grasping how incomplete it is to say that it’s fine to deficit spend ‘as long as there is no (consumer) price inflation’, or they are just bullshitting everyone—again. H/T to Jim ‘MineThis1’ Boukis for being the first one to sound the alarm on the savings bubble imbalance and those deficits that feed it (those Gov’t Deficits that = THEIR Savings). To just say it’s fine to deficit spend ‘as long as (consumer price) inflation is low’ is not only fake MMT, it’s borderline dangerous for the stability of the nation to not include asset price inflation in that federal spending calculus (to not consider creative pen strokes instead of keystrokes). Instead of calling it wealth inequality, perhaps we should call it ‘wealth inflation’ and then maybe these MMTers would get it.

Which is unlikely because MMT was carjacked and the first thing the carjackers did was to throw that pure ‘description’ baby out the window—which ended that era when MMT was The Description Not The Prescription. If asked to pinpoint when this happened, my guess would be April 26, 2018. That was the day when Bill Mitchell (the economist in Australia who—even though Australia has had 28 straight years without a recession thanks to export-led economic growth—says that ‘Exports are a cost’) wrote that “the Job Guarantee is a specific and intrinsic element of MMT.” What really bothers Professor Mitchell and all ‘prescription’ MMTers is that pesky political constraint to federal spending—they can’t stand knowing that we can afford any policy proposal, BUT it still has to be approved. To these MMTers, all their policy proposals SHOULD be approved because all their ‘prescription’ roads lead to the same place: More free ‘this’ for the ‘general welfare’ and more free ‘that’ for the ‘public purpose’ (without considering the unintended consequences of their good intentions). When saying that we should spend on whatever THEY want—and don’t worry about How To Pay For It—’because MMT’—these post-modern neomarxists keep showing their true ideals: Usurp the Power of the Purse of Congress, take away the Fed’s ability to change interest rates, cede control completely away from some private sector industries and slowly dismantle capitalism (to replace it with a cradle-to-grave welfare state). NOTE: There is absolutely nothing at all wrong with believing in that; however, don’t push your ideological agenda (the political ‘prescription’) under a guise of promoting the econ (the pure ‘description’)—if you want to be taken seriously by experts in the field.

Perhaps one of the biggest whoppers overheard during February was that oft-repeated, wishful-thinking that ‘MMT is getting more mainstream’. In other words, while peddling their political ‘prescription’ MMT (that has little chance of seeing the light of day) under the guise of promoting pure ‘description’ MMT (that has a big chance of seeing the light of day), the MMT community is now getting pissing on—while MMT academics are telling them that it’s raining (‘that it’s mainstream’).

Here’s some more examples of the ‘mainstream’ that is now pouring down on the legs of the political ‘prescription’ MMT community:

FEB 07: Noah Smith (Bloomberg Opinion and former assistant professor of finance at Stony Brook University): “So until the Green New Deal proposal is substantially revamped, every Democrat’s answer to the question ‘Do you support the GND?’ should be NO.”

FEB 08: Tucker Carlson: Why would we ever pay people quote ‘unwilling to work’?

Robert Hockett: We never would. AOC has never said anything like that. I think you’re referring to some sort of doctored document that someone other than us has been circulating.

Tucker Carlson: That was from the backgrounder from her office.

Robert Hockett: No. She actually laughed at that, she just tweeted out that apparently some Republicans have put that out there.

Tucker Carlson: Ok, good, thank you for correcting me. That seems a little ridiculous. Almost as ridiculous as the idea that we’re going to build enough rail to make airplanes unnecessary which I think is actually from the plan.

Robert Hockett: I don’t know where you got that from either Tucker. I’m not clear on where that ‘airplane disappearance’ is coming from.

Tucker Carlson: This is the Frequently Asked Questions released by her office and I’m quoting from it. Maybe this is fraudulent and I hope you’ll correct me. It says, and I’m quoting, the Green New Deal will totally overhaul transportation, building out high-speed rail at a scale where air travel would stop becoming necessary. Hawaii Democrat Senator Mazie Keiko Hirono responded by saying that would be hard for Hawaii—so I don’t think that’s made up.

Robert Hockett: It’s being misunderstood. We are talking about expanding optionality, not getting rid of anything.

Tucker Carlson: I’m now being told that the ‘unwilling to work’ thing, that is absolutely confirmed, that was in the backgrounder that her office released.

Robert Hockett: No, no, definitely not.

Tucker Carlson: It was in the overview document.

Robert Hockett: It’s the wrong document.

Tucker Carlson: We’ll follow up on this next week. That ‘unwilling to work’ line that you are obviously embarrassed by, you should be embarrassed, it was in the document.

Robert Hockett: No Tucker, it’s not embarrassing, it wasn’t us. We’re not embarrassed by what’s not ours.

Tucker Carlson was right. It wasn’t a doctored document put out by the Republicans. The actual resolution (the legislation) submitted to Congress that outlined the Green New Deal didn’t include the ‘unwilling to work’ part; but the overview document (the accompanying FAQ document), released by New York Rep. Alexandria Ocasio-Cortez’s office, did include the ‘unwilling’ language…and they were embarrassed by it—AOC’s staff was forced to take the gaffe-riddled summary of the bill off their website. Robert Hockett later tweeted “Typo in a draft doc that went up by mistake and was taken down once noticed.”

Included in Ocasio-Cortez’s original FAQ document was the promise of “economic security to all who are unable or unwilling to work,” it called for a “build out of high-speed rail at a scale where air travel stops becoming necessary,” it said that we “plant lots of trees” to reduce emissions, it laid out the goal to “move America to 100% clean and renewable energy” within 10 years and it explained how the resolution submitted to Congress used the term “net-zero emissions, rather than zero emissions” because “we aren’t sure that we’ll be able to fully get rid of cow emissions and airplanes that fast.”

FEB 12: Bill Gates called modern monetary theory (MMT) – which asserts that because the government controls its own currency, there is no need to worry about balancing the budget some ‘crazy’ talk. “Well, that’s crazy. I mean, in the short run actually because of macroeconomic conditions, it’s absolutely true that you can get debt even to probably 150 percent of GDP in this environment without it becoming inflationary. But it will come and bite you.”

FEB 16: No question that things are NOT going well for political ‘prescription’ MMT when even Breitbart agrees with Mayor Bill de Blasio (about Rep. Alexandria Ocasio-Cortez being too far to the left).

FEB 26: In testimony before the Senate Banking Committee on Capitol Hill, Fed Chair Jay Powell said this:

“Let me say I haven’t seen a carefully worked out description by what is meant by MMT. It may exist but I haven’t seen it. I have heard some pretty extreme claims attributed to that framework and I don’t know whether that’s fair or not. I will say this. The idea that deficits don’t matter for countries that can borrow in their own currency, I think is just wrong. I think US debt is fairly high, at a level of GDP and much more importantly than that, it’s growing faster than GDP, significantly faster. We are not even close to ‘primary balance’, which means the deficit before interest payments. So we’re going to have to either spend less or raise more revenue. In addition, to the extent people are talking about using the Fed as a sort of [financing], our role is not to provide support for particular policies. That’s central banks everywhere. Our role is to achieve maximum employment and stable prices—that’s what it is. Decisions about spending, about controlling spending and about ‘paying for it’, are really, for you.”
—Fed Chair Powell, 02/26/19

FEB 27: In the next day’s testimony before the House Financial Services Committee, Fed Chair Jay Powell pushed back on the MMT ‘prescription’ (on Mr. Mosler’s 7DIF Part III Public Purpose proposal) to anchor the federal funds rate to 0% (to completely take away the Fed’s ability to quickly respond to either an economic crisis or an approaching crisis like a dangerously overheating economy):

“There is a new sort of focus on modern monetary theory that says taxes can better fight inflation than monetary policy. Do you have a basic philosophical view on that?”—Rep. Steve Stivers (R-Ohio)

“That aspect of it would be a complete change. I would say the reason why the Fed does that is that we can move quickly with our tools (we can move immediately), and to give the legislature that responsibility—in principle you can do that—but we have a system, that’s got lots of checks and balances.”—Fed Chair Powell, 02/27/19

Notice that most of the MMT criticism during the month of February 2019 was not questioning the politics of the proposals—it was mostly questioning the validity of the economics. Meaning that if you are getting the economics (the ‘description’) wrong, you are making it harder for the world to take your pet policies (your ‘prescriptions’) seriously. Political ‘prescription’ MMTers may also want to rethink their constant bashing of the federal gov’t. Every time these MMTers mock the White House, mock the Treasury, mock the Fed (who have the ‘peddles backwards’); these MMTers are melting the ice under their own ‘prescriptions’—that calls for giving more control to that same federal gov’t.

Finally, during the month of February 2019 when Econ Ph.D Stephanie Kelton was again tweeting that Gov’t Deficits = OUR Savings (that THEIR red ink is OUR black ink), Warren Buffett disclosed in his annual Shareholder Letter that Berkshire had $112B in US Treasury bills (which is almost 1% of the entire $15.5T US marketable Debt Held by the Public).

In conclusion, it’s fine if you think that we need a ‘JG’, a ‘GND’, ‘M4A’, +/or student debt forgiveness—the more policy suggestions the better. It’s even fine if you hate the president—everybody goes through that (just like we all went through that adolescent phase in sports when you think that ‘our’ team is ‘great’ and the ‘other’ team ‘sucks’).

Here’s some advice for the ‘prescription’ MMT community: If you mix your politics with your economics, you dilute your expertise in both at the same time—so stop naively buying into every #FakeMMT meme.

In an age of ‘fake news’, you need to go Beyond The Memes—you need to become your own journalist. Don’t be afraid to do some due diligence on your own about the veracity of the claims made by MMT academic ‘scholars’ (before you too sound like someone that spent their entire lives in a classroom).

Meanwhile, until morale improves (until MMT returns back to being The Description Not The Prescription), the beatings will continue.

Thanks for reading,

Pure MMT for the 100% https://www.facebook.com/PureMMT/

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P.S.

“Let me say I haven’t seen a carefully worked out description by what is meant by MMT. I have heard some pretty extreme claims attributed to that framework and I don’t know whether that’s fair or not. I will say this. The idea that deficits don’t matter for countries that can borrow in their own currency, I think is just wrong. I think US debt is fairly high, at a level of GDP and more more importantly than that, it’s growing significantly faster than GDP. In addition, to the extent people are talking about using the Fed…our role is not to provide support for particular policies. Decisions about spending, about controlling spending and about paying for it are really for you.”—Jerome H. Powell, Chairman, Board of Governors of the Federal Reserve System, testimony before Congress, 02/26/19

“One of the questions Fed Chair Powell was asked was about modern monetary theory. This is a new slogan that has just come up which says, I guess, that you can run deficits indefinitely. I think it’s kind of another fad slogan that has appeared at this time that might be politically useful to some people.”—Economist Robert Shiller, 2013 Nobel Laureate, best-selling author and presently serving as a Sterling Professor of Economics at Yale University, 02/27/19

P.S.S.

On February 28th, former Fed Chair Alan Greenspan did not sound too enthused with the ‘prescription’ MMT proposal to curtail the Fed’s role as ‘price setter’ and the notion that we should leave all that up to fiscal policymakers because the Fed doesn’t know what they’re doing (because the Fed ‘has the pedals backwards’).

As per the Maestro, if you shut down the Fed’s ability to immediately respond to changing economic conditions (if you take away the Fed’s agility at influencing prices with changes in interest rates); then while you’re at it, to stop the stampede out of the US dollar, you should probably shut down our foreign exchange market as well—so that nobody will be able to dump their dollars (even after it’s too late for them to save themselves):

Bloomberg’s Mike McKee: There is a theory out there, modern monetary theory, MMT, a lot of people are debating it. It suggests that a country that prints money in its own currency doesn’t have to worry about deficits as long as inflation isn’t breaking out, if it does, then the fiscal agent comes in and raises taxes [+/or cuts federal spending]. What do you think of that idea because it’s being rooted as a way to spend more money, on infrastructure, on the Green New Deal, things like that?

Former Federal Reserve Chairman Alan Greenspan: You’d have to shut down your foreign exchange markets. How do you exchange (laughs)? People will be trying to fly out of your currency and if there’s no vehicle in which they can do it, it doesn’t happen.