LOGAN’S ‘SIX SIGNALS’ OF IMMINENT RECESSION

YIELD CURVE INVERSION WATCH

Logan: THE BOND MARKET IS SAYING THAT THE FED DOESN’T HAVE TO WORRY ABOUT INFLATION

(…and Logan’s take on why the ‘prescription’ MMT people keep getting the economy wrong):

“The yield on the 5-year Treasury note fell below the yield on the 3-year note today [12/03/18] the first yield inversion of this cycle [of this economic expansion]. We are only 15 basis points away from a 2yr/10yr inversion and also another major one [with as much recession-predictive power as the 2yr/10yr] is the 1yr/10yr [or the 3MO /10yr] inversion, but that doesn’t get as much media play.

So this inversion [this inflation-expectation drop—even though it is not an entire full-curve inversion like a 2yr/10yr inversion] is the third signal [out of a total of six recession signals] that has happened so far. Only 3 of my 6 recession flags are up—and we have never once had a recession post 1960 until all 6 are up. So the 3 recession flags that are already up are, #1) the Fed started raising rates, and #2) was when lower unemployment rates reached a certain ratio, and #3) is this inversion.

The other three signals that haven’t happened yet are: #4 Over-Investment like tech in 90s, housing in the 00s and then all those oil rigs [in 2014 that preceded a manufacturing slowdown]. Student debt is NOT over-investment. Average student debt is 9k. That is not over-investment, that is just another ideological extreme-left theory like the extreme-right’s trade deficit theory.

#5 is when Housing Starts fall and the sixth recession signal, this is the simplest signal, it’s when Leading Economic Indicators fall. LEI historically fall for 4 – 6 months before recessions.

I am shocked that MMT people with Econ PhDs were calling for a recession while LEI was rising. They just don’t know how to read data. They still don’t realize that understanding actual economics comes from outputs on a much higher level than ideological beliefs and their political economics.

For example, they actually thought that the Labor Force Participation rates were bad, but they were not bad, they looked perfectly normal. They were just reflecting a demographic shift, not people ‘sitting at home because there are no jobs’—or only ‘crappy jobs’.

If these recession bears, using their political economics, only knew how to read data they would understand that people age 23-29 are the biggest labor group right now so 2019 will be the first Prime Age Labor Force growth (25- to 54-year-old) we’ve had since 2007.

So we are on track for continued economic expansion.

Remember that job growth numbers come down due to wage growth inflation and we are still nowhere near that. This year has been the best job creation in my 22 years following the data. We have seen 97 straight months of job growth, the lowest unemployment rates, the lowest civilian labor force unemployment claims, the highest job openings, and our job growth is THREE TIMES more than our population growth.

America has never done this before.

Regarding the Fed, when job creation starts to fall, it’s not because there are no jobs opportunities out there, it’s because of wage growth pressures. That’s what the Fed is seeing, they see full employment, they see wage growth rising, so only until you see wage growth pressures lowering job growth, that’s when (and why) you’ll see the Fed wanting to start hiking more.”—Logan Mohtashami

First yield inversion in more than a decade and 2/10 basis point spread down to 15 basis points #Economics#Inversions #Bonds #Recession

Posted by Logan Mohtashami on Monday, December 3, 2018

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P.S. Also note that there’s a difference between (Monday’s 3yr Treasury note / 5yr Treasury note) “discrete part” yield curve inversion (what spooked the markets Tuesday) and “the most closely watched” yield curve inversion. A 3s/5s inversion is the ‘short-end’ and the ‘belly’ of the curve, but if it’s an inversion of 2s/10s, meaning if it is including the ‘long-end’, then it’s an ‘entire’ yield curve inversion, “thought to be the best predictors of recession.”



Net Financial Assets v. ‘Net Debt Financial Assets’

Whenever MMTers (proponents of Modern Monetary Theory) say that the ‘gov’t deficit equals our non gov’t savings’, or ‘the gov’t red ink is our black ink’, the technical term for that ‘black ink’, those ‘savings’, is Net Financial Assets (NFA). Those that are uninitiated to MMT don’t use the term NFA—whenever the mainstream talks about the cumulative amount of all federal gov’t deficit spending-to-date, their technical term for it is ‘The National Debt’.
 
Net Financial Assets (NFA) are USUALLY created ONLY by the federal gov’t (‘exogenously’ / ‘vertically’) when deficit spending, and not by banks (‘endogenously’ / ‘horizontally’); BUT, there is an exception. In a 03/25/17 RP broadcast, Warren Mosler pointed out that banks CAN and DO, on many occasions, actually add Net Financial Assets (unintentionally) when they have negative capital (when a bank loan, +/or a bank itself, defaults). A bank loan default or an outright bank failure acts as ‘synthetic’ federal gov’t deficit spending adding NFA because monies were lent out endogenously and will NEVER be paid back. In other words, banks occasionally go out of their lane and bank money is (unintentionally) created without *actual* debt attached, as if it was created like the federal gov’t, the sole monopoly ‘supplier’ of money, creates money—with very little intention of ever being paid back.
 
The Bush economic ‘expansion’ was fueled by ‘synthetic federal gov’t deficit spending’ (questionable private sector subprime loans and financial derivatives that all defaulted).
 
The Clinton ‘boom’ was fueled by ‘synthetic federal gov’t deficit spending’ (private sector loans that defaulted because of the dot-com bust).
 
The Reagan ‘miracle’ was fueled by ‘synthetic federal gov’t deficit spending’ (almost a trillion dollars in defaulted private sector loans during the S&L debacle, THE ENTIRE SIZE OF THE TOTAL NATIONAL DEBT AT THAT TIME).
 
The ‘roaring’ twenties was fueled by ‘synthetic federal gov’t spending’ (private sector loans using leverage that financed stock speculation with minuscule margin requirements that all went bust).
 
Mr. Mosler muses that he “can’t think of a single boom year that WASN’T attributable to either out of control or outright fraudulent bank lending to the private sector that would never have been allowed with proper hindsight!”
 
In other words, instead of ‘synthetic’ federal gov’t deficit spending (additions of ‘synthetic’ NFAs into the banking system), “we could have had those economic booms legally, easily, and simply, by just increasing federal gov’t deficit spending with proper foresight,” Mr. Mosler added.
 
MMTers can go beyond the ‘NFAs can only be created by the federal government’ meme if MMTers can accept that synthetic NFAs like in the examples above are possible.
 
Nick “MineThis1” Hionas, a co-creator of Pure MMT for the 100% (along with co-contributor Charles “Kondy” Kondak), makes an interesting posit that synthetic NFAs, or as he calls them, ‘Net Debt Financial Assets’ (NDFA) are created in the non federal gov’t, by the rest of us, when we borrow dollars (when we deficit spend). The default instances mentioned above, since they were all horizontally created by the non federal gov’t (by the banks in the private sector), are all great examples of ‘NDFA’ (or, ‘permanent NDFA’) that, just like actual NFAs created vertically by the federal gov’t, are dollars permanently existing in the banking system today because they weren’t paid back (nor will they ever be paid back).
 
Just to make sure readers are following all that, let’s take a step back. If you want to buy anything, you must use dollars, but what must you use if you want to buy dollars?
 
Whenever the federal gov’t deficit spends, it’s a two-part creation of newly-created IOUs, aka Treasury bonds, (created and given to those that bought the bonds) AND newly-created $$$ (created and given to those who provisioned the gov’t). Note that it is the same entity that created both. In other words, in the post-gold standard, modern monetary system, it is not an actual debt for the federal gov’t because the IOU is denominated in fiat $$$ (and it is easy for the ‘issuer’ to get more $$$). Also note that the par amount of the bond is the exact amount of the addition of NFA (Net Financial Assets) going into the banking system—to the penny.
 
The same goes for the nonfederal gov’t. Whenever you deficit spend and need to get a loan from a bank, or any other financial institution (whether it is to get a jumbo mortgage to buy a home or just to pay for a quick lunch with a credit card), it’s a two-part creation—you are getting newly-created $$$ in exchange for your newly-created IOU. Your IOU (your guarantee) is a promise, in writing (your signature on a 50-page mortgage document or on a tiny credit card receipt) to pay the loan back, with interest, aka ‘your bond’. If you don’t have any dollars and you want some dollars (if you want to ‘buy’ dollars), then you need to ‘sell’ your ‘bond’, to an entity, to a financial intermediary, that will ‘sell’ you dollars (if they want to ‘buy’ your ‘bond’). Your bond is the asset, the collateral, that you just newly created, that you just conjured up ‘out of thin air’ and handed over in exchange for the newly-created $$$. The borrower creates the IOU for the lender and the lender creates the $$$ for the borrower (to reconcile both sides of both counterparty’s balance sheets). In other words, also FOCUS ON THE BOND CREATION when thinking about any money creation by both the federal gov’t and the nonfederal gov’t that are net additions of $$$ into the banking system. Whether it’s the federal gov’t deficit spending (for a new Mars rover) or it’s the nonfederal gov’t deficit spending (for a fresh cup of Starbucks), both are creating a bond (an IOU that guarantees to pay the $$$ back with interest), and selling it, in exchange for money—aka ‘debt monetization’. Loans create deposits (creations of $$$), yes; however, don’t forget the part where YOUR creations of BONDS CREATE LOANS. When YOU (the nonfederal gov’t) create the IOU (the ‘bond’), that’s the creation—the financial institution, the mortgage bank, the Visa card company, etc, is not creating the $$$, THEY ARE FACILITATING YOUR creation of $$$. When you pay back the IOU, your creation is destroyed. So the takeaway is that rather than seeing all (federal gov’t & nonfederal gov’t) deficit spending as just money creation, remember to also see it as a bond creation, or quite simply, as just another bond trade; except that this bond trade is settled with newly-created bonds & newly-created $$$ that unlike all (federal gov’t & nonfederal gov’t) surplus spending, are net additions of financial assets going into the banking system. The difference between federal gov’t (vertically-created) NFA and nonfederal gov’t (horizontally-created) NDFA is that nonfederal gov’t attached debt—an *actual* debt—which is an actual problem for the nonfederal gov’t because it isn’t as easy for the nonfederal gov’t (user) to get more $$$ as the federal gov’t (issuer) that has attached quote ‘debt’ unquote.
 
When we are talking about either NFA or NDFA, remember that we are talking about an addition of Net Financial ASSETS or Net Debt Financial ASSETS into the banking system (and not talking about an addition of CAPITAL). The newly-created bond does not add capital. Your net worth doesn’t go up when you create money in exchange for your newly-created bond because any newly-created bond ‘nets-out’ with the newly-created money (assets minus liabilities equal capital). Although it is fact that nonfederal gov’t borrowing has actual debt attached to the loans (that all nonfederal gov’t loans ‘net-out’), the MineThis1 insight here is that the moment bank loans create those dollars—as soon as those dollars go into circulation—they are ‘NDFA’. More specifically, the instant those nonfederal gov’t dollars are newly-created, they are ‘temporary’ NDFA; and as soon as the loan is paid off, they are not NDFA anymore, those dollars are newly-destroyed. The key takeaway here is that while NDFA technically ‘nets-out’, that could take awhile (and in the meantime, those newly-created $$$, those ASSETS, are circulating in the economy).
 
If in the event, as Mr. Mosler described above, that the borrower, or the lender, defaults (negative capital), then they are never destroyed, they become ‘permanent’ NDFA.
 
Keep in mind that similar to the nonperforming loan that defaults (becomes permanent NDFA), even the healthy loans that do not default (temporary NDFA) are usually not paid off for quite awhile. These assets are ‘pumping the economic prime’ for a very long time. Just like a consumer 30-year mortgage on Main Street in the hundreds of thousands of dollars, or an institutional debt obligation on Wall Street that is perpetually rolling over in the hundreds of millions of dollars, many healthy loans take many years to ‘net-out’.
 
In the meantime, along with NFAs created by the federal gov’t, these NDFAs created in the non federal gov’t, they are also working their long-term magic (they are the ‘smoking gun’ of good economies too), which is helping the bottom line of US households—that at last count have over $100T in net worth.
 
Note that is a “T” as in TRILLION and that is a NET amount. That is the amount that US households have AFTER all their loans ‘net-out’ (which is a far greater amount than the current running total of NFAs created by the federal gov’t).
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P.S. The sooner folks get Nick’s ‘NDFA’ insight, the better they will see the moving pieces. Here’s another way of explaining ‘NDFA’: Unlike SURPLUS spending (where $$$ received are a wash with $$$ spent), when both the federal gov’t and the nonfederal gov’t DEFICIT spends, they are creating a bond AND creating money. The creation of the federal gov’t bond is the NFA added to the banking system and the creation of the nonfederal gov’t ‘bond’ is the ‘NDFA’ added to the banking system. The crucial difference is that when the federal gov’t creates the bond and the money, it’s the same entity doing both; when the nonfederal gov’t creates the bond and the money, it’s separate entities (the ‘seller’ of the bond is creating the bond and the ‘seller’ of the money is creating the money). Meaning that, since the federal gov’t (Monopoly Bank) issues both the bond and the fiat $$$ (Monopoly Money)—that the federal gov’t Treasury bond is denominated in—it’s not an actual ‘debt’; versus the nonfederal gov’t (Monopoly Players), who do NOT issue the money, so any nonfederal gov’t bond (IOU, mortgage, loan, credit card balance, etc) is an actual debt. That the federal gov’t (or any monetary sovereign spending their own fiat money) is never in actual ‘debt’ nor ever ‘goes broke’ is what MMTers know today (and what Charles Darrow knew in 1933 when he wrote the rules for his version of The Monopoly Game). For example, servicing debt is an actual problem for the nonfederal gov’t (the Monopoly Players). The Monopoly Game doesn’t end because The Monopoly Bank (the ‘issuer’) runs out of money, the Monopoly Game ends because The Monopoly Players (the ‘users’) run out of money.

If alive today the 7th President of the United States would love this idea.

On January 1, 1835, Andrew Jackson, the founder of the Democratic Party, paid off the entire US national debt.

However, as most MMTers know, running federal budget surpluses, like President Jackson did, is asking for economic trouble.

Similar to a private sector ‘deleveraging’ of debt (‘destroying’ of dollars) which can create a ‘paradox of thrift’, it can also trigger a full-blown ‘deflationary spiral’. So it’s never a good idea for the federal gov’t to pay down debt (to ‘destroy’ dollars)—unless federal policymakers intentionally want to slow the economy.

That’s why it isn’t a coincidence that all six depressions in US history, including The Panic of 1837, were preceded (were started) by sustained federal budget surpluses that decreased debt. Furthermore, it also isn’t a coincidence that the 2008 Great Recession and those six depressions were succeeded (were ended) by sustained federal budget deficits that increased debt.

In the post-gold standard, modern monetary system, there’s another way to pay down federal debt that doesn’t ‘destroy’ dollars. Let’s call it ‘Quantitative Redemption’ (QR).

If alive today the 7th President of the United States would love this.

In a QR, the Fed would announce that the $2.4T in Treasury bonds presently on their balance sheet are, effective immediately, redeemed (‘called’ before maturity date). We are only redeeming the Treasury bonds (20yr< maturity) and Treasury notes (10yr – 20yr maturity) on their balance sheet, not the other $1.8T in Agency bonds and Mortgage Backed Securities (MBS) the Fed also bought and are also on their balance sheet.

How this QR works is ridiculously easy. There is nothing to actually do, except announce that instead of continuing to keep these Treasury bonds ‘impounded’ (held on the Fed’s balance sheet) from the Large Scale Asset Program (LSAP) / a.k.a. ‘Quantitative Easing’ (QE), the Federal Open Market Committee (FOMC) has declared all these Treasury bonds redeemed, and no longer exist (or the FOMC may decide to do this piecemeal, whatever). This QR wouldn’t be anything new. Redeeming bonds is not an exotic concept, it’s done all the time by everyone, the only difference being that this would be the first time the federal gov’t is doing it with Treasury bonds. For example, other bond issuers like businesses that issue debt (‘corporate bonds’) and municipalities that issue debt (‘muni bonds’) have called their bonds before maturity date. This happened a lot since the credit crisis (since the LSAP program) because prevailing interest rates fell way below the rates being paid out to bondholders, so these particular issuers exercised what is known as an embedded call option. Similar to an ‘assignment’ in any option trade that is exercised, if bonds are called by the bond issuer, the bondholder has no say in the matter. Bondholders are simply notified that their bonds are being returned to the issuer and the bondholders then receive a cash payment in full for the entire bond principal (‘par value’) plus any remaining accrued interest at the financial institution where the bonds are held (‘registered’). This is exactly what the Fed did to Wall Street bondholders during LSAP. A Main Street example of a bond call, if a homeowner decides to pay off a mortgage before the term (‘prepayment’), same thing, the homeowner called the ‘bond’ (the debt owed) from the issuer (the lender). What Ben Bernanke did during LSAP was also not much different from a company purchasing its own shares (‘buyback’), which if not retired, are held on the company’s balance sheet (‘Treasury stock’). In fact, as a US Treasury bond broker during the QE years, whenever I spoke to primary dealers or confirmed trades with their settlement departments, ‘buybacks’ is exactly what they called QE. Most of the folks on Wall Street (correctly) referred to QE as ‘Fed buybacks’ while The Very Smart People on cable news & talk radio (incorrectly) called it ‘debt monetization’. The beauty of this QR idea is that this buyback step is already done. There is *literally* nothing the Fed has to do. All of the $2.4T in Treasury bonds were already called; all of the Wall Street bondholders were already paid back their $2.4T; all of the markets already had their ‘temper tantrum’; and even though that net addition of $2.4T into the banking system (by the Fed to pay for those bonds) had an inflationary bias, it caused no inflation whatsoever (because the economy was so weak it vaporized on impact like a brief sun-shower at high noon).

If the Fed did a QR this year, it’s actually not a redemption of the Treasury bonds this year, it’s only making it official that there was a redemption of Treasury bonds during the LSAP years. On December 29, 2008 the Fed began QE1, and after a combined total $2.4T of Treasury bond buybacks, the Fed ended QE3 on September 24, 2014. Now let’s step back from the picture and take another look at what happened. Prior to the 2008 credit crisis, one arm of the federal gov’t (the Treasury department) sold $2.4T in Treasury bonds, and then after the crisis another arm (the Federal Reserve Bank) bought them back. Except unlike any regular Joe Blow who buys back his own IOUs, instead of ripping them up, the federal gov’t didn’t rip them up. The federal gov’t put those IOUs, their own IOUs, in their own pocket. Then the federal gov’t started making semi-annual interest payments to itself, from itself, on all $2.4T of these Treasury bonds, on its own IOUs (and still does to this day). The point is, that all those Treasury bonds could have been declared ‘paid off’ the day Ben Bernanke created dollars (‘reserves’) and credited the sellers of those bonds long ago, but the Fed didn’t do that.

The difference between Chairman Ben Bernanke and Joe Blow was that Ben did not have the authority from Congress to pay those bonds off. The Fed is only a ‘swap’ desk. Just like any other bank, the Federal Reserve Bank can only create dollars as long as it’s in exchange for a swap of assets. The Congress is the ‘outright’ desk. Only Congress can allow any action that would outright change the cumulative count of previously authorized deficit spending (the ‘national debt’). The Fed cannot usurp the ‘power of the purse’ from Congress. Hence the Fed impounding the bonds during LSAP on the Fed’s balance sheet for a future unwinding (another swap that is ‘printing’ bonds back into the secondary market and simultaneously ‘unprinting’ dollars). So in reality a QR would just be the Fed going through the formality of getting permission to formally declare that the bonds were already redeemed.

If QR was done and the Fed redeems (debits) the Treasury bonds, there must be an equal and opposite ledger entry (credit) to replace them. In other words, something must replace these Fed assets (‘balance sheet repair’). Congress could authorize the Treasury to mint a $2.4T coin to be transferred to the Fed. Again, this would not be anything exotic nor unprecedented (The Gold Reserve Act of 1934 authorized the Fed to transfer all of its gold to the Treasury in exchange for gold certificates denominated in dollars). This would effectively replace the Treasury bonds (dollars with a coupon and a specific maturity date) with a coin (dollars without a coupon and a perpetual maturity date) without needing to create and enter dollars into the banking system (it was already done).

Here’s the best part. This QR, this redemption, this removal of $2.4T of previous ‘Debt Held By The Public’ will mark down the national debt from approx $21.8T to $19.4T, an ELEVEN PERCENT DECREASE, not a bad day’s work. If the US did this, perhaps Japan, a country with a national debt of over ONE QUADRILLION yen, might follow suit. In a single day, the BOJ could announce a quantitative redemption amounting to approx 425 trillion yen of Japanese Government Bonds (JGBs) presently held on their balance sheet as of May 20, 2017. That would be an overnight reduction of their national debt of 43%.

Which would get other people (Swiss National Bank’s Balance Sheet to GDP as of November 2018 is 125%, the ECB’s is 41% and the Bank of England’s is 20%) around the world thinking that the big bad national ‘debt’ problem might not be such a big bad problem after all.

What MMTers have been saying all along.

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P.S. ‘QE unwind’ is Wizard of Oz type stuff. It’s a prototype of end-game Pure MMT. It’s just a matter of time before they pull back the curtain and just level with everyone that federal gov’t DEFICIT spending (that isn’t ‘funded’ by taxes) is ‘cash-financed’—that bonds never have to be issued and sold in the first place. Treasury bonds are needed to be issued and sold to fulfill savings desires, yes; to help keep inflation in check, yes; to keep a running count of and to keep Congress having the ‘power of the purse’ on deficit spending, yes; but to ‘fund’ deficit spending, no. Something like a ‘QR’ is what it will take to change mainstream thinking from where we are now—from today’s MMT phase (where federal deficit spending is cash-financed under a guise of being ‘bond-financed’)—to the after, fully post-gold standard, end-game Pure MMT phase (where we stop saying ‘federal debt’, federal ‘deficit’ spending or even trade ‘deficit’).

(‘Progressive’) good intentions that may have (‘neoliberal’) unintended consequences

Why the student loan debt crisis didn't collapse America 👨‍🎓👩‍🎓💰📈😇#Economics#BearsCantReadDataCorrectly

Posted by Logan Mohtashami on Sunday, November 18, 2018

 

Bill Mitchell was pointing out an inconvenient truth when he said “Progressives are neoliberals in disguise / Greens are neoliberals on bikes”!

One of the Pure MMT for the 100% insights is that political ‘prescription’ MMTers are unwittingly peddling policies that an actual ‘neoliberal’ would love too.

For example, the unintended consequence of the progressive ‘Wipe Out The Student Debt’ agenda is more dollars flowing to the top 5%.

In the enclosed video, Logan (who refers to the prescription MMTers as the ‘extreme ideological people’) explains. By the way, just in case you are wondering if Logan understands MMT, read this quote and decide for yourself:

“Student loan debt was never a crisis in terms of macroeconomics. If we had a high percentage of home loans delinquent, of credit cards delinquent, if we had 30% of auto loans in delinquency, we would see it, in the economy; but not for student loan debt, why, because those loans are tied to the federal gov’t and the federal gov’t is a bank that has unlimited ability to borrow —so there’s no concern about that, there’s no runs on private banks with student loan debt.”—Logan Mohtashami

Also note that Logan is NOT bashing the Wipe Out The Student Debt ‘prescription’. In fact, he goes on to say that it’s for the voters to decide (and he actually does think that over time the federal gov’t will provide some form of free college because it’s not expensive compared to the rest of the federal budget). What Logan concludes here, however, is what Pure MMT has been saying all along (warning about feeding $$$ into the saving bubble —instead of creating a feedback loop out of the savings bubble).

“Here’s the problem with ‘Wipe Out The Student Debt’. If you don’t understand how data works, student debt looks like this daunting thing and you believe that college-educated Americans are sitting in little tents eating ramen.”

“Here’s the breakdown, 70% of all student loans is actually under $15k—not so daunting. People with over $70,000 of student loan debt is a very small portion of society. Of these people who do have 70k – 100k of student loan debt, they are usually rich people.”

“These are the people that make money, that have healthcare, that have homes, cars and a 401k. Don’t worry about these people. Trust me. They are the people that make the most money, the people that work the most, and the people that have the lowest unemployment.”

“The ones that have the highest student loan debt are the people that are the wealthiest. So in a sense, by saying ‘Wipe Out The Student Debt’, you are facilitating wealth inequality.”

In addition, which Logan is happy to see, the (‘progressive’) New York Times agrees:

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P.S. Regarding the federal ‘job guarantee’ proposal, this was Warren Mosler’s tweet (a reply to a Global Institute for Sustainable Development’s tweet sharing a poll finding that says 52% of Americans support a federal JG, even more so if those jobs help mitigate and adapt to climate change. 66% support Green New Deal-style proposals):

“I see those jobs as ‘standard’ gov jobs with standard federal pay and benefits etc. The jg isn’t meant to replace/undermine ‘normal’ gov employment.”—Warren Mosler

Perhaps Mr. Mosler is now seeing what Jim ‘MineThis1’ Boukis and Charles ‘Kondy’ Kondak have been saying all along at Pure MMT for the 100%, which is that we already have a military and a civil service (we already have a federal ‘jg’) that could do those jobs.

It seems like Mr. Mosler (now that midterm elections, including his own, are over and he is back to thinking in clear economic ‘description’ MMT mode instead of political ‘prescription’ MMT mode) is getting concerned about MMTers framing their jg as being needed to do those jobs. Which would have the unintended (‘neoliberal’) consequence of replacing/undermining the military & civil service workforce—as well as all other (‘progressive’) automatic stabilizers already in place.

 

 

 

Political ‘Prescription’ MMTer Kids Say The Darnedest Things

These ‘scholars’ are so quick to downplay federal taxation when it comes to peddling their dopey policy proposals (like having the federal gov’t spend $500B creating make-work JG ‘jobs’—during a labor shortage), that if you dare question the merit of using federal taxes on their ideas (if you don’t think a certain progressive agenda’s spending proposal is a good use of surplus funds), then the political ‘prescription’ MMTer will reprimand you for not understanding that ‘taxes are a false narrative’ (that ‘taxes are irrelevant’) and that you need to stop being a ‘racist’.

“You’ll see me fighting against people saying ‘the taxpayer dollar’ because saying it is a racist xenophobic trope that is used to great precision.”—Green Party of Pennsylvania November Conference Keynote speaker Steve Grumbine

“‘Taxpayer funds’ is a false narrative.”— Francisco Flores (@FFlorescpa)

“The proceeds from federal tax collections are irrelevant.”—Ellis Winningham

BUT…

 
…if you listen to what these political ‘prescription’ MMTers also say about federal taxes when it fits their narrative, you’ll hear something like this:
 
“Number 9, federal taxation allows the US Government policy space to provision itself.”—Steve Grumbine, ’10 MMT truths’
 
“If inflation starts getting out of hand (say, approaches 4%), take action: Congress increases federal tax rates aggressively across the board…”—FFlorescpa, ‘Financing Economic Solutions to Unemployment and Accompanying Social Problems’
 
“MMT is quite extensive. It is not as simple as ‘Hey, federal taxes don’t fund federal spending’. So, to the activist I will say that if you only discuss this singular point endlessly, you are leaving a huge hole for people to drive a truck through. You are creating your own headaches.”—Ellis Winningham
 
And just like that, federal tax collections are relevant, taxpayer funds aren’t a false narrative, and if you are talking about taxpayer dollars then you aren’t a racist.

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Once upon a time when MMT was the description not the prescription…

MMT & the Fourth Spark Plug: Descriptive vs. Prescriptive revisited

Once upon a time, before MMT was hijacked by ‘scholars’ that put themselves in charge of ‘solving’ your problems and ‘helping’ people, MMT was the description not the prescription.

As they keep trying to self-fulfill their gloom-and-doom prophecies (while capitalism solves our problems and people help themselves), political ‘prescription’ MMTers, who want to dismantle capitalism and replace it with a cradle-to-grave welfare state, keep pushing fake narratives like ‘The US economy is a junk economy’. Just like the stereotypical (untrustworthy) used-car salesman, they keep using slick stories, like the ‘unconnected spark plug’, to make their sale for the ‘Job Guarantee’ (a Universal Basic Income with a soviet-style, make-work requirement).

Rather than condemning those unemployed spark plugs into a $500B federally-funded Job GUARANTEE program (during a labor shortage and that by ‘prescription’ MMT design doesn’t compete with private sector jobs); perhaps a better idea would be to connect them with a job TRAINING program (that gives them the needed skills to get private sector jobs). Which is exactly what the current administration is doing right now AND we are seeing good results (i.e. record-low unemployment, increasing wage growth —above 3% —not seen since the recession and all this Fed unwinding because the economy is getting stronger).

NOTE: Just to keep this post apolitical, it’s fine if you don’t credit Trump for that (and let’s just instead credit all the presidents plus We The People because we are all in this together).

The political ‘prescription’ MMT notion of a ‘free lunch’ (don’t worry about How Are We Going To Pay For It…’because MMT’) ignores the unintended consequences of good intentions.

Do you really think that if tomorrow, the federal gov’t started assigning the unemployed with a ‘guaranteed’ chore and gave them a ‘living’ allowance (giving them a fish so they eat for a day), that *poof* they would be better off (versus teaching them the skills how to fish so they eat forever)…because MMT?

Do you really think that if tomorrow, the federal gov’t started paying for an uninsured’s healthcare, that *poof* they would start taking better care of themselves and begin living a healthier lifestyle (versus a plan where the federal gov’t annually funds your own personal tax-advantaged Health Savings Account starting at age 19 which creates a greater incentive to live a healthy lifestyle)…’because MMT’?

Do you really think that if tomorrow, the federal gov’t forgave someone’s student debt, that *poof* they would become financially responsible, make sound spending decisions and no longer rack up personal debts (versus having the federal gov’t relax/reform bankruptcy laws on nondischargeable debt)…’because MMT’?

If so, then I have a used car to sell you that’s “running terribly, sputtering and with little power” but don’t worry, the only thing wrong is that “one of the spark plug cables is simply unconnected”.

Thanks for reading,

Follow us at Pure MMT For The 100% https://www.facebook.com/PureMMT/

P.S. If you want to learn how money works, then you need to learn how money trades, so follow MINETHIS1 and his REAL MACRO instructors:

https://www.facebook.com/InvestingMMT/

Pure ‘prescription’ MMT v. Political ‘prescription’ MMT

Anyone thinking ‘work less’ —in a country where all the people work such long hours that there is *literally* a word for people that *actually* collapse from sudden occupational ‘overwork death’ (Karōshi  過労死)— would have understandably been considered a space cadet.

Presenting Japanese billionaire Yusaku Maezawa who says that working less, not more, was EXACTLY the reason why he could build a company worth $8B and land a ticket on the moon.

The short workday is the reason for the success of his company ‘Zozo’, where he encourages employees to work more efficiently and find more inspiration outside the office.

“When our employees began working differently, under the program, they stopped wasteful activities, wasteful conversations and wasteful meetings. As a result, they could concentrate more, be more productive and then go home after six hours,” Maezawa said at the Foreign Correspondent’s Club of Japan, where he held a news conference about his lunar trip.

Now there’s an idea that might also work in the US.

Let’s call it the federal ‘Less Hours On The Job Guarantee’ program.

The Pure ‘prescription’ solution is to get the person working in your office for only six hours a day to be just as productive (same output) as the person working in your competitor’s office for ten hours a day.

The Political ‘prescription’ solution is to simply pander to your employees, telling them that the government should create more jobs (Job Guarantee), create more dollars (more deficit spending) and call it a day.

If we had a jobs shortage problem, then a temporary ‘job guarantee’ program could be needed, but we don’t have a job shortage problem right now, we have a labor shortage problem right now. When companies are starving for workers, you need more workers, not more jobs. During record-breaking jobs growth, when cities are offering to pay you a bonus / pay your moving expenses / pay off your student loan debt to come work there, you don’t need the government to create more jobs, you need the government to try to get the workers that are already working in the labor force to work more productively.

When it comes to workers, that’s Pure ‘prescription’ thinking.

The same goes for dollars. We don’t need more dollars (more deficits), we need to get the dollars already in existence in the banking system working more productively.

That could help ‘defrost’ some of the $$$, to get them out from the nonfunctional (financial) economy and back into the functional (real) economy. In other words, more ‘deficits’ for more ‘this’ and more ‘that’, which always sounds so virtuous (what your listeners want to hear), isn’t always the best idea (what your listeners need). Sometimes less is more. Shortening the workweek, that’s your classic example of Pure ‘prescription’ MMT v. Political ‘prescription’ MMT.

“The answer lies in organic solutions, that unlock nonproductive savings back into productive capital. We need an eco-feedback loop that embraces human capital producing more useful output instead of continuing to increase gov’t deficits that results in just more capital producing more capital.” —Jim Boukis

Thanks for reading,

Follow Jim ‘MineThis1’ Boukis and his instructors at #REALMACRO INVESTING https://www.facebook.com/InvestingMMT/

 

Dow DOWN 2.41% (-608) TWO WEEKS BEFORE MIDTERMS (!) ‘Yikes’ or ‘Yawn’ (?)

OCT 24, 2018 (TWO WEEKS BEFORE MIDTERMS): Nasdaq down 4.43% (-329)…S&P 500 down 3.09% (-84)… Dow down 2.41% (-608)

‘Yikes’ or ‘Yawn’?

As far as the stock market goes, it’s a ‘yawn’ (and get ready to start saying ‘yippee’).

YEAR-TO-DATE: Nasdaq (7006 7108) is UP 1.45%

YEAR-TO-DATE: S&P 500 (2695 2656) is DOWN 1.45% (The S&P 500 officially closed in ‘correction’, meaning down over 10%, from a record high reached on Jan 26th, from 2872, down to 2581, on Feb 8th; and today 10/24/18, while being back in correction territory during market hours, closed down 9.3%, just shy of official correction, from the record high reached September 21st, from 2929 down to 2656).

YEAR-TO-DATE: Dow (24824 24583) is DOWN 1%

“Relax…Everything is fine…There’s nothing bad out there…We still have a way to go before we see wage or profit margin compression…Right now only 2 of the 6 recession indicators that I have are checked off, the third one is the yield curve inversion that hasn’t happened.”—Logan Mohtashami 10/23/18

Two of his six recession indicators, meaning Logan only sees about a 33% chance of recession, or in other words, about a 77% chance of no recession, so this economy, this market, still has a lot more upside potential. This correction is a ‘yawn’ and get ready to start saying ‘yipee’ at the end of the year.

IS THIS A RERUN OF 1987 when another strong Republican president had the market routinely breaking records? On 08/17/1987 the Dow Jones Industrial Average closed above 2700 for the first time at 2,700.57 (+40% year-to-date). On 10/19/1987 ‘Black Monday’, stock markets around the world suffered an unexpected dramatic drop, with the DJIA closing at 1,738 after falling 508 points (-22.6%), the largest one-day drop in recorded stock market history, AND first financial crisis of the modern globalized era, BUT the DJIA ended 1987 closing at 1950—UP 1% for the year.

IS THIS MIDTERM ELECTION UNCERTAINTY of a close race? The Blue Team, down two touchdowns (the White House and the Supreme Court), are now at Fourth & Goal and they need to score, they need a touchdown (either the House and/or the Senate), for some locker room enthusiasm before the start of the second half. Blue *might* score, OR all this is just ‘noise’ posing as ‘uncertainty’ and the market has already factored in that on Nov 6th, Red will easily stop Blue at the goal line.

IS THIS ‘TAPER TANTRUM 2’? The 2018 stock market corrections and the 2013 taper tantrums were both caused by expected and actual surges in US Treasury yields. Higher interest rates can be unfriendly to stock prices. Equity markets can be spooked easier in a rising interest rate environment (as per Warren Buffet, rising rates are like increased ‘gravity’ on stocks). In 2013, the market had a tantrum over expected FOMC rate rises to come following the Fed’s announced bond buyback reductions (officially ending the ‘QE’ years); and now in 2018, the tantrum is over the Fed’s actual FOMC rate rises that recently went above the ‘accommodative’ level (officially ending the ‘easy money’ years). However, keep in mind, that the reason why interest rates have been moving up is simply because the economy is doing better, which is of course, good for stocks. For example, even with the taper tantrum in the spring of 2013, U.S. stocks closed 2013 at records, with the S&P 500 ending the year with a strong finish, posting its largest annual jump in 16 years (UP 29.6%) and the Dow its biggest gain in 18 years (UP 26.5%).

OR PERHAPS THIS IS ABOUT CHINA? Rather than being about US politics and US economics (being mostly about anything going on locally); it’s probably more likely that the US stock market jitters of 2018 are mostly about the ‘trade war’ and what it means for the world’s second largest economy (being about things going on internationally). When details of the newly-agreed U.S.-Mexico-Canada Agreement (USMCA) were made public, it soon became apparent that President Trump was doing more than just ‘saber-rattling’ against US trade deficits but also circling the wagons in an us (free-market economy) vs. them (‘non-market’ economy’) pendulum swing that threatens a paradigm shift of future supply chains / industrial clusters away from China. The deal brings the US trade relationship with Canada and Mexico into the 21st century, which also includes a modernized, high-standard and never-before-seen rider that provides strong protection and enforcement of North American intellectual property rights. In another bad omen for China, the new agreement will keep up with the fast-changing American economy that, together with the Tax Cuts and Jobs Act (that included a US corporate tax cut from 35% to 21%, a lower one-time tax on repatriated profits earned overseas, and letting companies immediately deduct 100% for the cost of new equipment in the same tax year), reduces the incentives of US company offshoring (of manufacturing jobs leaving the US). The new trade agreement means the end of the United States delegating manufacturing to China; and the beginning of a renewed focus on American nation-building, putting American manufacturing first, bringing back the aggregate demand that reopening those shuttered US factories brings their communities and creating more opportunities for American citizens to get REAL jobs to make the American economy great again—not just fake ‘job guarantees’ that political ‘prescription’ MMTers keep promising you along with more free ‘this’ and more free ‘that’.

Thanks for reading,

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

P.S. ‘Full disclosure’, I had some ‘inside information’ when writing this post and concluding that China’s economic jitters this year was mostly to blame for the jitters in the US stock market. Full disclosure, after 30 years in the financial field as a US Treasury bond broker, I retired and moved to Bangkok at the end of 2015. Since my wife of 24 years and I, moved here, the Stock Exchange of Thailand, has done well, the SET Index has gone from 1244 on 01/08/16 to 1828 on 01/26/18—UP 47% during the past two years. Until this year, however, when the US ‘trade war’ with China, the world’s second largest economy, started getting more serious and then the SET Index went DOWN 14% for 2018 after hitting a low of 1595 on 06/29/18. China is Thailand’s largest trading partner. In addition, for decades, the largest number of tourists visiting Thailand, are Chinese. So Thailand relies heavily on both tourists and trade from China. China’s stocks, the Shanghai Composite Index, dropped to their lowest level in nearly four years in September and at this writing is down 20% year-to-date for 2018. Throw a depreciating Chinese currency—the weaker yuan—into that mix; and it becomes more obvious that the Chinese are understandably tightening their belt, which affects the Thai economy, which is causing Thai stock market jitters, which is why many local Thais say their business is very slow (and why my landlord hasn’t raised my rent for 2019).

P.S.S. On 12/06/18, S&P 500 futures sank into correction territory during NY intra-day trading (for the third time in 2018) on news that Canada had arrested the chief financial officer of Huawei, the Chinese telecoms giant, the world’s second-largest smartphone maker, at the center of a spying row. Don’t let yourself think that global economic weakness this year had nothing to do with the China-US trade row; or that this ‘trade war’ with the world’s second-largest economy is just about trade deficits and tariffs. Chinese tech companies are now under intense scrutiny, driven by concerns from Washington (and Britain’s MI6 intelligence service) that they are being used by the Beijing government for spying—posing a threat to both the corporate and national security of the US and any US allies. Huawei, the Chinese telecoms giant, has long been under scrutiny over its allegedly close ties to China’s state intelligence services. After being rigorously tested, Huawei equipment was banned in the US and Australian governments. After more than a decade using equipment of Huawei, Britain’s largest mobile provider (BT) revealed that it was stripping it from its core 4G cellular network after similar moves by the US. Japan’s government plans to ban purchases of equipment from Huawei (and China’s ZTE Corp) to beef up its defenses against intelligence leaks and cyber-attacks. Taiwan is reinforcing its five-year-old ban on Huawei and ZTE which ‘have been effective in minimizing the threat that back-doors built into Chinese network equipment gives Beijing access to military and economic secrets.’ New Zealand’s government is making similar moves to cut ties with Huawei, which was founded by Ren Zhengfei, a former member of China’s People’s Liberation Army, and has been consistently met with suspicion in the West. After her arrest in Vancouver, American prosecutors are seeking to have Huawei CFO Wanzhou ‘Sabrina’ Meng, the daughter of Ren Zhengfei, extradited to the US, as they continue to investigate whether the company broke trade sanctions against Iran. “The China-US trade row could become a protracted war. Without any solid evidence, the Canadian and US governments trampled on international law by basically ‘kidnapping’ Chinese citizen Meng,” an official with the Chinese Ministry of Commerce said in a Global Times op-ed following her arrest.

P.S.S.S. After the US stock market closed in correction territory (down 10.44% from the all-time record high) on Friday 12/07/18, a Bloomberg headline screamed: 


“S&P 500 Volatility Hammering Bulls and Bears For Two Months”

Translation: It’s a sideways market.

‘Yawn’…and IMO…once the US-China negotiators settle their differences and end this trade dispute, get ready to say ‘Yippee’.

Follow MineThis1 (who has been saying it’s a sideways market all along) and his REAL MACRO trading instructors at https://www.facebook.com/InvestingMMT/

 

(G-T) + (I-S) + (X-M) = 0

Perhaps nothing has lead the MMT Party and their #FAKEMMT followers off the cliff more than that ‘Sectoral Balances’ equation. It’s just another source of more deadly fraudulent innocent misinterpretations, because just like the Monopoly Game (Monopoly rules state that no Player may borrow Monopoly Money from another Player), it is only talking about ‘vertical’ dollar adds (federal gov’t creation), AND NOT ‘horizontal’ dollar adds (bank creation). In other words, Charles Darrow (who wrote the Monopoly Game rules) understood pure ‘description’ MMT in 1933 better than most fake ‘prescription’ MMTers do today.

“I have been giving myself a headache thinking through that simple ‘Sectoral Balance’ equation which underpins the MMT Party’s (who are so fond of saying they are describing ‘operational reality’) assertions that Government Deficits = Private Sector Savings. The headache finally passed when I realized that for Government Deficits to equal Private Savings, the (I – S) part of the equation must net to 0, as if only Government Deficits can add to Private Savings. Sure, those Government Deficits do add to Private Savings and I do basically understand what the MMT Party is trying to say, but as the sole source of Savings (?) That’s where they go off the rails. The MMT Party is netting out the Private Sector’s ability to create money ex nihilo (‘out of nothing’) through the banking system (which can also add to Private Savings). The MMT Party maintains that bank-created money cannot add to Private Savings (and they will go to great lengths trying to prove it’s an illusion). Does anyone really believe that (I-S) must net to 0 in order to get to Government Deficits = Private Savings? If so, you are not describing the ‘operational reality’ of our capitalist economy and you do belong in the MMT party, comrade.”—Charles ‘Kondy’ Kondak

That’s exactly right…While #FAKEMMTers are saying ‘Their deficits (their red ink) = Our savings’, Pure MMTers are asking ‘Their deficits = WHOSE savings’ (WHOSE black ink) because most of the deficits bypass the 95% (they get whacked up between the foreign sector and the 5%). Sure, IF (I – S) was equaling zero, IF all bank loans were ‘netting-to-zero’ and IF the US trade deficits were zero, Their deficits = Private Savings, but even then, those federal gov’t deficits would still eventually wind up with the 5% (in the savings bubble).

In addition, as per Egmont Kakarot-Handtke, creator of the AXEC New Foundations of Economics website, the sectoral balances equation is incomplete at best; or wrong, at worst. He posits that [‘G’ov’t spending – ‘T’axes] + [‘I’nvestment – ‘S’avings] + [e’X’ports – i’M’ports] DOESN’T EQUAL ZERO at all. He is saying that, albeit being an identity, the equation is useless because it ignores business profit (it deals with a neo-marxist zero-profit utopia). So to reflect reality, the sectoral balances equation should include profit (two more variables), ‘business monetary profit’ (Qm) and ‘distributed profit’ (Yd).

The Profit Law’ is expressed as (G – T) + (I – S) + (X – M) minus (business profit – distributed profit) = 0

Which reduces to Public Deficit = Private Profit.

Just like the Daily Treasury Statement proves that taxes are not ‘destroyed’, this Profit Law proves that deficits feed the savings bubble. Egmont is not a fan of fake ‘prescription’ MMTers. He notes (correctly) that MMTers’ (the ones pointing their fingers at ‘evil neoliberal murders-by-proxy’) policy guidance ultimately boils down to more deficit-spending / money-creation and since it is a macroeconomic fact that Public Deficit = Private Profit, “the MMT Party policy of ever-increasing public debt amounts to the permanent self-financing of the oligarchy.” In other words, they (#FAKEMMTers ‘prescriptions’) are money-makers for the one-percenters. “MMT is ALWAYS a bad deal for the ninety-nine-percent”, he adds.

“Investment is money that’s circulating in the economy and Savings is money which isn’t circulating in the economy, all in relation to the private sector.” —Damian Penston

Bingo…However, #FAKEMMTers don’t see it that way. The MMT Party fails to grasp that ‘Our Savings’ isn’t circulating in the economy; or they choose to ignore this fact that ‘Their Deficits’ detours the functional (real) economy and head to the nonfunctional (financial) economy because it doesn’t fit their virtuous marketing narrative.

The answer to economic problems (like wealth inequality, low wages or underemployment) is not the fake MMT ‘prescription’ fix-all of more ‘this’ and more ‘that’ (more federal deficits). As per Jim ‘MINETHIS1’ Boukis, the answer lies in organic solutions, that unlock nonproductive savings back into productive capital. “We need an eco-feedback loop that embraces human capital producing more useful output instead of continuing to increase gov’t deficits that results in just more capital producing more capital.”

Meanwhile, the MMT Party (pushing ideological fake ‘prescription’ MMT under the guise of promoting pure ‘description’ MMT) repeats mantras like ‘Their Deficits = Our Savings” to their choirs and call it a day (to avoid headaches).

Thanks for reading,

Follow Jim ‘MineThis1’ Boukis at IMMT – Investing Using Modern Monetary Theory https://www.facebook.com/InvestingMMT/

H/T Egmont Kakarot-Handtke (@AXECorg on twitter) https://axecorg.blogspot.com/2018/03/dsge-and-profit-forget-it-mmt-and.html

P.S. In future posts, MineThis1 elaborated on this some more, referring to it as the ‘Household savings v. Business profit conundrum’.  MMTers need to go beyond the ‘Their Deficits = Our Savings’ catchphrase and grasp WHOSE Savings Do Federal Deficits Equal? The answer is less and less household savings; and more and more business ‘savings’ (aka profit). “The imbalance between household savings vs business savings will only get worse with more deficits.”—MineThis1

P.S.S. Why saying ‘THEIR DEFICITS = OUR SAVINGS’ (or ‘Their red ink is Our black ink’) is not entirely accurate:

For example, if Federal Gov’t Sector (G-T) + Non Federal Gov’t Domestic Sector (I-S) + Non Federal Gov’t Foreign Sector (X-M) = 0

…and in 2015 the US federal gov’t deficit (G – T) was $439B…

…and in 2015 the US trade deficit (X – M) was $500B (meaning a foreign sector SURPLUS of $500B)…

(-439) + (I-S) + (+500) = 0

So in 2015, that third component, the Non Federal Gov’t Domestic (private sector) SAVINGS WAS NEGATIVE $61B.

(-439) + (-61) + (+500) = 0

Their deficit = Whose savings?

Wait…There’s more.

$157B federal gov’t deficit in 2002:

$532B surplus to non federal gov’t / Foreign sector

(-$375B) deficit from the non federal gov’t / private sector

______________

$378B federal gov’t deficit in 2003:

$532B surplus to non federal gov’t / Foreign sector

(-$154B) deficit from the non federal gov’t / Private sector

______________

$412B federal gov’t deficit in 2004:

+$655B surplus to non federal gov’t / Foreign sector

(-$243B) deficit from the non federal gov’t / Private sector

______________

$318B federal gov’t deficit in 2005:

$772B surplus to non federal gov’t / Foreign sector

(-$454B) deficit from the non federal gov’t / Private sector

______________

$248B federal gov’t deficit in 2006:

$647B surplus to non federal gov’t / Foreign sector

(-$399B) deficit from the non federal gov’t / Private sector

_______________

$161B federal gov’t deficit in 2007:

+$931B surplus to the non federal gov’t / Foreign sector

(-$770B) deficit from the non federal gov’t / Private sector

_______________

$458B federal gov’t deficit in 2008:

+$817B surplus to the non federal gov’t / Foreign sector

(-$359B) deficit from the non federal gov’t / Private sector

We all remember what happened in 2008.

If you take a step back from the picture, in effect, all those years above, from the perspective of the US private sector, those years had the same debilitating consequences as if the federal gov’t, by proxy, ran sustained budget surpluses.

In other words, for seven straight years prior to the last recession, the worst economic crisis since the Great Depression, ‘Their red ink WAS NOT your black ink’.

OVERHEARD @ IMMT

“MMT ‘scholars’ mock Ben Bernanke for saying ‘public debt is a problem’.

While everyone laughs, he is right.

The national ‘debt’ is 170% of GDP, which would have been catastrophic 30 years ago, but today, it’s not. PE stock values of 28 today would have been extreme 30 years ago, but today, it’s not. It’s a ‘conundrum’ that the prices of bonds are so high as well (that the long term interest rates are so low).

Those high federal gov’t deficits, those high stock valuations and those high bond prices are not a coincidence, why?

A) The savings bubble

Deficits wind up in savings.
Fake MMTers say ‘Their deficits = Our savings’.
Pure MMTers ask ‘Their deficits = Whose savings?’
A) The 5%.

It can be seen everywhere.

Instead of GDP outperforming debt, the reverse is happening (because of the savings bubble).

Noninflation in the functional economies v. higher inflation in the nonfunctional economies.

Unproductive capital (production of capital with capital) without increases in production of goods (relative to the amount of dollars, pounds, euro, & yen being pumped into the economy).

While laughing at the Fed, the MMT ‘scholars’ are suggesting a Soviet ‘Job Guarantee’ (spending $500B on having the gov’t create ‘jobs’ during a labor shortage) while having no idea that their ‘remedy’ (their #fakemmter ‘prescription’) of the problem only enhances it.”—Jim ‘MINETHIS1’ Boukis, creator of the Investing Modern Monetary Theory Facebook page

P.S. MINETHIS1 is right. When monetary policymakers (Ben Bernanke or Janet Yellen or Jerome Powell) say we need ‘to lower our federal debt’ because ‘our fiscal course is unsustainable’, they don’t mean in a financially-sustainable sense. The Fed knows that the US federal gov’t, the issuer of dollars, can’t ‘go broke’ or ‘run out of dollars’ (like anyone else, a user of dollars, can). The Fed knows that the US federal gov’t is not in ‘debt’, because they know that those Treasury bonds are now denominated in fiat dollars (unlike during a bygone era when those bonds were denominated in gold-backed dollars). There is no such thing as the issuer of US dollars being in debt in US dollars (just like IBM, the issuer of IBM stock, is never in ‘debt’ of IBM stock). However, 95% of The People don’t know this, so the Fed has to keep talking in code about the ‘debt’. Just like when fiscal policymakers talk in code and say things like ‘We can’t afford that’ or ‘How are you going to pay for that’, they are talking in code. For example, if you have to explain to a PhD in Economics WHY her proposal to spend $500B for the federal gov’t to create quote ‘jobs’ unquote during The Largest Jobs Growth in Human History, during a labor shortage, is an idiotic idea (is obviously another ‘free ponies for votes’ ploy that only attempts to solve a political problem—not an economic one), THAT’S why the busy policymakers just say ‘we can’t afford that’. It’s the same reason why a busy parent in the supermarket says ‘we can’t afford it’ to a child that wants more candy ‘this’ and more candy ‘that’ because that’s what you do (you tell white lies to those you can’t reason with).

Thanks for reading,

Pure MMT for the 100%

Follow us at https://www.facebook.com/PureMMT/

 

ENCL: IMMT Patreon page link to ‘IMMT Exposes FAKEMMT PARTY and Soviet Job Guarantee’.

https://www.patreon.com/posts/21536734

P.S. As of October 2018, IMMT is called ‘REALMACRO INVESTING’ (RMI). The reason being, that ‘modern monetary theory’ has become too political, too toxic and too loony to be associated with real-world econ, so Jim ‘MineThis1’ Boukis decided (correctly) that he should no longer use the letters MMT anymore. Here in his own words, he explains the reasons for the name change:

“HELLO! #REALMACRO INVESTING!
BYE! BYE! IMMT!

After years of hoping that MMT would not turn into the laughing stock of the economic community with extremist political, Neo Marxist and cult groups such as the Real Progressives, it has been decided that IMMT will no longer be associated with MMT cheap circus act.

We have tried for years to save MMT by sticking to the ‘Description’ and avoiding the ‘Prescription’ Political MMT Party, Soviet Sympathizing, Free lunch, economic Voodoo that it has become: Full of oversimplification, memes, lies, with over-promising and under-delivering rhetoric.

We have also during that time taken an incomplete MMT theory and made it more whole while simplifying it in the process. Most importantly we made it applicable in the Real World! Not just on some spreadsheet.

Our great efforts for the past few years has added the two missing sectoral balances, Household and Business, within the private sector that reveals the truth behind unnecessary deficits beyond the scope of removing fear in the markets. When the two missing sectoral balances are plugged in then show that:

Households must DISSAVE in order for Businesses to have PROFITS.

One can easily see that unnecessary deficit spending only lead to savings for the top 5% in Profit/savings. Thus “(Their) Gov’t Deficits = (Our) Private Sector Assets” really means Private sector assets for the top 5% and not the 95% which fake MMT most desperately wants you to believe. In short, Trickle Up economics is just as bad as Trickle Down economics.

We also corrected and simplified the constant redefinition of money and what it is with ‘All MONEY IS MONEY’. No more reserve money, high powered money, net financial assets money, horizontal money, tax credit money, bank credit money, treasury money, tax debt money, endogenous money, exogenous money, unit of account money, debt money, IOU money, M1 M2 M3 money, fiscal space money, gold money, real money, on and on. These are all designed to confuse people by pseudo-intellectuals to push their cultist political views. As you can see above, the word money is constant. They are all denominated in dollars. That is all one needs to know. ALL MONEY IS MONEY!

We exposed the lie that federal taxes, when collected, are destroyed. Only surpluses that result in Treasury bond debt repayment can destroy money.

We exposed that higher rates cause inflation due to increase money supply. That is the cart ahead of the horse voodoo economics. Rates rise as a consequence of the economy is booming. We also exposed that limiting the money supply cause higher FOREX prices. Absolutely not true. EUROZONE has imposed Austerity and running current account surpluses. The result? EUR collapsed from 1.60 to as low as 1.03. Another failed MMT prediction.

We exposed the job-creating ‘Exports are a cost’ and job-destroying ‘Imports are a benefit’ fallacy. As Venezuela, Argentina, Turkey, Egypt, Russia, India, Tunisia etc. have proven that is not the case. Not even close. Qatar as a fine example showed that its isolation from neighboring trading partners never lost the peg to the USD due to large exports and foreign reserve money holdings. While print borrow and import countries that faced similar problems collapsed their currencies and most saw high unemployment and inflation.

We exposed that Taxes drive the currency or ‘value the currency’. Just look at the Middle East countries that do not tax.

We also exposed that MMT has no model to predict inflation, let alone deal with inflation other than to impose spending cuts, higher taxes pitchforking the rich, after the fact. Which is not an even economic solution but again a political one.

MMT predicted economic recession since 2015, 16, 17, 18 and now, 19. We also debunked that as well as we debunked that a ‘Job Guarantee’ is needed during a labor shortage, while companies are starving for workers in the midst of the longest job expansion in history.

Clearly, MMT is not MMT but rather the #FAKEMMT PARTY. Even the #FAKEMMT PARTY is an utter disaster as a political movement. Mosler with 8k followers on Twitter and Natasha Kelton 34k. Despite the Trump election outcome, and the Bernie Sanders movement and the publicity. Not to mention all the money thrown at it for the Marketing campaign.

The MMT brand has been trashed by the likes of the emotionally unstable, and emotionally bankrupt, Steve Grambine (AKA SNIFFLES) since he is always on youtube pretending he is crying, exploiting cancer victims and even his own son to scam money out of people. Mike Mousey Boy Norman promising all profits and blowing people’s account out. While the Wigs Natasha Kelton, Bill Bitchell, Mosler, Wray etc. continue to support such an extremist cult.

IMMT no longer wishes to hold the last torch to salvage the MMT brand, nor should #FAKEMMT benefit from all the hard work we have done over the years. MMT has become a huge disadvantage for IMMT. As soon as people see the MMT in our logo we are automatically blocked, laughed at and ridiculed before we even have a chance to make our PUREMMT case. Simply embarrassing, IMMT has been tied to a sinking ship.

#RealMacro Investing is Born! in the days and weeks ahead you will see us transform and continue to give people what they really want and have always expected from us. The Real Macro Economic Facts. We will continue to enhance the product and in doing so build our brand with winners who care bout the real world data.”—Jim ‘Minethis1’ Boukis 10/22/18