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Banks, QE, and Money-Printing

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Re: Banks, QE, and Money-Printing

#21

Post by JumpCrisscross »

siwatanejo wrote: post #3
UncleSlacky wrote: post #2

I recommend Stephanie Kelton's "The Deficit Myth" for more background on MMT: https://www.amazon.com/Deficit-Myth-Monetary-Peoples-Economy...

The point of that woman is simply: let the deficit go up ad infinitum (in USD value), it doesn't matter because as the central bank keeps printing money, the value of the deficit actually goes down (because the USD value goes down), so the value of the deficit is stable even if we don't perceive it to be this way. Quite BS imo

MMT is a neat theory. The mathematics are quite elegant. Unfortunately, like a lot of beautiful macroeconomics, it isn’t a policy prescription. (Though it provides ivory tower cover for bad policy.)

Reserve currency status does afford increased deficit-spending capacity. But it isn’t an immutable, environmental variable. Deficits and reserve currency status interact. If a country runs up large deficits in the name of its reserve currency it affects others’ inclinations to hold the currency in reserve.

Precisely where this happens is difficult to predict. It involves many levels of animal instincts. That it happens, however, is well evidenced.

By analogy: we know the plane will safely travel at a 300 flight level. There is theoretical work for higher FLs. Do you point up the nose of a fully-loaded plane until the wings or engine or fuselage fail?

Piloting federal fiscal policy on MMT is akin to steering the plane to FL 100 and keeping an eye out for a stall. You might get lucky. But you should have experimented in smaller and more-controlled settings first.

Re: Banks, QE, and Money-Printing

#22

Post by zelos »

turbinerneiter wrote: post #15

If they print money to build new roads, bridges, (clean) power plants, schools -> good. If they print money to put in stocks and real estate -> bad. The one thing creates real value and enables more real value creation in the future. The other one has no effect on the real economy and wages. Driving real estate prices is even bad: at some point, no real economic strategy (aka. business model) is able to sustain the n…

As someone who really doesn't understand economics: if the government prints money to build infrastructure, where does the value they've added come from? I can't follow the logic of it: the government makes some money and pays a load of workers to build a bridge. It seems like the bridge is 'free', paid for with bits of paper they printed. Is the real cost the increased price of bridge building for everyone else, because demand for bridge builders is pushed up?

Re: Banks, QE, and Money-Printing

#23

Post by travisoneill1 »

xuki wrote: post #10
siwatanejo wrote: post #3

Earlier quoted context omitted.

The point of that woman is simply: let the deficit go up ad infinitum (in USD value), it doesn't matter because as the central bank keeps printing money, the value of the deficit actually goes down (because the USD value goes down), so the value of the deficit is stable even if we don't perceive it to be this way. Quite BS imo

Yet it’s very tempting for politicians to implement exactly that, because to tax people to pay for stuff is not very popular politically. They will always, always, always kick the can down the road.

Yeah, I get the feeling that this theory is mostly based on the fact that the consent of elected representatives is required to raise taxes, but not to print money.

Re: Banks, QE, and Money-Printing

#24

Post by JumpCrisscross »

zelos wrote: post #22
turbinerneiter wrote: post #15

If they print money to build new roads, bridges, (clean) power plants, schools -> good. If they print money to put in stocks and real estate -> bad. The one thing creates real value and enables more real value creation in the future. The other one has no effect on the real economy and wages. Driving real estate prices is even bad: at some point, no real economic strategy (aka. business model) is able to sustain the n…

As someone who really doesn't understand economics: if the government prints money to build infrastructure, where does the value they've added come from? I can't follow the logic of it: the government makes some money and pays a load of workers to build a bridge. It seems like the bridge is 'free', paid for with bits of paper they printed. Is the real cost the increased price of bridge building for everyone else, bec…

> if the government prints money to build infrastructure, where does the value they've added come from?

Increased real productivity. Imagine a toy town where only two goods are produced on opposite sides of a river. To trade them, risky river crossings risking product and person must be attempted.

A bridge removes that risk and cost. The town will become wealthier for having the bridge despite its cost. (Same for e.g. ancient Mesopotamian, Mesoamerican and Hohokam canals.)

> the government makes some money

If the government prints money to fund its deficit then inflation “taxes” everyone. It is analogous to a company selling stock to do something useful. The share count went up but the aggregate value (hopefully) will too.

Re: Banks, QE, and Money-Printing

#25

Post by fmsf »

zelos wrote: post #22
turbinerneiter wrote: post #15

If they print money to build new roads, bridges, (clean) power plants, schools -> good. If they print money to put in stocks and real estate -> bad. The one thing creates real value and enables more real value creation in the future. The other one has no effect on the real economy and wages. Driving real estate prices is even bad: at some point, no real economic strategy (aka. business model) is able to sustain the n…

As someone who really doesn't understand economics: if the government prints money to build infrastructure, where does the value they've added come from? I can't follow the logic of it: the government makes some money and pays a load of workers to build a bridge. It seems like the bridge is 'free', paid for with bits of paper they printed. Is the real cost the increased price of bridge building for everyone else, bec…

The printed money is effectively diluting everyone's else's money. So technically you could think of it as an indirect tax, because the overall currency value drops.

Similar to a company emitting new shares to pay employees. It's the shareholders who are paying the cost via dilution.

Re: Banks, QE, and Money-Printing

#26

Post by kqvamxurcagg »

The fundamental issue with this article is that the inflation number is a lie. Housing costs are the key cost for every consumer but are excluded from CPI.

Western countries have been running fiscal deficits consistently for decades, QE and low interest rates for 10 years. Yet for academics and central bankers the only answer to growth is more debt.

Low interest rates benefit only the asset rich. They deprive everyone else of investment income. They also prevent essential restructuring as zombie companies stay alive instead of going bust.

High housing costs, caused by low interest rates, are causing a demographic crisis in the west. People literally can’t afford to start a family.

Our economies and culture have a skills crisis not a growth crisis.

---

Edit: To provide some clarity on the comments below highlighting that housing costs are included in CPI. Each country calculates inflation statistics to various methodologies. CPI in the US includes a rent equivalent value which is independent of the actual cost of purchasing a home.

The weighting allocated to housing is also unrepresentative as those entering the job market in cities now are facing housing costs representing 50% of income when most inflation metrics have it at 50%.

Re: Banks, QE, and Money-Printing

#27

Post by VMG »

ChrisMarshallNY wrote: post #6
siwatanejo wrote: post #3

Earlier quoted context omitted.

The point of that woman is simply: let the deficit go up ad infinitum (in USD value), it doesn't matter because as the central bank keeps printing money, the value of the deficit actually goes down (because the USD value goes down), so the value of the deficit is stable even if we don't perceive it to be this way. Quite BS imo

Printing money is a bad idea. You think we had it bad, check out what happened here: https://alphahistory.com/weimarrepublic/great-depression/ I seem to remember something else, rather alarming, that happened after that...

MMT proponents will have a list of reasons why this will not happen with the USD (because it is a reserve currency etc)

The arguments are unconvincing because the USD could lose that status.

Re: Banks, QE, and Money-Printing

#28

Post by roenxi »

zelos wrote: post #22
turbinerneiter wrote: post #15

If they print money to build new roads, bridges, (clean) power plants, schools -> good. If they print money to put in stocks and real estate -> bad. The one thing creates real value and enables more real value creation in the future. The other one has no effect on the real economy and wages. Driving real estate prices is even bad: at some point, no real economic strategy (aka. business model) is able to sustain the n…

As someone who really doesn't understand economics: if the government prints money to build infrastructure, where does the value they've added come from? I can't follow the logic of it: the government makes some money and pays a load of workers to build a bridge. It seems like the bridge is 'free', paid for with bits of paper they printed. Is the real cost the increased price of bridge building for everyone else, bec…

The economy has two components - today and the future. Today, we decide who gets what stuff. Then the people who have most of the stuff decide what to create for the future.

The bridge isn't free - the resources needed to build the bridge (time, steel, engineering attention, government attention, etc, etc) are being reallocated from someone else who would have used the resources to do something. If the bridge is more productive than whatever the person the money came from wanted then there will be more stuff in the future and prosperity likely increases.

The problem with money printing is it is all but impossible to figure out where the resources are being reallocated from - with taxes it is fairly obvious. With money printing it is not. It may well be impossible to say what we lost to get the bridge built because we can't figure out what would have happened if the money had not been printed.

Re: Banks, QE, and Money-Printing

#29

Post by newdude116 »

kqvamxurcagg wrote: post #26

The fundamental issue with this article is that the inflation number is a lie. Housing costs are the key cost for every consumer but are excluded from CPI. Western countries have been running fiscal deficits consistently for decades, QE and low interest rates for 10 years. Yet for academics and central bankers the only answer to growth is more debt. Low interest rates benefit only the asset rich. They deprive everyon…

" Yet for academics and central bankers the only answer to growth is more debt."

The uttermost definition of capitalism.

"Our economies and culture have a skills crisis not a growth crisis."

Capitalism can't survive without growth by definition.

https://ourfiniteworld.com/2011/02/21/there-is-no-steady-sta...

Re: Banks, QE, and Money-Printing

#30

Post by JumpCrisscross »

syshum wrote: post #16
xwdv wrote: post #8

Earlier quoted context omitted.

What’s BS about it? Using inflation to cheapen debts is pretty common knowledge.

It is also a Tax on Saving, Retirements, and responsible behavior It encourages irresponsibility and debt, and discourages people from saving, planning for their future, and over all acting in a way that is not filled with instant gratification, or extremely leveraging themselves That provides good short term growth, but then you have recessions and depressions because at some point those balance sheets have to be ba…

> It is also a Tax on Saving, Retirements, and responsible behavior

Unexpected inflation is. Predictable inflation is easy to account for.

I live in New York. My basket of goods included until recently rapidly-increasing real estate prices. That is the benchmark against which my money managers are judged. It is true that this forces them to invest more riskily. But that is a systemic lever inflation and interest rates are designed to tweak: low interest rates beget risk taking.

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