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Banks, QE, and Money-Printing

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Re: Banks, QE, and Money-Printing

#101

Post by goatinaboat »

atmosx wrote: post #59
JumpCrisscross wrote: post #45

Earlier quoted context omitted.

> Capitalism can't survive without growth by definition Capitalism prefers growth. It causes growth, which is good. (Growth does not have to mean resource intensity.) It does not require growth. Zero-grow and shrinking economies can allocate resources well through markets.

You mean intellectual growth then? Because for everything else someone somewhere will need very tangible resources e.g. raw materials to build that phone you are using do X or Y.

Because for everything else someone somewhere will need very tangible resources e.g. raw materials to build that phone you are using do X or Y.

The price of a CPU is unrelated to the price of sand. CPUs are 10000x faster over the last couple of decades. So there’s little or no correlation required between raw materials consumption and growth.

Re: Banks, QE, and Money-Printing

#102

Post by ghastmaster »

synnejye wrote: post #75
fmsf wrote: post #25

Earlier quoted context omitted.

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.

Disagree. :-) Printing money does not automatically lead to inflation. Since inflation is just the price of stuff rising, the question becomes, when do prices rise? The price can rise for multiple reasons: The price can rise because the company just wants to charge more, like Apple. The price can rise because a company's underlying cost rises. Maybe some type of metal became more expensive. Either way, the only way t…

> Since inflation is just the price of stuff rising...

Inflation literally is money printing. Price increases is not inflation. Price increases can be caused by inflation. Prices can remain nominally the same while money supply has increased.

> So, do prices rise just because a certain amount of dollars were added to an economy ? No, certainly not. Which is why the money printing should only happen when the economy is dysfunctional.

The prices while having not risen nominally are still artificially inflated. A dysfunctional economy is not a real thing. It is just the economy. If you are referring to a recession, printing money during a recession arguably may not cause prices to rise nominally, but it artificially inflates them. During a recession prices typically go down due to falling demand. This is a good thing. It allows people who are suffering to enjoy lower prices. Recessions are a healing process for a previous period of misallocation of resources. Money printing only serves to exacerbate and extend the misallocation. As the period of misallocation is extended and exacerbated, the recession necessary to balance that is larger and more frightening.

We left the gold standard because we were afraid to deal with the recession from the spending of '60s and we've been afraid to deal with our issues ever since. One day we won't have a choice. Tough times are ahead.

Re: Banks, QE, and Money-Printing

#103

Post by neilwilson »

JumpCrisscross wrote: post #21
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

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…

"Reserve currency status does afford increased deficit-spending capacity."

Reserve currency is essentially a myth. It's just an artefact of double entry bookkeeping in banks.

There are lots of reserve currencies. Every floating rate currency held outside its native borders is "reserve". It's just somebody holding the money - aka savings.

Many countries do that for mercantile reasons to avoid a dutch disease at home. Norway is one, China is the main other.

"Piloting federal fiscal policy on MMT is akin to steering the plane to FL 100 and keeping an eye out for a stall"

It's just excess savings, which are automatically offset by a Job Guarantee. Basic accounting really.

Deficits are just an accounting residual causes by people choosing to save. For there to be a deficit at all somebody has to choose to hold the money. Or there won't be one.

Re: Banks, QE, and Money-Printing

#104

Post by bryanlarsen »

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

According to MMT, inflation is the metric that matters. Since the deficit and inflation are very closely linked, then deficits do matter.

Re: Banks, QE, and Money-Printing

#105

Post by neilwilson »

fuoqi wrote: post #63
cryptica wrote: post #14

Money printing is always inflationary. Either it causes CPI inflation immediately or it's stored up for later. When money printing does not cause immediate CPI inflation, surplus money is stored in scarce assets which creates asset price inflation and increasing fragility which will inevitably lead to CPI inflation later. The fact that new money is mostly backed by debt is irrelevant because those who own a lot of ca…

>You can just do what the government does with treasury bonds; issue new bonds to pay off your old bonds The problem is that there is a limit to how much treasuries you can sell to the market. For a long time US government was able to exploit internal and foreign markets to run deficits, but the "free lunch" has ended. No one wants to buy those treasuries at the proposed rates and volumes anymore. So what did the US…

"The problem is that there is a limit to how much treasuries you can sell to the market."

Why is there? Given that Federal spending puts the reserves in place with which Treasuries are purchased, how can there be a limit?

It's just an asset exchange.

"No one wants to buy those treasuries at the proposed rates and volumes anymore."

(i) What is the bid cover on the latest auctions (ii) Why do you think that matters anyway? The Fed can just leave the bank reserves in place - as it is doing by QE.

Re: Banks, QE, and Money-Printing

#106

Post by newacct583 »

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...

1. Hyperinflation isn't the cause of Nazi Germany, please keep the Godwin goblins under the control.

2. Hyperinflation isn't a natural result of regular inflation. There have been countless governments that have engaged in deliberately inflationary policies. Basically none of them resulted in a hyperinflation spiral.

3. Hyperinflation isn't even caused by spending policies in the first place! It is the result of a collapse in national revenue, forcing a government to print money to honor debts that it can't otherwise pay. This leads to a collapse in confidence in the currency, and more printing, thus the spiral. I'm not aware of any nation anywhere that "printed money" for new spending and ended up in a hyperinflation state. You have a counterexample?

Re: Banks, QE, and Money-Printing

#107

Post by neilwilson »

whytaka wrote: post #83
x87678r wrote: post #39

Earlier quoted context omitted.

>Money printing is always inflationary. Either it causes CPI inflation immediately or it's stored up for later. Japan and Europe disagree.

Where is that money going then?

It can't go anywhere other than Japan or the Eurozone.

What it ends up as is savings - bonds. When those bonds are spent they generate a sequence of further transactions and taxation that pay off the bond.

Bonds are essentially a store of taxation as well as value.

Re: Banks, QE, and Money-Printing

#108

Post by newdude116 »

JumpCrisscross wrote: post #45
newdude116 wrote: post #29

Earlier quoted context omitted.

" 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...

> Capitalism can't survive without growth by definition Capitalism prefers growth. It causes growth, which is good. (Growth does not have to mean resource intensity.) It does not require growth. Zero-grow and shrinking economies can allocate resources well through markets.

You mistake a market economy for capitalism. We had a market economy for a very long time, even in the middle ages. Actually Ludwig von Mises describes this barter based market economies perfect (but fails to understand capitalism).

Capitalism, that we have have since more or less 150 years requires the pre financing on a huge scale of industrial production. This requires debt that can only be, due to interest, paid back with growth.

There can't be a capitalist economy without growth by definition. From the link given by me:

"One big issue with even trying to stair-step fossil fuel use is the fact that our financial system needs growth to keep from collapsing. In order to pay back debt with interest, it is necessary to have economic growth, and financial growth and growth in fossil fuel use are very closely tied. Economic growth can be 2% or 3% above fossil fuel use growth because of efficiency gains, and economic growth in a particular country can be higher than that of world economic growth because of greater outsourcing of manufacturing to other countries. There was even a gain in the late 70s and early 80s, as we picked the low-hanging efficiency fruit and switched to using nuclear. But overall, there is no evidence that fossil fuel use, or even oil use, can be divorced from economic growth. If there is a big decline in fossil fuel use, it will translate to a decline in economic growth.

The need for economic growth in order to pay back debt even applies to our money supply itself. Money is loaned into existence. This happens when a commercial bank makes a loan and deposit at the same time. The problem is that when the money is created, not enough money is loaned into existence to pay back the interest as well. So economic growth is needed to create the additional money so that the debt can be paid back with interest.

Because of this issue, a Steady State Economy (economy without growth) requires a financial system with virtually no debt. It might be possible to have a little debt, but its use would be primarily to facilitate short-term transactions. Debt jubilees at regular intervals might be needed, to keep people from building up much debt."

Re: Banks, QE, and Money-Printing

#109

Post by neilwilson »

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

Deficits are just the accounting counterparty of people saving in the currency of issue.

Why are you against additional saving?

Re: Banks, QE, and Money-Printing

#110

Post by neilwilson »

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.

Take a tax rate of 1%

Now spend $100. Tax it at 1%. Then the next person gets $99 income. Spend it all again. Tax that at 1%. Then the next person gets $99.01. Tax that at 1%. And so on like a stone skipping across a pond.

When you get to the end of the sequence and total up the tax take, what is the value?

You'll be surprised.

Now work out why that doesn't happen in the actual world. The answer is that somebody didn't spend everything they earned straight away. And that's what a deficit is.

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