61–70 of 266 posts
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Japan is even more pronounced regarding this. Interesting possibilities stem from it: https://www.huffpost.com/entry/sovereign-debt-jubilee-japane...
Modern monetary theory is long overdue.
Unfortunately, economics is a very ideologically charged subject.
When the Fed expands their balance sheet, what they're doing is replacing private-sector assets with liquid cash. Given that the stimulus is appropriate for the economy, this is all fine. It's not anything that future generations have to "pay back." And it's not going to cause a collapse of the dollar.
The important thing to keep in mind is that we are intentionally shutting down parts of the economy. But some of those parts include mechanisms (jobs) that we normally rely on to supply spending money to consumers and businesses.
Due to the partial shutdown, the economy's productive capacity has taken a hit. But even so, our economy still has the capacity to provide a decent standard of living for everyone. We don't want to compound the crisis by failing to ensure that consumers have sufficient spending power to activate the remaining capacity.
It would be scary if the Fed's balance sheet weren't expanding like this right now.
http://www.greshm.org/blog/printing-money-cures-the-covid-19...
So I'm hearing the " the dollar is over, throw everything into gold, fiat money is doomed" in other forums. Can anyone give some conterpoints to that narrative?
Broadly speaking, these people distrust a money supply that can be influenced by governmental powers. They're always making noise about fiat money, gold, and sometimes cryptocurrencies like bitcoin in internet forums. They tend to become extremely vocal whenever the government intervenes in financial markets, such as the current financial crisis.
The first counterpoint would be that the anti-fiat crowd has been declaring fiat dead ever since the gold standard was abandoned ( https://en.wikipedia.org/wiki/Gold_standard#Abandonment_of_t... ). They made the same claims in the recessions of the 2000s, the 2008 housing crisis, during the low interest rates of the 2010s financial boom, and now in the 2020 crisis. Maybe they'll be right one day in the future in the same way that a broken clock is right twice a day, but are you sure this is their time to be right?
The second counterpoint is that outside of very specific windows, gold hasn't performed very well against traditional investments. The gold proponents had a good run for a few years after 2009 when gold was a hot topic, but it generally hasn't been the home run investment that the proponents expect. You can view long-term gold vs S&P trends here: https://www.longtermtrends.net/stocks-vs-gold-comparison/ Drag the bottom sliders to set different start/end dates. It's possible to find periods of time where gold outperformed the S&P 500, but generally you'd have to get both your buy and sell dates just right to come out ahead. That is, market timing. If you bought gold in 2009 and held you're doing okay. If you bought gold in 2012 and held, you just barely came up to net positive returns after 8 years.
The third argument is that it's not a great idea to bet against the weight and power of the government. People declaring fiat dead are assuming that the government is going to destroy the value of money via manipulation, but most of them can't put together cohesive explanations for how the Federal Reserve operates. The Federal Reserve is a complicated system that can be difficult to understand. If you misunderstand the function or purpose of certain steps, it's easy to get the wrong impression that the government is printing money to buy stocks like all of the memes say. In reality, the system is much more complicated than that and you're unlikely to find unbiased explanations in internet forums, especially if they're coming from people who are heavily invested in gold or bitcoin and would like to see everyone else prop up the price of their chosen investments. It's best to spend an hour or two reading up on the Federal Reserve, why the gold standard was abandoned, and what the Federal Reserve is actually doing with their balance sheets. Wikipedia actually has decent articles that explain the high level details well enough: https://en.wikipedia.org/wiki/Federal_Reserve
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I think this has always been the way we've paid for infrastructure. I remember reading an article about Japan. They've stopped taking on massive infrastructure projects, because the population isn't growing -- they don't want immigrants and people aren't having kids anymore. Without a future tax base to pay for infrastructure, they can't build it anymore. So things like the Tokyo subway system are "done"; no money wi…
Money is just a number in some computer. The important thing is the real economy. Deficits, as any other spending, and depending of the circumstances, could be inflationary, but they don't have to be, it depends of the state of the economy in the moment of the spending. The public debt is just a number, it's the accumulate of pass deficits and it's not inflationary in itself and it's not a problem. A mental experimen…
What we ended up with is a situation where almost all the wealth/value we (governments, businesses, the people) have built is represented in terms of 'monetary units' (the numbers in the computer), but it's increasingly clear that in the future, these positive and negative numbers will never add up to zero anymore, and we're not going to 'grow our economies out of debt' as was originally the idea of taking on debt now to invest in the future. This means someone is going to lose big time sooner or later.
Printing more money to take some negative numbers from the economy and infusing it with some positive numbers is not a strategy that can save the system in the long term as there are exponential terms involved because of interest. There will be a point where diluting the the money supply (which is exactly what QE is) will result in a loss of confidence people have in the 'numbers in the computer' being a reliable proxy for their wealth. Governments will have a hard time selling treasuries when no-one expects them to have any value in the future. When that happens (which IMO is just a matter of time, how much time is not clear but most definitely not 100+ years) all value that is not recorded in tangible, useful assets or skills will simply disappear, and it will not just mean the 'numbers of the computer' have to be adjusted or reset and everything can go back to normal...
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Who are people selling their children to, and how?
I'm being tongue in check with that bit :). We're not literally selling the kids. But it is the kids that will be paying off these huge debts via higher taxes and less services. The debts are mainly owed to China, Japan and a few other nations as well as big private lenders (hedge funds and billionaires)
Relevant link that dforrestwilson posted: https://www.huffpost.com/entry/sovereign-debt-jubilee-japane...
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Well easy fix instead of giving money to the top, give it to the bottom. That will surely drive demand as more money is available to spend. It will boost confidence in local economies further growing demand and supply caps. What we see now it large parts of the stimulus package are devoured by the top level bureaucracy never doing anything but being transferred to Cayman islands as performance bonuses. How about we t…
> How about we try the trickle up economy for once? We are. The vast majority of the stimulus so far has gone to benefit the bottom 3/4 of the US economically. Here is some of what's in the $2 trillion recent stimulus: - $268b to extend & expand unemployment benefits. - $293b one time check (which won't be one time) - $377b small business loans & grants; this has been more than doubled since then - $150b aid to state…
What matters isn't the size of the Fed's balance sheet or what it contains. The Fed's balance sheet is "invisible" to the private-sector economy. This expansion of their balance sheet is simply a reflection of the stimulus we're doing. When the Fed expands their balance sheet, what they're doing is replacing private-sector assets with liquid cash. Given that the stimulus is appropriate for the economy, this is all fi…
This is simply not true. The Fed is buying assets at a premium (otherwise counterparties wouldn't sell the assets to the Fed) and is effectively injecting money into the economy. This is a bailout as the Fed is making a liquid market (that otherwise would not exist) for assets, saving the balance sheets of firms. Future generations pay this back not through taxes but through inflation.
Whether or not the U.S. dollar will collapse or not is another topic, but what can be said is that it is not sustainable to continue bailing out irresponsible businesses like banks and others when they do not exercise good business practices like prudence, not being overleveraged, or having a buffer in case of lost revenue. The only way this ends is either a depression the scales of which we've never seen in history before (which would liquidate and clear out bad businesses), or a hyperinflationary collapse of the U.S. dollar whereby more and more money is injected to prop everything up. I'm betting on the latter as the former is too politically inconvenient.
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Japan is even more pronounced regarding this. Interesting possibilities stem from it: https://www.huffpost.com/entry/sovereign-debt-jubilee-japane...
Modern monetary theory is long overdue.
MMT relies heavily on the fact that tracing back who is paying for it is so convoluted that its backers can claim nobody is. That isn't true. At any moment there is a fixed pool of real resources that we have to divide up. It is pretty obvious that a lot of those resources should be given to people who will use them to create more real resources in the future. It is also obvious that everybody needs enough of a share to live.
A State entity can control the money supply and do strange things with the accounting identities, but in real terms it can only redistribute wealth. The government isn't going to turn to MMT to increase the claim of the makers and innovators to societies bounty; the truly inspired ones tend to be a bit eccentric and tend not to present very well on camera at a press conference. MMT will be a redistribution, by and large, to fast talking and charismatic charlatans or pork barrelling to political consituenties. The political process is not very good at assessing technical risk but excellent at pork barrelling. People will use the word 'fairness' a lot.
It is reasonable to say that MMT will do wonders for the accounting identities. GDP through the roof, measured real wages may rise, everyone can be a millionaire, banks will be saved and inflation will be mysteriously low no doubt. The median citizen will also have less actual stuff and a lower real quality of life.
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I'm being tongue in check with that bit :). We're not literally selling the kids. But it is the kids that will be paying off these huge debts via higher taxes and less services. The debts are mainly owed to China, Japan and a few other nations as well as big private lenders (hedge funds and billionaires)
That's not how it works, but even if that was the case, if that debt was owned by the Federal Reserve, who get the interest of that money? and who is the owner of the debt?
I'm just making quips about how much debt has been run up since 2008 and how little the US (or other nations that have followed the same policies) actually has to show for it compared to what it will take to pay it off...
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Money is just a number in some computer. The important thing is the real economy. Deficits, as any other spending, and depending of the circumstances, could be inflationary, but they don't have to be, it depends of the state of the economy in the moment of the spending. The public debt is just a number, it's the accumulate of pass deficits and it's not inflationary in itself and it's not a problem. A mental experimen…
Whether money or debt is 'just a number in a computer' or not is besides the point. We built the system that way deliberately because bartering is not efficient, doesn't scale, and doesn't easily allow creating debt that needs to be settled in the future. What we ended up with is a situation where almost all the wealth/value we (governments, businesses, the people) have built is represented in terms of 'monetary unit…
Not really, the history of money doesn't support that theory.
>>"[..] it's increasingly clear that in the future, these positive and negative numbers will never add up to zero anymore,"
They don't add already, never were suppose to add. Where is the dollar coming from if not the deficits of government? The spending of money in the economy is what creates money. So, it's the debt of the public sector what create the money in the first place. You are complaining that excessive deficits are creating too much money, so you already agree with that.
>>"[..] Governments will have a hard time selling treasuries when no-one expects them to have any value in the future. "
That makes zero sense. The Central Banks can, and frequently do, determine the interest of the public bonds. Japan is the main example, but there are many others.
>>"[..] all value that is not recorded in tangible, useful assets or [..]"
A government tax every transaction in the economy, and can do it because it has the monopoly of force in that country. If the USA government only accept dollars for paying taxes, there will be always (while there is an economy and they keep the monopoly of force) demand for the Dollar. The same is true for all the other countries.