Tag: ek Politics

Crossposted from The Stars Hollow Gazette

G-8 summit to be held at Camp David, not Chicago

By Christi Parsons Tribune reporter, Chicago Tribune

5:42 p.m. CST, March 5, 2012

Camp David will more closely approximate the remote settings in which the G8 leaders prefer to gather. Summits in large cities typically see clamorous protests, while those in the countryside are calmer and more sedate.

…

Chicago police estimated that 2,000 to 10,000 demonstrators were expected to show up for the overlapping G-8 and NATO summits.  At least two major demonstrations were already planned for downtown during the summit, and organizers said they wanted to send crowds of marchers down Michigan Avenue in the middle of the day.

…

The mayor had also sought tough changes in ordinances governing public demonstrations. But in the face of criticism from aldermen and civil rights groups, he was forced to scale them back.

(h/t Atrios)

I have even less interest in this edition of the Insane Clown Posse than most (if that were possible).  I’ll have neither the time nor inclination to join you.  If you insist on playing along with Mitt there’s a place to scribble below.

You may well ask what those fancy +3s are.  Those are delegates chosen outside the normal selection process and will not be decided tonight.

Crossposted from The Stars Hollow Gazette

In two previous posts I’ve collected some of letsgetitdone’s reactions to Dylan Matthews’ Washington Post article on Modern Monetary Theory and the responses of other authors-

• Everything we thought we knew is wrong!
• Wrong Again!

In this final installment is some of his extensive treatment of Dean Baker’s critiques.

In his first reaction to Dean Baker, letsgetitdone outlines 7 areas of specific differences between Keynesian Deficit Doves and MMT and their policy implications-

1. Government deficit spending for recovery.
2. Government fiscal policy over the business cycle.
3. Long Term Deficit Reduction Planning.
4. Long Term Deficit Reduction Projections.
5. Funding Government spending.
6. Social Security Solvency.
7. Proposed progressive reform programs.

The end for MMT is achieving public purpose including full employment with price stability as one aspect of it. Since the MMT view is that fiscal policy is much more useful for doing this than monetary policy MMT focuses on how fiscal policy should be set.

Its general view is that alternative budgetary plans have to be assessed from the viewpoint of their anticipated outcomes, without regard to deficits or surpluses as outcomes valued in themselves. Of course, full employment is positively valued and unemployment negatively valued, but a whole range of valued outcomes is relevant for such assessments. Those are the ends, and fiscal policy is the means. Monetary policy and trade policy are also means, but are not nearly as important as fiscal policy in their effective short-term impact.

Baker wrote a second article which letsgetitdone also felt largely ignored the critical differences between MMT and Deficit Dove Keynesianism and this time responded with a 3 part piece-

In the first part he discusses these issues-

Like MMT Says: Monetary Policy Would Be Ineffective

I won’t go into the details here, but the bottom line seems to be that he thinks the Fed could add $20 Billion to aggregate demand mostly through mortgage refinancing arrangements.

My own bottom line is that what he outlines might work, but only proves the MMT point that monetary policy can do very little to help solve our present economic problems. We have about a 28 million person U6 employment problem, which could take as much as $1.2 Trillion in carefully formulated deficit spending. So, adding $20 Billion in aggregate demand to the economy makes very little contribution compared to the scale of the problem. It’s the proverbial drop in the bucket and justifies the lack of emphasis MMT places on this channel.

Expanding US Exports at the Expense of Decreasing Real Wealth?

The MMT argument is that as long as other nations are willing to send us more real wealth in return for dollars, than we send them, then that is a net benefit for American consumers. Certainly, our willingness to accommodate their desire to exchange exports for dollars has caused real damage to US industries, and the erosion of skills and capabilities among workers and has also cost the jobs of Americans.

…

In other words, the big negatives that are related to our positive current account balance with the rest of the world (colloquially known as our trade deficit) are costs that we don’t have to bear, according to MMT, to get the benefits of imports. We could employ Americans fully, our people could be developing new skills and experiences, our wealth in facilities and social conditions we all share could be vastly increased, if the Government used its capability to help us fulfill the opportunities the current account balances give us to turn to other things that badly need doing, rather than making televisions, toys, clothes, and all the other things we no longer make. MMT says that the Government’s deficit will equal private sector savings plus the current account balance. So, if both are high that makes room for large Government deficits, and, in fact, actually demands them, since if we try to reduce them the end result will be less real wealth coming from imports and less nominal wealth accumulated from savings.

letsgetitdone continues in the second part–

Expanding US Exports at the Expense of Decreasing Real Wealth? (continued)

(W)hy do economists like Dean and Paul Krugman insist on relying on far-fetched scenarios to try to argue against simple truths that may apply today? The current account balance will probably be around 4-5% of GDP this year. As the economy recovers it will probably rise to 6% of GDP again, which represents a very real benefit to the United States. But there’s no reason to expect that this growth would continue indefinitely or ever reach 50% of GDP. Why should it? What are the dynamics that would drive things this way, and make other nations value the dollar so much, that they will keep their own populations barefoot?

…

Dean then continues with other arguments about re-balancing trade and its effects which are largely correct. But his remarks on the devaluation strategy not being “a beggar thy neighbor” strategy are only correct if we assume that such a strategy would not lead to negative compositional effects at the higher level of the international economic system.

If US attempts to devalue were followed by other nations responding in kind, then a race-to-the-bottom could result which would harm workers in all the major nations of the world. In this context MMT would probably say, don’t devalue. Instead use fiscal policy to fully employ all of your working people, and then let other nations devalue your currency as they please. There will be far less danger of a race to the bottom in this scenario, since your attempt to employ all of your own people to domestic tasks producing valued outcomes, can hardly be viewed as an attack on the desires of other nations to continue to export to you.

Is Work Sharing a Separate Channel for Raising Aggregate Demand?

I find myself in complete agreement with the proposals in the past few paragraphs and the arguments for the benefits of work sharing. I have only one problem with it, and that is why Dean classifies this proposal as a separate channel from the Government deficit spending channel?

From my point of view, making the standard work week 35 hours and mandating the kinds of fringe benefits they have in Europe and compensating workers directly with Government subsidies for the reduction of 5 hours of work per week they receive, is definitely using the Government channel to raise aggregate demand, since the increased demand comes from the Government subsidy assumed by the proposal. It’s not a proposal the economists developing MMT have put forward. But I’ve put forward a similar proposal, and I see nothing in it that is in conflict with MMT.

In the third part letsgetitdone concludes with a discussion of Dean Baker’s contention that MMT relies “exclusively” on the fiscal channel-

Pitfalls of the Fiscal Policy Channel

MMT doesn’t advocate wasteful spending, or digging holes for the sake of the activity, or spending money on projects and programs that will waste real resources or people’s lives. There is a risk that any spending, private or public, will be wasteful or involve an excess of real costs over real benefits. But that’s no excuse for avoiding private sector spending, so why should it be one for avoiding public sector spending when that’s called for?

The events of the last ten years show that both Federal spending on Wars, and private spending on financial adventures can be disastrous, but it was wasteful investments on fantasy sand castles that crashed much of the world economy; not deficit spending in the United States intended to achieve public purpose. In fact, that kind of spending has been starved for the past 35 years at least. And right now, there is no record of wasteful public spending that remotely compares with the record of wasteful private spending over that same period.

…

MMT, itself, it favors spending that can be justified based on projections of its real benefits and costs, not projections of its nominal benefits and costs to a Federal Government that can never have any solvency problem. MMT is against crony capitalism, and for prosecutions of banksters and fraudsters. MMT proposals in the health care area would not only improve health care outcomes and reduce private sector expenditures on health care but would also produce millions of new jobs in the health care sector, while putting the health insurance barons out of business. MMT stimulus proposals for ending the recession, include Revenue Sharing grants to States on a per person basis, so that States could re-hire staff laid off in response to the recession’s impact on tax revenues. It’s very doubtful that hiring back Police, Firefighters, Teachers, and other State Civil Servants would be viewed as wasteful to most people.

Dean’s Conclusion and Mine

(M)y view is that Washington in its current state doesn’t care about logical inconsistency, or rationality, or arithmetic. At this point it is a closed “village” of opinion. As Dean implies, points of view that have no currency in the village don’t get discussed, or ridiculed when they are. The question however, is how does a closed system like this change, since it is fairly closed to changes in viewpoint that may be necessary to use to solve its problems?

I think the answer to that question is raw failure that destroys confidence in the governing world view which is neoliberalism. The highly visible failure of neoliberalism in 2008 wasn’t capitalized on by this Administration. It was loyal to the neoliberal point of vew and followed the prescriptions of neoliberals for fixing the problems it created.

However, the failures of neoliberalism continue. We see the disaster in Europe now taking shape, we see the extreme discontent among so many in American society, including most importantly the young who cannot see any acceptable future. The stresses grow with each passing year of injustice and maintenance of levels of real unemployment that haven’t been seen in this country since the 1930s.

…

The worst of the anger is yet to sweep this country. When it does, when the banking system falls either in Europe or here, when the big banks are taken into resolution and the serious investigations start under a new Attorney General, the changing of the guard in Washington will come; and the old regime, along with their neoliberal paradigm, will be swept away. And it is then that MMT will be accepted in Congress and the Executive Branch sufficiently, so that its policies will get a chance. If those policies succeed, then neoiberalism will be gone, hopefully for good.

Crossposted from The Stars Hollow Gazette

So I’ve mentioned letsgetitdone’s recent series on Modern Monetary Theory in reaction to Dylan Matthews’ piece and there are some updates I’d like to draw to your attention.

First, some more reactions have come in-

The WaPo MMT Post Explosion: Kevin Drum’s Take on MMT

letsgetitdone, Corrente

Sat, 02/25/2012 – 1:19am

He … favorably quotes Jared Bernstein’s post, which I recently evaluated, coming out against the idea that deficit reduction is “pure virtue,” and also coming out for the view we need to use Government’s ability “… to run large deficits in times of market failure” to replace lost aggregate demand. But Kevin doesn’t get why Jared says this is MMT’s greatest contribution. Kevin wonders why this is any different from what ” Old Keynesianism. And post-Keynesianism. And New Keynesianism” say, and he asks: “If that’s really MMT’s most important contribution, who needs it?”

…

It is about our fear of inflation and our assessment of the risk of it. But it’s also about how we prioritize the risk of inflation against the reality of unemployment other than a “frictional” rate due to job transitions of 1 – 2%. Even 4% Unemployment measured by the U6 would still leave about 7.2 million Americans unemployed after a vigorous post-Keynesian expansion.

Those people would pay the price for the rest of us who are more concerned with containing inflation than with employing them. How serious is this price? Martin Watts and Bill Mitchell (one of the earliest and still leading developers of MMT) offer us a very good idea of how high this price is for those selected to pay the price of a 4% U6 target, much less a 4% U3 target which is what I suspect Kevin is referring to.

Kevin Drum refers to the NAIRU, as if he and all economists agree that there must be a trade-off between inflation and unemployment at a to be determined NAIRU level. But, I wonder if he knows that MMT economists view the Non-Accelerating Inflation Rate of Unemployment, as both “a crock” and as closely tied to the neoliberal economic paradigm that MMT opposes, and specifically to its acceptance of the idea that there must be an unemployed “buffer stock” of people who want to work, but must stay unemployed, in order to contain inflation?

…

MMT is always about policy, mostly fiscal, not monetary, that will enable certain economic, social, cultural, environmental, and political outcomes, and disable other outcomes in each of these categories. It is never about running deficits or surpluses as targets for their own sakes. Whether deficits, or surpluses occur are byproducts of MMT policy impacts, and are largely endogenous to the economy. In themselves they mean nothing. Only the economic policies and outcomes that drive them are important.

The WaPo MMT Post Explosion: Matthew Yglesias’s Reaction to MMT

letsgetitdone, Corrente

Mon, 02/27/2012 – 2:49am

Reading this, I had the definite feeling that the old aphorism about people who fight new paradigms and ridicule/marginalize their adherents, and often opine later that there is nothing new there, is all too true. Matty ought to give everyone a break and admit that the mainstream has been beating the drums of insolvency terrorism since shortly after the Obama Administration began and still is. So, mainstream people have been saying that there can be an insolvency problem in very large numbers, and if they are doing so less now, it’s only because any fool can plainly see that austerity is failing all over the world, as MMT predicted when the austerity craze started, and also because many more people are reading MMT blogs than was the case two years ago, and they are beginning to pick up some of the core insights.

…

I wonder what the mainstream would have to say about Matty’s implication, that its economists haven’t really been being ignorant and dumb; just elitist, dishonest, and manipulative.

I lived through the inflation of the 70s, and I can attest to its reality, and severity for some people, but relatively mild impact for others. I also think that the causes of that inflation were not simply increases in nominal unit labor costs, but increases in interest costs caused by the Federal Reserve’s policies, the actions of the oil cartel, and particularly the Saudis, the activity of speculators, the constraining regulations on Natural Gas production, and the failure of the Carter Administration to employ price controls and rationing due to its neoliberal biases.

…

Galbraith was clearly talking about the likelihood of demand-pull inflation inflation occurring in the United States, and was also implying that the Weimar and other WWI aftermath inflations had nothing to do with that policy. Also, in referring to “dodgy government financial practices” in the last sentence, Matty seems to be saying that the Weimar Government was guilty of such practices, but given the size of their Versailles-imposed reparations to be repaid only in goldmarks or foreign exchange, what could the German Government have done to recover from the War, except try the money-printing strategy to try to get the foreign exchange needed? If anybody was guilty of “dodgy financial practices” it was the Versailles peacemakers who, in imposing a Roman peace on Germany, insisted on payment conditions that the Germans could not possibly meet, especially since the French and Belgians seized control of the Ruhr and with it much of Germany’s industrial capacity in 1923.

…

I hesitate to say what MMT might recommend in the two cases of increasing world-wide demand, highlighted by Matty, because I’m not sure that all of us would say the same thing, nor am I one of the economists developing the MMT approach. But, speaking as someone who’s been researching MMT for some time, in the ’70s case, I would have placed domestic price and wage controls on commodities except on foreign sales to oil exporting countries, where prices of exports would have been pegged to increases in the prices of their oil exports. I would have also recommended de-regulating natural gas, and oil rationing to cut demand for the cartel-restricted supply. I would not have implemented higher interest rates as the Fed did. Until the very end, when the economic system was driven into recession, that only “fed” the inflation fire, while creating “stagflation.” I think such measures, consistent with MMT as I understand it, would have “choked off” the ’70s inflation in a much shorter time than the policies followed in the 1970s and the early 1980s.

As for the present increasing demand on the world’s food supply, that’s certainly not being caused by deficit spending by an International currency issuer, since there is none. And the only remotely similar entity to that is the ECB which is gradually choking off economic activity in the Eurozone to save its financial elites. I think commodity inflation must be fought by Governments legislating and enforcing existing laws against speculation, preventing cost-push inflation of the kind we saw in the 70s using the measures outlined, and by allowing commodity markets to adjust to the need for more supply, or producers to create substitutes for commodities in short supply. I also think control of speculation and market forces will probably suffice to relieve the pressure we’ve been seeing in commodities.

If that fails, however, then Governments whose economies can produce abundant supplies will have to place export controls on commodities necessary for their own populations in order to contain domestic inflation. That will not be popular. But we do still live in a nation state system, and the first responsibility of national governments still is to the general welfare of their own populations. Of course, such measures will result in other nations placing their own export controls on abundant commodities, and nations will have to negotiate bilateral agreements to serve their respective populations.

…

The truth, again, is that the inflation of the ’70s was caused by a complex of inter-related phenomena and the rise in unit labor costs was only one of these. It may have been the one that neoliberals focused on in the ’80s to avoid pinning the blame for what happened on the Cartel, the failures of the Carter Administration and the Fed’s policies, and to claim that the inflation was due to demand-pull factors, but that doesn’t mean that their analysis was correct.

Today, we know that Paul Volcker and Jimmy Carter handled the 1970s inflation incompetently, and we also recognize that the behavior of the Cartel, and the excessive regulations on natural gas made this a cost-push and not a demand-pull inflation, and that the Fed policy of targeting the unit cost of labor as a trigger for raising interest rates for the next 30 years or so was part of its low inflation at the cost of high unemployment policy that it illegally engaged in, in violation of the Humphrey-Hawkins Act.

…

(M)y thinking about what went wrong in the ’70s, and also MMT thinking about it are both very different from his. As a result, I think corresponding explanations of why it won’t happen again are likely to be very different also. Again, I don’t think what we have to acknowledge is that increases in unit labor costs caused the ’70s inflation.

In fact, I think that is a very partial, and therefore false narrative of what happened then. And I’m afraid I also think that Matty ought to take his own advice and acknowledge the roles of 1) the Cartel, 2) the Federal Reserve, and 3) the Carter Administration as all being much more important in the severity of that cost-push inflation then the rise in unit labor costs was.

…

If the ’70s are not to happen again, it will not be enough to rely on the more globalized economy of 2012, with its cross-border competition among workers, creating a race to the bottom in wages, and untoward returns to capital.

The Federal Government will have to be much more aggressive in implementing a response, recognizing that an inflation like that in the 70s would be cost-push and not demand-pull. And that to manage it, policies that choke off government deficit spending, and tighten credit, will be much more costly than policies involving trade retaliation, price controls, rationing, substitution of commodities subject to cost-push, and above all continuous and very substantial investments in government programs developing alternative energy sources.

There is also a 4 part response to 2 pieces by Dean Baker-

• The WaPo MMT Post Explosion: Dean Baker Weighs In on MMT
• The WaPo MMT Post Explosion: Dean Baker’s Second Try On MMT (1)
• The WaPo MMT Post Explosion: Dean Baker’s Second Try On MMT (2)
• The WaPo MMT Post Explosion: Dean Baker’s Second Try On MMT (3)

but I think I’ll save those for another post.

All I need to know about economics I learned by the sixth grade.

There are two novels that can change a bookish fourteen-year old’s life: The Lord of the Rings and Atlas Shrugged. One is a childish fantasy that often engenders a lifelong obsession with its unbelievable heroes, leading to an emotionally stunted, socially crippled adulthood, unable to deal with the real world. The other, of course, involves orcs.

Bending the Tax Code, and Lifting A.I.G.’s Profit

By ANDREW ROSS SORKIN, The New York Times

February 27, 2012, 8:55 pm

Last week, the American International Group reported a whopping $19.8 billion profit for its fourth quarter. It was a quite a feat for a company that was on its death bed just a little over three years ago, so sick that it needed a huge taxpayer bailout.

But if you dug into the numbers, it quickly became clear that $17.7 billion of that profit was pure fantasy – a tax benefit, er, gift, from the United States government. The company made only $1.6 billion during the quarter from actual operations. Yet A.I.G. not only received a tax benefit, it is unlikely to pay a cent of taxes this year, nor by some estimates, for at least a decade.

…

(O)fficials said A.I.G.’s tax benefit would help taxpayers because it would raise the insurer’s share price. That may be true, but that assumes that the government is able to sell its shares and exit its investment. That’s still a big “if.”

Why Treasury is being so nice to AIG

By Felix Salmon, Reuters

February 28, 2012

But there’s something else going on here too, which is the optics of the AIG bailout. The New York Fed today announced that it had finally exited its Maiden Lane II portfolio – the toxic securities bought at a discount from AIG in the 2008 bailout – at a healthy profit of $2.8 billion. It held on to those securities in May 2011, when AIG itself offered to buy them back at a much more modest profit for the Fed. And when forced to choose sides between AIG and the Fed in 2011, Treasury sided with AIG. At all times, Treasury wants what’s best for AIG’s share price, so that it can, hopefully sooner rather than later, sell off its entire 77% stake in the company at some kind of profit.

It’s already taken longer than Treasury would have liked: there was a feeling when I spoke to Millstein that the sale of AIG might be reasonably imminent, and yet here we are, more than 16 months later, and we don’t seem to be all that much closer to such an event. So unless and until AIG gets sold, expect Treasury to continue to shower it with as much regulatory forbearance as it can possibly corral.

I’m sure there are a lot of people at Treasury who would dearly love the company to be fully privatized before the election, and there’s essentially no chance that’ll happen if the share price is much below the break-even point of $29 per share. We’re close, now, and I’m sure that Treasury wishes that AIG had managed to buy back those Maiden Lane II assets on the cheap so that the share price could have been even higher. There’s still time to privatize AIG while Tim Geithner is still Treasury secretary. And Treasury will do everything it can to make that happen, if it can do so without exiting at a loss.

I don’t expect you to care about the Insane Clown Posse any more than I do, but I was born in Michigan so I suppose I should say something about it.

On the Yuper side my Grands had one of the very first cable companies since reception was extremely bad.  On the Troll side my Greats were early investors in GM and Smuckers and basically cut off my Grandad because he married a poor crippled girl.

We visited Troll side most often and it’s flat.  The big ski hill is a mountain of garbage and you can see the weather coming for miles and miles.  Gran knew Mike Moore and didn’t like him, thought he was a smart ass.

One thing a lot of people don’t internalize is that Michigan has a large population of Dutch Reformed Calvinists of the George C. Scott Hardcore type which explains their swing state status.  I’ve been to Grand Rapids and I found most of the people to be pleasant enough, but we didn’t talk politics.

Arizona has more Mormons than you think (like Nevada).

Whatever happens I’m pretty sure we can count on continued hilarity.

Crossposted from The Stars Hollow Gazette

Sunday the Washington Post put up a piece by Dylan Matthews that gives relatively serious treatment to Modern Monetary Theory.

You know the deficit hawks. Now meet the deficit owls.

Posted by Dylan Matthews, Washington Post

10:10 AM ET, 02/19/2012

In contrast to “deficit hawks” who want spending cuts and revenue increases now in order to temper the deficit, and “deficit doves” who want to hold off on austerity measures until the economy has recovered, Galbraith is a deficit owl. Owls certainly don’t think we need to balance the budget soon. Indeed, they don’t concede we need to balance it at all. Owls see government spending that leads to deficits as integral to economic growth, even in good times.

The term isn’t Galbraith’s. It was coined by Stephanie Kelton, a professor at the University of Missouri at Kansas City, who with Galbraith is part of a small group of economists who have concluded that everyone – members of Congress, think tank denizens, the entire mainstream of the economics profession – has misunderstood how the government interacts with the economy. If their theory – dubbed “Modern Monetary Theory” or MMT – is right, then everything we thought we knew about the budget, taxes and the Federal Reserve is wrong.

‘Relatively’ is the key word and there are some serious flaws in Matthew’s piece that letsgetitdone discusses in a 6 part, 4 part series over at Corrente.

WaPo Covers MMT, But Does Its Usual Bad Job: Part One, Some Basics and Solvency

letsgetitdone, Corrente

Tue, 02/21/2012 – 5:48pm

Deficit owls, believe that there is no structural deficit, and that most of the present US deficit will go away when full employment is reached, but probably not all of it, unless the private savings levels in the economy are balanced by an equal or greater foreign sector deficit (trade surplus). They also believe that in times of unused productive capacity like these, Government deficits are caused by the state of the economic system, and that explicitly managing them by taxing more or spending less will not improve its condition, but only result in a downward economic spiral making conditions still worse.

On the other hand, if real economic problems like unemployment, alternative energy capacity and production, infrastructure renewal, education, and industrial innovations are addressed through Government deficit spending, then aggregate demand spurring private sector business activity and ending U6 unemployment will result. In addition, deficit owls believe that in a fiat money system, where there is no debt in foreign currencies, and no “peg” to such currencies, solvency is never a problem for the Government, and that while inflation partly caused by Government deficit spending can become a problem in such a system, this can only happen when full employment is achieved.

…

(N)ecessary for currency sovereignty is to have a non-convertible currency, a floating exchange rate, and no debt in a currency not your own. These qualifications are very important because examples (e.g. Weimar, Zimbabwe) that are often given contradicting the claim that there’s no solvency problem for Governments like the US don’t fulfill these conditions.

WaPo Covers MMT, But Does Its Usual Bad Job: Part Two, Inflation/Hyperinflation

letsgetitdone, Corrente

Wed, 02/22/2012 – 1:00am

(I)t’s easy to wave off MMT by saying there is a risk of inflation in using deficit spending to create full employment, but it is entirely another matter to say what the level of risk is, and to provide compelling arguments about why that risk is appreciable, and more costly than the effects of chronic unemployment in a stagnating economy. This Mankiw doesn’t begin to do. I think Dylan should have pointed this out, rather than just mentioning Mankiw’s opinion. Who cares about his opinion? It’s his arguments, his theories, for expecting inflation that we care about. So, why doesn’t Dylan outline what these are and critically evaluate them?

When Mankiw tells us that default might be a better option than risking inflation by printing money, he is going way beyond his claimed area of expertise in economics. The 14th Amendment to the US constitution prohibits even questioning Government debt, much less defaulting on it. Mankiw in his capacity as an economist is unqualified to say whether a violation of the US constitution is a better option than taking the risk of triggering hyperinflation by “printing money.”

…

What MMT replies is that bond issuance isn’t an inevitability, but a result of choices made by the US Congress and the Executive Branch of Government. The Congress could place the Fed under the authority of the Treasury Secretary in the Executive Branch, and then no debt would have to be issued to deficit spend, since the Fed could just mark up the Treasury General Account (TGA) under orders from the Secretary.

MMT also points out that the Fed controls the Federal Funds Rate which, in turn, heavily influences all bond rates. If the Fed targets a near zero FFR, and the Treasury issues no bonds longer than say, three months in duration, then bond interest rates can be kept near zero no matter how much debt is issued. Japan has proved this is the case since its debt-to-GDP ratio is now in excess of 200% while its interest rates are very near zero on short-term debt instruments.

…

If the Fed buys bonds with money it prints, this will increase reserves in the private sector, but it won’t increase Net Financial Assets (NFA), because buying the bonds is just an asset swap. So with no new NFA being added to the private sector by the Government, this sort of Fed operation won’t be inflationary, as its massive QE programs have just demonstrated empirically. In fact, by removing the payment of interest on bonds from the private sector, and given that most of the Fed profits are returned to the Treasury, some MMT economists say that the end result of such operations may well be deflationary.

WaPo Covers MMT, But Does Its Usual Bad Job: Part Three, Banking, and Default vs. "Hyperinflation"

letsgetitdone, Corrente

Wed, 02/22/2012 – 4:00pm

(I)ncreasing the amount of reserves does not lead to increased borrowing, because banks don’t need more reserves to make loans. All they need are credit worthy borrowers and access to the Fed discount window to make whatever quantity of loans they want to. This is one of the main points about the banking system MMT makes. Put simply: lending is not reserve constrained! It’s constrained by bank willingness to lend to credit worthy borrowers.

…

MMT’s Sectoral Financial Balances (SFB) model is exactly right in its explanations, since they are able to run surpluses without disaster, only because, unlike the United States, the foreign sectors of their economies run deficits (that is Canada and Australia run trade surpluses) large enough to accommodate the private sector savings desires of Australians and also the Government’s desire to run a budget surplus. The US however, currently has a need to run Government deficits of 10% to support both our private sector savings desires of 6% of GDP, and our foreign sector’s desires to export 4% of US GDP to US consumers so they can accumulate US dollars in the form of electronic credits.

…

Governments can voluntarily default if they choose to. MMT economists have always said this and still say it. So why is political stupidity or perfidy counted against the truth of the MMT proposition that Governments sovereign in their currency have no fiscal solvency problems, only voluntary constraints and political problems?

On the contrary, I think the Russian case is one of the primary illustrations of a point that deficit owls have been trying to spread far and wide. Namely, that sometimes default is due to stupidity and perfidy and not to economic forces and that citizens in a democracy need to be aware of that, and of the full capabilities of currency sovereign Governments to always pay debts incurred in their fiat currency and to spend whatever is necessary to enable full employment in their nations. They are never, never, out of money except by choice. So, the real questions are:

• why are they choosing to default?
• Who will benefit from this political choice?
• And who will be asked to pay the price?

And how does the Russian case “prove” that: “Default, while technically always avoidable, is sometimes the best available option”? Is Dylan, through this quote from Gregory Mankiw suggesting that “public purpose” in Russia was better served by its voluntary default than it would have been if the Russians repaid their ruble debts in the rubles they might have created had they wished to? I’m afraid that both Dylan and Mankiw will have to prove that statement to me, since Russian citizens seem to have suffered quite a lot by taking the default choice and accepting austerity when they didn’t have to do so.

WaPo Covers MMT, But Does Its Usual Bad Job: Part Four, The Victory

letsgetitdone, Corrente

Thu, 02/23/2012 – 1:00am

For many years now, MMT economists and others who write in support of them have been trying to make a very important point to the mainstream. And that is that the claim:

The Government is running out of money,

is a myth, a fairy tale, or a deadly innocent fraud.

Dylan doesn’t say that in so many words. But he and the economists he cites, even Greg Mankiw grant this very important MMT/deficit owl point in passing.

If this post is any indication, mainstream economics, and certainly deficit doves, and hawks like Mankiw, now acknowledge that a nation like the US which is sovereign in its own fiat currency can never run out of money, or be prevented by the pure fiscal aspects of any situation from paying its debts or buying whatever goods and/or services it needs that are available for sale in its own sovereign currency.

So, that part of the great debate is now over. It will be very hard from here on, for the deficit hawks to maintain their deficit/insolvency terrorism in the face of the general recognition in economics that the Federal Government is not like a household, because it can never run out of the currency that it has the sole legitimate power to issue.

If they try, they will now be the ones facing ridicule and marginalization. And, increasingly, those politicians who try to claim we are running out of money, will also face ridicule and be viewed as ignoramuses by others.

…

Every critic of MMT cited in the post raises the objection either implicitly or explicitly that MMT policy proposals will lead to worrisome inflation, or hyperinflation. Now, that’s progress, because unlike the level of one’s national debt, or the size of one’s deficit in the abstract, or the nonsense debt-to-GDP ratio, which means nothing in itself, inflation is a real issue, not an artifact of some economist’s fevered theories.

…

In other words, let’s get real. Let’s talk about real problems of real people that can be alleviated through fiscal policy and Government programs. Let’s stop taking about fairy tales, myths, and bogeymen. And let’s get on with the job of rebuilding the United States for our children and grandchildren and using every tool we have, including our fiat currency system, to realize the blessings of liberty and equality of opportunity for everyone.

The WaPo MMT Post Explosion: Dean Baker Weighs In on MMT

letsgetitdone, Corrente

Fri, 02/24/2012 – 12:58am

(Th)ere are some differences that are very significant for policy activism between a Keynesian deficit dove approach employed by people like Paul Krugman, Brad DeLong, Robert Reich, and Dean Baker (op.cite, link added), and a Modern Monetary Theory (MMT) approach employed by people like Warren Mosler, L. Randall Wray, Bill Mitchell, Jamie Galbraith, Stephanie Kelton, Marshall Auerback, Scott Fullwiler, and Pavlina Tcherneva. So, here are some contrasts between the two approaches on seven important issues.

The WaPo MMT Post Explosion: Jared Bernstein’s Cool Up To a Point

letsgetitdone, Corrente

Thu, 02/23/2012 – 12:19pm

• Tax Cuts Hard to Unwind? Not If You Legislate Properly!
• Default vs. Hyperinflation? A False Choice for the US?
• Debt Should Grow More Slowly Than GDP? Why?
• Deficits Must Respond Dynamically To Growth? They Will If They’re the Right Deficits
• MMT Not Effective in Deficit Reduction Mode; or Congress Ineffective In Its Legislation?
• Fiscal Sustainability and the Health Care Issue or Mis-allocation of Net Financial Assets to the Health Care Industry at the Cost of Weakening Our Democracy?
• Does Jared Bernstein Really Understand MMT, Yet?

…

Finally, I also think that Jared doesn’t fully understand that MMT is not just an approach to economic policy and analysis, but primarily embodies certain Macroeconomic propositions and propositions about how modern money works, and what policies could be followed to achieve public purpose. If he did, then why would he keep making objections to MMT policy proposals based on his ideas about how Congress will act in reply to them?

In the end, it’s not MMT’s responsibility to propose policies that Congress will legislate. It is, instead, up to MMT to propose policies that will achieve full employment with price stability and other favorable social, cultural and political impacts for our democracy.

From that point on, it is up to political advocates to make these policies popular enough to get Congress and the President to pass them. And any failings in passing these policies are not failings of MMT economics, but failngs of the oligarchy which will not pass the policies it recommends.

Remind me again why Republicans are worse.  Court appointments?

Federal judge weighs whether to let regulators rein in oil speculators

By Kevin G. Hall, McClatchy Newspapers

Monday, February 27, 2012

WASHINGTON – A federal judge on Monday refused to halt efforts by a key regulator to limit excessive speculation in the trading of oil contracts – which is driving up oil and gasoline prices – but hinted that he might soon rule in favor of Wall Street and let speculation go unchecked.

…

Judge Wilkins expressed concern that Congress would direct the agency to impose market-wide limits without detailed study beforehand. President Barack Obama nominated Wilkins to the bench and the Senate confirmed him in 2010.

…

“That seems to me an astonishing position to take,” the judge told CFTC deputy general counsel Jonathan Marcus, who had said that Congress ordered the agency to first impose limits on oil trading, then other commodities.

As a sign of how high the stakes are, the trade groups hired Eugene Scalia to make their case. He’s the son of outspoken conservative Supreme Court Justice Antonin Scalia, and last year he won a key challenge to a Dodd-Frank rulemaking being carried out by the Securities and Exchange Commission. In that case, the courts struck down provisions that would have made it easier for shareholders to run candidates for corporate boards.

Congress ordered the CFTC to impose position limits, concerned that financial speculators now far outnumber producers, merchants and end users of oil and other commodities in the trading of contracts for future delivery of product known as futures contracts. Reporting by McClatchy has shown that these speculators now outnumber by more than 2-to-1 the traders who actually produce or consume oil.

Oh, after 3 and a half years it’s too soon to tell.

Gotcha.

Not qualified to judge the veracity of this, simply drawing it to your attention.

Colonialism in Africa helped launch the HIV epidemic a century ago

By Craig Timberg and Daniel Halperin, Washington Post

Published: February 27

Scientists had long known that a blood sample, preserved from 1959, showed that HIV had been circulating in Kinshasa, the capital of Congo, for several decades before the virus first drew international attention in the 1980s. In 2008, evolutionary biologist Michael Worobey sharpened that picture when he reported in the journal Nature the discovery of a second sample of the virus, trapped in a wax-encased lymph node biopsy from 1960.

By comparing these two historic pieces of virus and mapping out the differences in their genetic structures in his lab at the University of Arizona, Worobey determined that HIV-1 group M was much older than anyone had thought. Both samples of the virus appeared to have descended from a single ancestor at some time between 1884 and 1924. The most likely date was 1908.

Taken together, these two discoveries offered the clearest clues to the birth and early life of the epidemic.