Page 17 of 17 FirstFirst ... 7151617
Results 161 to 167 of 167

Thread: MMT to the rescue!

  1. #161
    I'm not-low all the time

    Kushinator's Avatar
    Join Date
    Jan 2006
    Location
    lincoln park
    Last Seen
    03-26-20 @ 09:27 AM
    Gender
    Lean
    Independent
    Posts
    19,293

    Re: MMT to the rescue!

    Quote Originally Posted by JohnfrmClevelan View Post
    The supply of loanable funds is infinite.
    It's not.


    Hasn't the return on capital always followed what banks charge for loans? (This is an honest question. Maybe there is a good reason to pay people with money more than you would pay a bank for the same money, I don't know.)
    I don't understand what you're asking. Banks make money by lending money.

    But the interest that the central bank "charges" (gives out, actually) is completely artificial.
    The Fed only lends via the discount window. The Federal Funds rate is what banks charge eachother... and it is controlled by the Fed. In doing so, the Fed relinquishes controlling the quantity of money.

    What was the "natural rate" of interest when the Fed was holding the overnight rate around 7%? Or 2%? I'm sure that the time and risk factors change somewhat with the return banks get on reserves.
    The natural rate of interest is not a constant in the short term, and changes given financial and economic volatility.

    That's why we say that there is no "natural rate" of interest.
    Which is devoid of financial logic. A dollar today is worth more than a dollar tomorrow.

    Any part of an interest rate that is based on the scarcity of a fiat currency is also artificial.
    It could be tobacco, gold, etc.... The medium of exchange doesn't matter as it's the opportunity cost that interest measures.

    Loanable funds in our system are not finite.
    Of course they are. If this wasn't the case, banks would fail.

    But if you hold a dollar today, why not just continue to hold the dollar?
    Inflation will erode purchasing power.

    Why? Because of a shortage of treasuries?
    No, because it will be a shock to financial markets. It would increase the amount of dollars in the system by a rather substantial amount. In this scenario, the dollar would tank considerably, putting upward pressure on interest rates, as foreign (non-dollar) lenders would want to be compensated for this loss of the dollars purchasing power of foreign goods and services. For every action there will be a reaction, and i feel those who are unquestioned worshipers of this school of thought often gloss over the potential risks. These risks are very serious.
    It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.
    "Wealth of Nations," Book V, Chapter II, Part II, Article I, pg.911

  2. #162
    Sage
    JohnfrmClevelan's Avatar
    Join Date
    May 2014
    Last Seen
    Today @ 04:49 PM
    Gender
    Lean
    Liberal
    Posts
    6,290

    Re: MMT to the rescue!

    Quote Originally Posted by Kushinator View Post
    It's not.
    Banks fund loans by expanding their balance sheet - money from thin air. The Fed accommodates by not limiting reserves. So where is the limit? The only limit I can see is in the supply of creditworthy borrowers. You have a demand (the borrowers), but the supply is unlimited.

    Quote Originally Posted by Kushinator View Post
    I don't understand what you're asking. Banks make money by lending money.
    Right. But banks don't gather up pre-existing capital in order to lend it out, they create their own. So they figure out what they can charge in interest - time, risk, regulatory costs, etc.

    Borrowers are going to borrow from whoever gives them the cheapest loan, right? Whether it's bank credit or somebody with money to lend, it doesn't matter to borrowers. The "capital market" is going to have to match bank rates if they want to make any money, I would think. Maybe they loan to higher risk borrowers than banks will touch, I don't know.

    Quote Originally Posted by Kushinator View Post
    The Fed only lends via the discount window. The Federal Funds rate is what banks charge each other... and it is controlled by the Fed. In doing so, the Fed relinquishes controlling the quantity of money.
    Again, understood. But if we go back to when banks bought bonds from the Fed with their excess reserves, and those bonds yielded 7%, that cost was added in to the bank's "cost" of creating a loan. They would forego that 7% to create a loan when they exchanged the bond for reserves and disbursed the reserves. And a 100% safe 7% return on bonds certainly changed the calculus on time and risk, too, when compared with, say, a safe 1.5% return.

    Quote Originally Posted by Kushinator View Post
    The natural rate of interest is not a constant in the short term, and changes given financial and economic volatility.
    I have heard the "natural rate of interest" defined as whatever interest rate we would fall upon if the government stopped interfering. Which I guess means the Fed adding to/subtracting from the money supply, adjusting interest rates (not sure what the base rate should be), and Congress adding dollars to the economy via deficit spending.

    Quote Originally Posted by Kushinator View Post
    Which is devoid of financial logic. A dollar today is worth more than a dollar tomorrow.
    Again, agreed, but my understanding of "natural rate" was different than yours, and it was something different than time + risk. It had to do with the supply and demand for a finite pile of loanable funds.

    Quote Originally Posted by Kushinator View Post
    It could be tobacco, gold, etc.... The medium of exchange doesn't matter as it's the opportunity cost that interest measures.
    If the medium of exchange is not itself a limited commodity, yes.

    Quote Originally Posted by Kushinator View Post
    Of course they are. If this wasn't the case, banks would fail.
    Why do you say that? Banks fail when they are not repaid.

    Quote Originally Posted by Kushinator View Post
    Inflation will erode purchasing power.
    Don't negative yield bonds erode the bondholder's purchasing power?

    Quote Originally Posted by Kushinator View Post
    No, because it will be a shock to financial markets. It would increase the amount of dollars in the system by a rather substantial amount. In this scenario, the dollar would tank considerably, putting upward pressure on interest rates, as foreign (non-dollar) lenders would want to be compensated for this loss of the dollars purchasing power of foreign goods and services. For every action there will be a reaction, and i feel those who are unquestioned worshipers of this school of thought often gloss over the potential risks. These risks are very serious.
    Yes, there would certainly be more dollars in bank accounts. But this happened during QE, too, with no ill effects. What would be different this time?
    ___________________________________________

    Enchanted Necromancer Brings Life Back To Once-Dead Argument

  3. #163
    I'm not-low all the time

    Kushinator's Avatar
    Join Date
    Jan 2006
    Location
    lincoln park
    Last Seen
    03-26-20 @ 09:27 AM
    Gender
    Lean
    Independent
    Posts
    19,293

    Re: MMT to the rescue!

    Quote Originally Posted by JohnfrmClevelan View Post
    Yes, there would certainly be more dollars in bank accounts. But this happened during QE, too, with no ill effects. What would be different this time?
    This didn't happen with QE. There were scheduled asset purchases from broker dealers... it wasn't $2 trillion all at once. At it's very peak, i believe the Fed was buying around $70 billion worth of net bonds in a month.

    I really think you should look into more formal and basic finance/economics/actuarial topics before jumping this far ahead. I mean, you're operating with entirely different definitions to terms that have been in place for over a hundred years.
    It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.
    "Wealth of Nations," Book V, Chapter II, Part II, Article I, pg.911

  4. #164
    Sage
    JohnfrmClevelan's Avatar
    Join Date
    May 2014
    Last Seen
    Today @ 04:49 PM
    Gender
    Lean
    Liberal
    Posts
    6,290

    Re: MMT to the rescue!

    Quote Originally Posted by Kushinator View Post
    This didn't happen with QE. There were scheduled asset purchases from broker dealers... it wasn't $2 trillion all at once. At it's very peak, i believe the Fed was buying around $70 billion worth of net bonds in a month.
    The Fed added about $1 trillion between late Nov. 2008 and March 2009, according to Wikipedia. And the $2 trillion from the coin wouldn't go into the economy all at once. It would only go in as fast as the government paid out those benefits. And then, it would presumably be replacing a lot of lost income/demand, not added on top of normal demand. I'm just not seeing where that should be a big shock to the system. Keep in mind that the broker-dealer-financier world is a different one than the rest of us live in. If it doesn't affect the price of gas, groceries, or mortgages, normal people don't notice, or care.

    Quote Originally Posted by Kushinator View Post
    I really think you should look into more formal and basic finance/economics/actuarial topics before jumping this far ahead. I mean, you're operating with entirely different definitions to terms that have been in place for over a hundred years.
    Wiki has this:

    "The natural rate of interest, sometimes called the neutral rate of interest[1], is the interest rate that supports the economy at full employment/maximum output while keeping inflation constant.[2] It cannot be observed directly. Rather, policy makers and economic researchers aim to estimate the natural rate of interest as a guide to monetary policy, usually using various economic models to help them do so."
    source

    ...which sounds a lot like NAIRU theory, which is completely imaginary. And very different than what I picked up while arguing with Austrians. The term "natural" implies something more than whatever semi-arbitrary rate banks set for loans, some sort of equilibrium that the Fed is fighting against. Anyway... probably getting off-topic here.
    ___________________________________________

    Enchanted Necromancer Brings Life Back To Once-Dead Argument

  5. #165
    I'm not-low all the time

    Kushinator's Avatar
    Join Date
    Jan 2006
    Location
    lincoln park
    Last Seen
    03-26-20 @ 09:27 AM
    Gender
    Lean
    Independent
    Posts
    19,293

    Re: MMT to the rescue!

    Quote Originally Posted by JohnfrmClevelan View Post
    The Fed added about $1 trillion between late Nov. 2008 and March 2009, according to Wikipedia.





    And the $2 trillion from the coin wouldn't go into the economy all at once.
    It would go on the Fed's balance sheet all at once.

    It would only go in as fast as the government paid out those benefits. And then, it would presumably be replacing a lot of lost income/demand, not added on top of normal demand.
    Our current situation is a massive supply and demand shock (rather unprecedented). Even when people get these disbursements... they are limited in areas that they can spend them, and it is probably not going to lead to future investment. It's better than nothing, but it doesn't address the core issue.

    I'm just not seeing where that should be a big shock to the system.
    It would expand the Fed's balance sheet by $2 trillion instantaneously while reducing future auctions by many magnitudes. Government or people will not be able to spend this money fast enough. It would be better appropriated via government spending on our healthcare infrastructure. The Defense Production Act allows for the government to steer the necessary industry into production of vital goods, like personal protection wear, masks, hospitals, equipment, etc.... Again, it's better than doing nothing, but it doesn't address the underlying issue... people are frightened because our government cannot contain this virus and isn't prepared for what's to come. $2 trillion coins don't address this problem.

    which sounds a lot like NAIRU theory, which is completely imaginary.
    It's very similar to what the Fed calls the neutral rate. This isn't something that's imaginary, and it isn't something that is a constant, as it changes as the economy changes.
    It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.
    "Wealth of Nations," Book V, Chapter II, Part II, Article I, pg.911

  6. #166
    Sage
    JohnfrmClevelan's Avatar
    Join Date
    May 2014
    Last Seen
    Today @ 04:49 PM
    Gender
    Lean
    Liberal
    Posts
    6,290

    Re: MMT to the rescue!

    Quote Originally Posted by Kushinator View Post


    That's actually the change, so you have to add that up to get the picture. Here is a bare accounting of assets; Fed assets went up $1.2 trillion in a hurry.

    17-Sep-2008 995093
    24-Sep-2008 1211825
    1-Oct-2008 1503989
    8-Oct-2008 1591587
    15-Oct-2008 1770809
    22-Oct-2008 1802602
    29-Oct-2008 1969086
    5-Nov-2008 2074205
    12-Nov-2008 2212852

    source

    Quote Originally Posted by Kushinator View Post
    It would go on the Fed's balance sheet all at once.
    Yeah, but so what? It has no effect until the govt. spends it. The whole transaction is completely internal to the government.

    Quote Originally Posted by Kushinator View Post
    Our current situation is a massive supply and demand shock (rather unprecedented). Even when people get these disbursements... they are limited in areas that they can spend them, and it is probably not going to lead to future investment. It's better than nothing, but it doesn't address the core issue.
    I would expect stimulus to come when the health problem is over. Replacing income for now keeps most things in place - rent, food, utilities, healthcare (hopefully). Most of what has been eliminated is entertainment. It will be interesting to watch how it all unfolds, no doubt.

    Quote Originally Posted by Kushinator View Post
    It would expand the Fed's balance sheet by $2 trillion instantaneously while reducing future auctions by many magnitudes. Government or people will not be able to spend this money fast enough. It would be better appropriated via government spending on our healthcare infrastructure. The Defense Production Act allows for the government to steer the necessary industry into production of vital goods, like personal protection wear, masks, hospitals, equipment, etc.... Again, it's better than doing nothing, but it doesn't address the underlying issue... people are frightened because our government cannot contain this virus and isn't prepared for what's to come. $2 trillion coins don't address this problem.
    I can understand an effect coming from reduced (or eliminated) future auctions. At least in the financial world. I think they'd figure out other ways to get rich without bond interest, though, and I still can't see how it would affect normal people negatively.
    ___________________________________________

    Enchanted Necromancer Brings Life Back To Once-Dead Argument

  7. #167
    User
    Join Date
    Mar 2020
    Last Seen
    03-28-20 @ 01:31 AM
    Gender
    Lean
    Progressive
    Posts
    1

    Re: MMT to the rescue!

    Quote Originally Posted by bomberfox View Post
    At this point why bother? That sounds more like clownish games than sound economics. This makes MMTers sound like two year olds than economics professors. No need to waste chasing after things like Paul Krugman does that makes him look like a loon.
    You miss the whole point. Tlaib and the lawyer who helped her draft the bill, Rohan Grey, do not intend to use the idea, it is deliberately performative, designed just to troll people like you (I guess), to show you the Federal government is the money issuer, so it can never run out of US dollars, does not need to borrow, and does not need to tax before spending (it's actually the exact reverse, before anyone can pay their tax liability without taking out bank credit, the government must FIRST spend new money into existence, that is, we all pay our taxes from past government deficit spending. By the way, I checked directly with Rohan about this, and he more or less said yes, the plan was to be performative, deliberately churlish if you like, to troll the idiotic neoliberal fiscal hawks, basically.

    The sound economics is that of spending and inflation and real resource constraints. If you bothered to learn about sound economics you'd see the trillion dollar coin mint is not a big deal. The US deficit is already much bigger. Putting a trillion into the economy right now will not cause much inflation, it will mostly go to increasing production capacity, most likely. But if not, so what? The spending is needed NOW to keep up demand from lost income, to save lives, and any down-stream inflation can be dealt with later. There is no problem in creating anti-inflation pressures, we know how to do this too well, the past 50 years are proof.

Page 17 of 17 FirstFirst ... 7151617

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •