Home > Main > Are we Printing Truckloads of Money? MMT says yes, but it isn’t the Fed, its the Treasury.

Are we Printing Truckloads of Money? MMT says yes, but it isn’t the Fed, its the Treasury.

March 8, 2011

Highest Spending since WWII

Over at Pragmatic Capitalism, Cullen Roche says “No.” He goes through the MMT argument about why the Feds actions aren’t creating more money.

Mr. Roche is excellent (as usual) – this time in explaining very clearly how MMT views QE II.  But I have to disagree just a bit with the money supply explosion being a myth.  MMT says that with the government deficits at current levels, we’re creating more money than we have in decades.

Like it or not, the U.S. is running huge deficits compared to the deficits of the post WWII era.  Most of this is due to the dramatic decrease in tax collections, and not to runaway spending.  But deficits are deficits no matter how they are created – and according to MMT, deficits are how money is “created”.

The inflation situation isn’t very threatening (at least to me) right now, but the U.S. is creating substantial amounts of money.  As Peter D. points out, it is impossible to directly observe the demand for savings. We can only observe the price levels, NGDP, and employment, and make judgements about how much less we should be paying in taxes…

We know Private Savings = Government Deficits + Current Account Surplus

What we don’t know is how much demand for direct USD savings there is out there…but it seems awful high.

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  1. Peter D
    March 22, 2011 at 9:27 pm

    Right. I think Cullen’s point has always been the usual MMT’s (and other thinking people’s) that QE is not exploding the money supply. Frankly, we should retire the terms like money supply which designate artificial things nobody can agree upon. Instead, MMT uses NFAs, which is pretty precise and if we believe MMT is the real thing that drives non-government non-credit spending.
    We also need to invent some better terms for the various types of inflation. Inflation can mean very very different things to different people. MMT should be clear that it deals with demand pull inflation and can hardly do anything about supply shocks and asset bubbles (as far as I understand).

    • TC
      March 23, 2011 at 7:53 am

      I agree with Cullen on this – the Money Supply is not exploding.

      I don’t know about abandoning the term Money Supply. Its a loaded term, but one people understand. NFA isn’t intuitive, its most easily said as an acronym, and it further insulates MMTers from the rest of the world. It’s like the Austrain’s always going on about praxis – nobody will know what the hell it means.

      Additionally, I think co-opting a common term while we can say “We have the correct definition of money Supply” and have a very logical, easy to follow foundation for this is an extremely powerful rhetorical tool. I think the old example of $100 cash in the bank, but a debt for $100 sitting on my desk is a good way that people understand and can relate to – they don’t have any net worth, even though they have money.

      Re: inflation this is such a horrible, horrible problem that I don’t even know where to start. I also think that MMT is ignoring credit creation to its detrement. We need a more robust discussion on credit within the communty.

  2. Peter D
    March 23, 2011 at 10:22 pm

    Agree about credit. Seems to me MMT suggests supplying enough NFAs so that the non-govt sector doesn’t feel the need for credit expansion to compensate for unrealized savings desires. But then if you start getting demand-pull inflation you should remove NFAs. Confusion…

    • TC
      March 24, 2011 at 10:48 am

      “Seems to me MMT suggests supplying enough NFAs so that the non-govt sector doesn’t feel the need for credit expansion to compensate for unrealized savings desires.”

      It seems the same to me – that as somehow having enough NFA will reduce the desires for credit creation. But do we see this in the real world? It doesn’t seem to me like we do. Additionally, why not have some more meat on the function and mechanism of the credit creation process – and some level we can pull to moderate/control it?

      Now the mechanism the Fed uses to stimulate the credit creation process isn’t foolproof as we’ve seen. However, I see increased credit creation when real rates are lower, reduced credit creation when real rates are higher. It isn’t like these ideas are entirely useless, or that the Fed has zero impact in the direction they think they do.

      For example, look at NGDP growth in the UK over the last 20 years. It’s 5.3% How can this straight line exist unless the BoE has some impact on nominal GDP growth? MMTers are silent on data like this.

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