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Posts Tagged ‘MMT’

Instant Classic Shooting up the Charts

November 17, 2011 8 comments

This is an instant classic.  Do not underestimate the power of this.  ht Clonal:

 

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4 Ways to Change the Fed: A Users Manual

November 7, 2011 17 comments

Here's the sizzle, the last post was the steak

I’ve had a few inbound links to the 4 Ways to Change the Fed .  That post was intended to be very detailed for long time readers – but unfortunately, not many people can understand it easily.

Here is a quick and easy guide to why we want to do these things.

#1. The Fed isn’t under any control at all.  It can do almost anything it wants with monetary policy. It’s not accountable to the president or congress in any meaningful way.  It’s like a rogue bank in the middle of our government, funded by our government, that tries to control our entire economy.

But the Fed flips the middle finger to U.S. citizens when they ask for accountability to minimizing unemployment.  It’s an anti-democratic institution that’s literally out of control.

The solution?  Place the Federal Reserve Under Treasury Control.

Why?  The Treasury reports directly to the President.  If we can trust the president with the nuclear launch codes, we can and should trust him with money.  Put the Fed under the Treasury.

#2.  Normally, banks issue debt, and companies issue stock.

But for the U.S. government, the bank (the fed) issues the stock, and the company (the treasury) issues the debt.

The the fed tries to alter the yield curve with their open market operations.  It’s ass-backwards.

It should be fixed, so people recognize the government can create money at will.  Not only that, this is the way its done in the constitution.

The solution? Have the Treasury and Fed switch places.  The Treasury issues money, the Fed sets the yield curve.

#3: The U.S. is the richest country in the known history of the world.  Yet,  somehow the richest country in the history of the world doesn’t have enough money. Does this seem completely stupid to you?

It should.  We’re can’t run out of money, because we can make all we need.  We can make the money to pay for China ripping us off, and to stimulate the economy.

The Solution? Make several trillion dollar coins.  Deposit them in the Treasury account at the Fed.

We now have the money to pay for programs.   Don’t spend too much- we might get inflation.

But do spend enough to get people working.   In fact, you can spend it on a huge tax cut for working people as #4 will tell us.

#4.  We know a simple fact: Businesses hire when they are swamped with demand!  Don’t believe me? Just ask Mitt Romney! (h/t beowulf!)

Business have high profits right now, but they don’t want to hire because the demand for their products is low.

So how can we boost demand when we need it – and cut back when we don’t need it any more?

The solution: Give people more money when times are tough, and cut back when times are good.

The best way to do this is through a payroll tax holiday.  When times are tough, people get laid off.  But if your buddy gets laid off, you’ll get a raise!

I hope this helps!

Aggressive NGDP Targeting gets us Recession levels of Unemployment!

October 18, 2011 6 comments

This recent note by Jan Hatzuis about NGDP targeting shows just how bad monetary policy is at getting unemployment down.  Scott Sumner is cheering this.   So is Matt Y.

If you just check out the charts, you’ll see that NGDP targeting does reduce unemployment.  The unpleasant part is: Unemployment gets down to 6% after years and years of targeting.

Now 6% seems like good days when we are at 9% unemployment.  But for most of the last 30 years, and most of U.S. history, 6% unemployment was recession level unemployment.   The only times we’ve been over 6% unemployment is when times were tough and we needed to get the economy moving.

I don’t know why people think 6% unemployment is a good target.  It’s a horrible level of unemployment that only looks good from the perspective of the aftermath of a gigantic global crisis.

We need fiscal stimulus, not more bank lending.

[Update:  Here is the paper   http://www.scribd.com/doc/69165529/Goldman-Sachs-Recommends-Fed-Boost-the-Economy

and nothing about how they might do this NGDP targeting.  Perhaps more talk? ]

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MMT Modeling

September 26, 2011 Comments off

We crazy MMTers are always saying “You need to follow the accounting!” to professional economists.  They say they do.  But I don’t think they do.

In a very deep way, any economy is a totally closed system.  All of the books and numbers add up somehow. Every balance sheet can be reconciled with every other balance sheet in the economy, and every statement of cash flows, and every income statement – they can all be reconciled if you could just take the time to do it.

There aren’t any gaps.  It’s all filled in.

This premise drives MMT.  All of this money stuff adds up – so it can be cross referenced against other parts of the economy.  Something interesting to note is that it also adds up in the future too, and added up in the past.

The cool thing about this type of thinking is that you can create models of the economy using the “it all adds up” idea as an end point at any given moment, and then give a bit of an impluse to parts of the economy, and move forwards in time.

This kind of thinking is not really that new.  You can go and download simple predator/prey models, and find out what happens in closed economies over time.   There are lots of things like traffic modeling that has taken huge steps forward over the last decade.

All of this is due to thinking about systems as having inputs that impact the model, and there is an interaction between the parts that “adds up”.

In an MMT world, a Steve Keen world, a Wynne Godley world, this type of modeling is very possible.   We have computers that can keep track of lots of numbers, and are easily able to apply rules to how the numbers change, given inputs to the economy.

These models are pretty hard to make in some ways, but very easy to understand.   You know how the parts fit together and what they must add up to be.

The new MMT Blogger Fred Decker is creating models like this, and they seem to be pretty cool.  I don’t have the software to be able to use these models yet, or the time until probably next year.

But I am not surprised that these models are coming and being built.  And the great, great thing about these models is that many, many of the numbers that go into the models are observable and measurable in something like real time.

So we can see not just the inputs to what goes into the model, these models can also be calibrated against real world data in something like complete manner.

 

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Swiss Intervene – and it’s widely accepted they have unlimited capacity to sell CHF

September 6, 2011 9 comments

Can Central banks go broke?  I don’t think they can.

Todays action by the Swiss is different from other interventions we’ve seen.  Well not the action exactly, but the words.

“The SNB will enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited
quantities.”

“Unlimited Quantities” .  Shocking words.

Still, not a peep by the analyst community that this will cause gigantic expansion of the SNB balance sheet, or unacceptable losses to the SNB.

It’s become widely accepted common knowledge that Central Banks can’t go broke.

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The Useless Intertemporal Government Budget Constraint: Not Economics

August 30, 2011 11 comments

One of the amazing things about economics is that the major flaws are defined out of existence and then just ignored by most of the profession.

I’ve already went through many reasons why monetary policy sucks. These aren’t controversial statements.  Monetary policy is a bad way to try and influence an economy even if it works.

Then, one of the most common statements in economics, I = S, gets the accounting wrong.   This is the MMT view of I = S and of most of modern macroeconomics – that it gets the accounting wrong so it can’t get the economics right.

But probably the most egregious error in economics is the Inter-temporal Government Budget Constraint.

First, I think the no-Ponzi assumption is stupidly wrong.   It’s impossible to tell ever tell if it holds, and so people can make up anything they want about the IGBC and they might be right.

It turns out that Minnesota fed president Kocherlakota agrees with me, as I’ll show later in another post.

Second, I am  sure that even if it does hold, its worthless to use anything but what we know today about inflation to make decisions about it.

(Thanks again to Peter D for the excellent summary.)

So if the assumption is a boneheaded assumption, we shouldn’t use the IGBC.  But even if the assumption holds, then we must take primary market information seriously and only use inflation as our policy guide.

Now, I have a 3rd critique of the IGBC.  The IGBC isn’t economics.   Nick Rowe says that economics requires most models to contain elements of both supply and demand to be considered to be economics.

This is not a controversial statement.  It’s a common sense observation about what is and what isn’t economics.

And by this common sense observation, the IGBC isn’t economics.

Here is a link to the cannonical Walsh derivation of the IGBC.   Go to page 136.   You can get a similar derivation in Fullwiler’s “Interest Rates and Fiscal Sustainability“, pages 7-9.

Where is the demand for (G-T) in the IGBC?  There is none.

We know:

  1. G – T is the net financial assets issued by the government by identity.
  2. There is so much demand today for the assets generated by G -T that investors are willing to knowingly lose money over a period of 5 years just to have these assets.   We have negative real interest rates in the 5 year, as of August 29th, 2011, indicating massive real demand.  People hold over $14T worth of (G-T) in our real world – indicating massive nominal demand.
So the IGBC isn’t economics.  It can’t be economics, because there is no demand for G – T in the equation.
For this constraint to be economics, it needs to reflect the staggering demand for G -T.  We can call them “net financial assets” or “government borrowing” or something like that, but we know by identity that these equal G – T.
Yet, according to Walsh:
“In most traditional analyses, fiscal policy is assumed to adjust to ensure that the government’s inter-temporal budget is always in balance, while monetary policy is free to set the nominal money stock or the nominal rate of interest. “

We live in a world where the demand for (G -T) by the U.S. government has been high for the entire life of the country.  We live in a world where right now, today, this demand is so high that people are gladly losing money to purchase (G – T).

Yet, ‘most traditional analysis’ use a model that assumes zero supply or demand for G – T.

This isn’t economics.  It’s religion.

This is seeing the world through a stunted belief regime.  Enforcing this through deliberately hiding the truth of the matter though deliberately confusing non-experts and appeals to authority is anti-democratic.

Of course, the second you put demand into the IGBC, it becomes an equilibrium condition, not a constraint.  And then you get something very much like MMT, called the Fiscal Theory of the Price level.

 

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I does not equal S

August 26, 2011 28 comments

One of the things about the world is that some facts are more fundamental than others.

Economists get these facts wrong all the time.

Specifically, many people think that I = S, or Investement = Savings

S does not equal I.  If you think S = I, you’re getting the accounting wrong. It’s a fundamental mistake that makes every thing that follows horribly misguided.

S can only equal I if we assume there is no government.

But we know:

  1. Governments are nearly always the institution that issues money.
  2. Governments can throw people in jail if they don’t pay their taxes in very specific ways with the money they issue.
By assuming the government out of the equation, you’re assuming that the most important and largest player in the world of money doesn’t exist.
I don’t know why you’d want to start from such a stunted version of the world.
If you assume the government away before you do the economics, you’re getting the accounting wrong.  
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