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Economist Stephanie Kelton on The Deficit Myth

 
 
 
I think that this fear of printing a lot of money is because it seems almost too easy to do -- run the printing presses some more or edit certain database entries.

That is the attraction of the gold standard. It is a rare element, and to get more gold, one either has to do a lot of mining or else some nuclear reactions. So the quantity of available gold will only slowly increase, and that will avoid the nightmare of printing a lot of money.
 
lpetrich said:
I think that this fear of printing a lot of money is because it seems almost too easy to do -- run the printing presses some more or edit certain database entries.

That is the attraction of the gold standard. It is a rare element, and to get more gold, one either has to do a lot of mining or else some nuclear reactions. So the quantity of available gold will only slowly increase, and that will avoid the nightmare of printing a lot of money.
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Sure. But money supply needs to vary according to the needs of the economy, not the availability of some random rare commodity.

With fiat money there's no guarantee that the amount in circulation will meet (but not exceed) the needs of the economy - indeed, it's difficult to determine what that amount even is, hence this debate - But commodity money is practically guaranteed NOT to fluctuate in step with need, leading to massive booms and busts, unless commodity mining is a massive proportion of all economic activity.

At least with fiat money it's possible in principle to create and destroy money in a way that matches the fluctuations of economic activity, even if in practice that is both technically and politically difficult.
 
barbos said:
"Developed" world economies seem to be unable to function without massive deficit spending.
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Indeed. And it doesn't appear to be particularly harmful for them to do so.

Yet lots of people seem to think it must inevitably lead to disaster - they just don't seem to be able to explain WHY, without making obviously false assumptions (most of which seem to involve analogies to household budgets).
 
lpetrich said:
I think that this fear of printing a lot of money is because it seems almost too easy to do -- run the printing presses some more or edit certain database entries.

That is the attraction of the gold standard. It is a rare element, and to get more gold, one either has to do a lot of mining or else some nuclear reactions. So the quantity of available gold will only slowly increase, and that will avoid the nightmare of printing a lot of money.
Click to expand...

Right, hence fiscal rules which bind govts to sell bonds as if they were still on the gold standard. Otherwise, profligate govts would supposedly buy favour from electorates who don't understand that their money is being devalued.

But this relies on electorates not understanding the nature and purpose of the resulting "public debt" (which MMT clarifies). And this obfuscation - The Deficit Myth - has been too effective. People now believe that we "can't afford" to tackle the existential threat of climate change. It is used by vested interests to block governments from creating money for public purpose. We've ended up with gold-standard-like financial instability.

As the article I linked to puts it:

Hudson said:
If governments do not provide enough purchasing power by running budget deficits to enable the economy to grow, the role of providing money and credit will have to be relinquished to banks – at interest, and for purposes that the banks decide on (mainly, loans to buy real estate, stocks and bonds). In this respect banks are competitors with government over who will provide the economy’s money and credit – and for what purposes.

Banks want the government out of the way – not only regarding money creation, but also for financial and price policies, tax policy and laws governing corporate behavior. Finance wants to appropriate public monopolies, by taking payment in natural resources or basic public infrastructure when governments are, by policy rather than necessity, short of their own money, or of foreign exchange. (In times past, this required warfare; today foreign debt is the main lever.)

To get into this position, banks need to block governments from creating their own money. The result is a conflict between private bank credit and public money creation. Public money is created for social purposes, primarily to maintain production and consumption growth. But bank credit nowadays is created largely to finance the transfer of property and financial assets – real estate, stocks and bonds.
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bilby said:
barbos said:
"Developed" world economies seem to be unable to function without massive deficit spending.
Click to expand...

Indeed. And it doesn't appear to be particularly harmful for them to do so.
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Yes, it does not...... until it does.
Yet lots of people seem to think it must inevitably lead to disaster - they just don't seem to be able to explain WHY, without making obviously false assumptions (most of which seem to involve analogies to household budgets).
Click to expand...
You want me to explain Ponzi Scheme?
OK, I will try. Government prints bonds and exchange it for cash from ultra-rich people. Then that cash is used to pay salaries to people employed in different government funded enterprises (millitary, etc). Ultra-rich take advantage of that arrangement and get all that cash back, and the cycle starts over. In the end ultra-rich hold mother-load of US issued debt and other crap linked to that (in reality everything is linked to bonds) and hope they die before it crashes.
 
Governments issuing bonds or printing money is similar to the share market where a company may raise revenue by issuing more shares, which dilutes the value of the shares and lowers dividends for shareholders. It becomes a balance, fine to a point but not if it's carried too far.
 
lpetrich said:
Then they get into the national debt. Deficit spending is financed by selling Treasury bills.
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But not in the sense of raising money to spend :

MMT: Why Do Governments That Issue Their Own Currency Bother To Sell Bonds? :

[YOUTUBE]https://www.youtube.com/watch?v=pex89N9Oqog[/YOUTUBE]

Most central banks have literature confirming this (albeit in very opaque language), or as the Wikipedia entry on "Government Debt" confirms:

  In a monetarily sovereign country such as the United States of America, the United Kingdom and most other countries, government debt held in the home currency are merely savings accounts held at the central bank. In this way this "debt" has a very different meaning to the debt acquired by households who are restricted by their income. Monetarily sovereign governments issue their own currencies and do not need this income to finance spending. A central government with its own currency can pay for its nominal spending by creating money ex novo,[3] although typical arrangements leave money creation to central banks. In this instance, a government issues securities to the public not to raise funds, but instead to remove excess bank reserves (caused by government spending that is higher than tax receipts) and '...create a shortage of reserves in the market so that the system as a whole must come to the [central] Bank for liquidity.' [4]​


It also serves the political purpose of handcuffing public spending, so long as the public believes that govt bond issuance is like a household borrowing from a bank. Hence all the misleading language and opaque procedures. Hence all the hysteria about "Ponzi schemes" and "mortgaging our childrens' future" etc.
 
barbos said:
"Developed" world economies seem to be unable to function without massive deficit spending.
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Depends - are they net exporters or importers? For every deficit there's a surplus. No country can accumulate surpluses without a balancing deficit elsewhere.
 
barbos said:
Yes, it does not...... until it does.
Yet lots of people seem to think it must inevitably lead to disaster - they just don't seem to be able to explain WHY, without making obviously false assumptions (most of which seem to involve analogies to household budgets).
Click to expand...
You want me to explain Ponzi Scheme?
OK, I will try. Government prints bonds and exchange it for cash from ultra-rich people. Then that cash is used to pay salaries to people employed in different government funded enterprises (millitary, etc). Ultra-rich take advantage of that arrangement and get all that cash back, and the cycle starts over. In the end ultra-rich hold mother-load of US issued debt and other crap linked to that (in reality everything is linked to bonds) and hope they die before it crashes.
Click to expand...

Wrong. Govts don't need bond revenue to spend. Debt is issued after spending.
 
Horatio Parker said:
barbos said:
Yes, it does not...... until it does.
Yet lots of people seem to think it must inevitably lead to disaster - they just don't seem to be able to explain WHY, without making obviously false assumptions (most of which seem to involve analogies to household budgets).
Click to expand...
You want me to explain Ponzi Scheme?
OK, I will try. Government prints bonds and exchange it for cash from ultra-rich people. Then that cash is used to pay salaries to people employed in different government funded enterprises (millitary, etc). Ultra-rich take advantage of that arrangement and get all that cash back, and the cycle starts over. In the end ultra-rich hold mother-load of US issued debt and other crap linked to that (in reality everything is linked to bonds) and hope they die before it crashes.
Click to expand...

Wrong Right. Govts don't need bond revenue to spend. Debt is issued after spending and before next spending
Click to expand...
Fixed for you :)
 
DBT said:
Governments issuing bonds or printing money is similar to the share market where a company may raise revenue by issuing more shares, which dilutes the value of the shares and lowers dividends for shareholders. It becomes a balance, fine to a point but not if it's carried too far.
Click to expand...

True, but some "economists" claim that everything is more than fine and will always be fine.
 
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