Economist Stephanie Kelton on The Deficit Myth

[ElysianFields]

What gets me is how incredibly immoral it is for the present generation to benefit from spending the credit while leaving the payment of the debt to future generations.

We're richer than 20th-century Americans. 20th-century Americans were richer than 19th-century Americans. 19th-century Americans were richer than 18th-century Americans. 22nd-century Americans will most likely be richer than us, so generations putting their debts off onto future generations is simply redistribution from the rich to the poor, the same as welfare and the progressive income tax. It's what poor people always do when they can outvote rich people -- and there's nobody easier to outvote than the unborn. Maybe that's incredibly immoral and maybe it isn't, but if we're going to spend energy on bewailing immorality, why blow it on inevitabilities?

Ah, 19th century Americans and early 20th century Americans did not pass on huge debts to the unborn.

Sure they did: https://en.wikipedia.org/wiki/Histo...Federal_Debt_Held_by_the_Public_1790-2013.png

 

[DBT]

Nonsense. The govt is not dependent on the willingness of creditors to lend. It can, and has, simply directed its central bank to buy the issues. As others have pointed out, Japan has been doing this for decades with an effectively negative yield. It can thus control the supply and therefore the price and yield of its bonds. That is why sovereign debt issuance isn't really borrowing. You're not really borrowing if you can buy your own IOUs.

So the whole thing is a Kabuki theater?

Done with Economic Smoke and Mirrors where the rich and powerful pop up and smile at us with benevolent reassurance.

 

[laughing dog]

Nonsense. The govt is not dependent on the willingness of creditors to lend. It can, and has, simply directed its central bank to buy the issues. As others have pointed out, Japan has been doing this for decades with an effectively negative yield. It can thus control the supply and therefore the price and yield of its bonds. That is why sovereign debt issuance isn't really borrowing. You're not really borrowing if you can buy your own IOUs.

So the whole thing is a Kabuki theater?

Done with Economic Smoke and Mirrors where the rich and powerful pop up and smile at us with benevolent reassurance.

So what should be the alternative to the use of gov't debt to help mitigate downturns or promote economic growth?

 

[DBT]

Done with Economic Smoke and Mirrors where the rich and powerful pop up and smile at us with benevolent reassurance.

So what should be the alternative to the use of gov't debt to help mitigate downturns or promote economic growth?

If unlimited printing of money is no problem - as some appear to say - why not do that and be done with it? Or better yet, why not build up an adequate emergency fund while times are good? Too much money being wasted?

 

[Axulus]

Gov't spending without issuing debt is just a hidden tax with additional risks of people losing trust in the currency and unhinging inflation expectations. The additional risks make it much more costly than just issuing low interest bonds.

 

[Horatio Parker]

Done with Economic Smoke and Mirrors where the rich and powerful pop up and smile at us with benevolent reassurance.

So what should be the alternative to the use of gov't debt to help mitigate downturns or promote economic growth?

If unlimited printing of money is no problem - as some appear to say - why not do that and be done with it? Or better yet, why not build up an adequate emergency fund while times are good? Too much money being wasted?

Its no problem operationally. But is it a good idea? After all, money can only buy what's available.

Here's a clip where Greenspan makes the point that the real issue is productivity i.e. cash benefits are useless if there's nothing to buy.



So how do you optimize productivity? By having everyone(within reason) working, for one. A healthy, educated, employed workforce. Which the deficit fear mongers argue we can't afford.

 

[laughing dog]

Done with Economic Smoke and Mirrors where the rich and powerful pop up and smile at us with benevolent reassurance.

So what should be the alternative to the use of gov't debt to help mitigate downturns or promote economic growth?

If unlimited printing of money is no problem - as some appear to say - why not do that and be done with it? Or better yet, why not build up an adequate emergency fund while times are good? Too much money being wasted?

It appears all you have is that it ought to be easy to save when times are good because there must be sufficient gov't waste.

Sounds like very wishful thinking.

 

[DBT]

If unlimited printing of money is no problem - as some appear to say - why not do that and be done with it? Or better yet, why not build up an adequate emergency fund while times are good? Too much money being wasted?

It appears all you have is that it ought to be easy to save when times are good because there must be sufficient gov't waste.

Sounds like very wishful thinking.

Goverments have run surpluses, putting some of their surplus into an emergency fund. It can be done and has been done, at least, in Australia.

 

[barbos]

So why, in your world, would an investor buy US Treasuries?

They would buy it because they have no alternative. Largest economy and historically US Treasuries have been 100% safe..... so far.

So all investors hope their investments won't "crash before they die". Which renders your assertion meaningless.

OK, not all, some idiots don't know that yet.

 

[barbos]

Nonsense. The govt is not dependent on the willingness of creditors to lend. It can, and has, simply directed its central bank to buy the issues. As others have pointed out, Japan has been doing this for decades with an effectively negative yield. It can thus control the supply and therefore the price and yield of its bonds. That is why sovereign debt issuance isn't really borrowing. You're not really borrowing if you can buy your own IOUs.

So the whole thing is a Kabuki theater?
...
The Idiot in the video was I think discussing reissuing debt - exchanging bonds which matured with a new ones, this is a completely meaningless and technical procedure. What is meaningful is a new debt which is sold for a hard cash, which government need to pay for crap it does or buy.

And I think it was well established that Alan Greenspan is an idiot, very confident bullshitter and an idiot.

If by Kabuki theater you mean completely from the mind of man, then yes. The real subtlety IMO though is that so called hard currencies, e.g. gold backed, are equally subjective. The restraint is equally artificial, equally self imposed.

However, you still don't seem to understand that currencies are govt's tool to provision itself. Govt creates the revenue by fiat, then demands it back in taxes. That creates a demand for the currency, since people want to avoid penalty. "Hard cash" and govt debt are the same thing.

Another thing which might be throwing you is pegging i.e. fixing your currency to another. In the case of Russia's default, the govt was not insolvent, it made a policy decision that it would not relinquish its foreign exchange reserves to the peg. Meaning, when the rubles future started to look uncertain, investors decided they'd rather have dollars. Notice again the prominence of foreign exchange. The US does not maintain foreign exchange reserves.

I agree with you wrt Greenspan. However, he does have credibility in circles where Stephanie Kelton doesn't, so public statements he's made that are consistent with MMT are useful in these discussions.

I think it's you who don't understand. I dismissed your "economic" technobabble as irrelevant, yet you keep going on and on about intricacies of this BS.

 

[Wiploc]

If unlimited printing of money is no problem - as some appear to say - why not do that and be done with it?

Unlimited printing makes the money worth zero. We'd wind up reverting to barter.

Or better yet, why not build up an adequate emergency fund while times are good?

We're supposed to do something like that. We should run a deficit in bad times and a surplus in good times.

But that's hard. It's easy enough to run a deficit in bad times, but it's hard to get people to agree to cut back in good times.

But we should.

-

I think the notion of an "adequate emergency fund" is smoke and mirrors. When Spain discovered silver in the new world, that gave them an "adequate emergency fund." It was adequate enough to destroy their economy. If you spend too much, you destroy the value of money, regardless of whether the money is hard, regardless of whether you saved the money up in good times, regardless of whether a good fairy gave it to you, regardless of whether there is a "fund."

 

[DBT]

If unlimited printing of money is no problem - as some appear to say - why not do that and be done with it?

Unlimited printing makes the money worth zero. We'd wind up reverting to barter.

Or better yet, why not build up an adequate emergency fund while times are good?

We're supposed to do something like that. We should run a deficit in bad times and a surplus in good times.

But that's hard. It's easy enough to run a deficit in bad times, but it's hard to get people to agree to cut back in good times.

But we should.

-

I think the notion of an "adequate emergency fund" is smoke and mirrors. When Spain discovered silver in the new world, that gave them an "adequate emergency fund." It was adequate enough to destroy their economy. If you spend too much, you destroy the value of money, regardless of whether the money is hard, regardless of whether you saved the money up in good times, regardless of whether a good fairy gave it to you, regardless of whether there is a "fund."

I agree with most of what you said, but like to add that an emergency fund is only supposed to be tapped when times are hard so as to avoid incurring a huge debt whenever there is a crisis. Which seems like good management.

 

[J842P]

If unlimited printing of money is no problem - as some appear to say - why not do that and be done with it?

Unlimited printing makes the money worth zero. We'd wind up reverting to barter.

Or better yet, why not build up an adequate emergency fund while times are good?

We're supposed to do something like that. We should run a deficit in bad times and a surplus in good times.

But that's hard. It's easy enough to run a deficit in bad times, but it's hard to get people to agree to cut back in good times.

But we should.

-

I think the notion of an "adequate emergency fund" is smoke and mirrors. When Spain discovered silver in the new world, that gave them an "adequate emergency fund." It was adequate enough to destroy their economy. If you spend too much, you destroy the value of money, regardless of whether the money is hard, regardless of whether you saved the money up in good times, regardless of whether a good fairy gave it to you, regardless of whether there is a "fund."

What good would an "emergency fund" during "good times" do? What purpose?

 

[J842P]

Unlimited printing makes the money worth zero. We'd wind up reverting to barter.





We're supposed to do something like that. We should run a deficit in bad times and a surplus in good times.

But that's hard. It's easy enough to run a deficit in bad times, but it's hard to get people to agree to cut back in good times.

But we should.

-

I think the notion of an "adequate emergency fund" is smoke and mirrors. When Spain discovered silver in the new world, that gave them an "adequate emergency fund." It was adequate enough to destroy their economy. If you spend too much, you destroy the value of money, regardless of whether the money is hard, regardless of whether you saved the money up in good times, regardless of whether a good fairy gave it to you, regardless of whether there is a "fund."

I agree with most of what you said, but like to add that an emergency fund is only supposed to be tapped when times are hard so as to avoid incurring a huge debt whenever there is a crisis. Which seems like good management.

Why? Why avoid the debt?

 

[DBT]

Unlimited printing makes the money worth zero. We'd wind up reverting to barter.





We're supposed to do something like that. We should run a deficit in bad times and a surplus in good times.

But that's hard. It's easy enough to run a deficit in bad times, but it's hard to get people to agree to cut back in good times.

But we should.

-

I think the notion of an "adequate emergency fund" is smoke and mirrors. When Spain discovered silver in the new world, that gave them an "adequate emergency fund." It was adequate enough to destroy their economy. If you spend too much, you destroy the value of money, regardless of whether the money is hard, regardless of whether you saved the money up in good times, regardless of whether a good fairy gave it to you, regardless of whether there is a "fund."

I agree with most of what you said, but like to add that an emergency fund is only supposed to be tapped when times are hard so as to avoid incurring a huge debt whenever there is a crisis. Which seems like good management.

Why? Why avoid the debt?

Not necessarily to avoid debt, but to avoid excessive debt needlessly.

 

[bilby]

The choice is to either get past citizens to pay for stuff that their (much richer) descendants will get the benefit of; Or to get wealthy future citizens to pay for stuff that both present citizens and their descendants will benefit from.

Borrowing is getting wealthy people to pay for stuff that both they and some poprer people will benefit from. Saving is getting poor people to pay for stuff they themselves will not benefit from, but which rich people will get to enjoy.

Which of these is evil depends only on whether you are morally competent, or whether you are an objectivist disciple of the crazy Ayn Rand.

 

[JohnG]

In my view, whether or not deficit spending or gov't borrowing has a negative effect on economic activity depends on the situation.

This is what it boils down to - there are times to invest and times to let it ride.

There are never times for trickle down style tax cuts though.

 

[Canard DuJour]

Unlimited printing makes the money worth zero. We'd wind up reverting to barter.





We're supposed to do something like that. We should run a deficit in bad times and a surplus in good times.

But that's hard. It's easy enough to run a deficit in bad times, but it's hard to get people to agree to cut back in good times.

But we should.

-

I think the notion of an "adequate emergency fund" is smoke and mirrors. When Spain discovered silver in the new world, that gave them an "adequate emergency fund." It was adequate enough to destroy their economy. If you spend too much, you destroy the value of money, regardless of whether the money is hard, regardless of whether you saved the money up in good times, regardless of whether a good fairy gave it to you, regardless of whether there is a "fund."

I agree with most of what you said, but like to add that an emergency fund is only supposed to be tapped when times are hard so as to avoid incurring a huge debt whenever there is a crisis. Which seems like good management.

It does, but it's actually impossible. Money is either lent into existence by commercial banks, along with corresponding debt, or spent into existence by govt, along with corresponding debt (govt is legally obligated to issue bonds). For the money in an $n emergency fund to exist, there must be $n of debt.

The only way not to have a corresponding debt would be to relax the rule that govt must match net ("deficit") spending with bond issuance. In which case there is always an arbitrarily big emergency fund.

Also, a household can save money but an economy cannot. Cutting aggregate spending does not increase the stock of money, it just reduces the flow. There are fewer transactions, so fewer goods and services are produced. When the rainy day arrives, there is less actual stuff to cope with it. As Britain is finding out now. Turns out the govt can pull its own IOUs out of thin air, but not ventilators, nurses and PPE.

 

[DBT]

Emergency Response Fund

''The Emergency Response Fund (ERF) was established on the commencement of the Emergency Response Fund Act 2019 (ERF Act), on 12 December 2019. On establishment, the ERF was credited with the uncommitted balance of the Education Investment Fund, which has now been closed.

The ERF allows the Government to draw up to $200 million in any given year, beyond what is already available to fund emergency response and natural disaster recovery and preparedness, where it determines the existing recovery and resilience-building programs are insufficient to provide an appropriate response to natural disasters.''

Investment Mandate

The responsible Ministers must give the Future Fund Board at least one written direction about the performance of the ERF investment functions. Before formally issuing an investment mandate direction, the responsible Ministers must invite the Future Fund Board to make a submission on the draft investment mandate. Should there be a submission, it must be tabled together with the investment mandate in both Houses of the Parliament.

The Emergency Response Fund Investment Mandate Direction 2020 was issued on 4 February 2020. It requires the Future Fund Board to adopt a benchmark return of the Consumer Price Index + 2.0 per cent to 3.0 per cent per annum, net of investment fees over the long term.''

$ 'millions1
Total Credits 3,978

 

[Canard DuJour]

Emergency Response Fund

What about it? Unles govt has granted itself emergency power to create the money without issuing bonds, there will exist a corresponding debt or debts elsewhere.