Economist Stephanie Kelton on The Deficit Myth

[DBT]

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.

I don't think it's about creating money or issuing bonds but running a surplus while the economy is running well and putting some of that surplus into an emergency fund, which is invested and makes money until the point when an emergency happens and the government draws from the fund to deal with the emergency.

Which is nothing more than basic responsible management. Just like we who cannot print money are compelled to do.

 

[bigfield]

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

This does not serve the purpose you prescribed:

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.

Firstly, the ERF can only release $200m a year, which is peanuts. When times are hard, the Commonwealth's deficit runs in the tens of billions.

Secondly, the Future Fund's bank account doesn't function as savings. Governments can't have savings in their own currency. It's about as useful as writing IOUs to yourself.

 

[DBT]

If a fund is called an "emergency response fund" its purpose by definition is to be in place to deal with emergencies whenever they arise.

 

[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.

I don't think it's about creating money or issuing bonds but running a surplus while the economy is running well and putting some of that surplus into an emergency fund, which is invested and makes money until the point when an emergency happens and the government draws from the fund to deal with the emergency.

Then there will be corresponding debt elsewhere. "Running a surplus" means govt taxing more out of the private sector (households and firms) than it spends in. Households and firms cannot create money. The money they pay in taxes must originate either from previous govt deficits or from commercial bank loans as double entries against borrowers' future incomes. Anything else is illegal.

https://en.wikipedia.org/wiki/Sectoral_balances

Which is nothing more than basic responsible management. Just like we who cannot print money are compelled to do.

It's nothing like what we who cannot print money are compelled to do.

 

[Canard DuJour]

Here's a great jargon-free vid explaining it as plumbing diagrams :

[YOUTUBE]https://www.youtube.com/watch?v=bHQCjFebIf8[/YOUTUBE]

 

[bigfield]

Deleted. (Attempting to correct something that didn't need correcting.)

 

[laughing dog]

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.

What makes you think that there will a sufficient balance in an "emergency fund" to deal with a downturn or an emergency?

What would the federal gov't do with those truly surplus funds that would go into an emergency fund? Buying equity is socialism and runs the risk of capital losses. Buying private debt is running the risk of a default.
So, the only viable options are to either sit on cash/deposits or buy the sovereign debt of other nations.

And why would you think that if the US gov't ran persistent surpluses during good times that there wouldn't be successful attempts to reduce taxes/increase spending?

Gov't finance is not analogous to household or personal finance.

 

[Wiploc]

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

It's about the business cycle.

If government runs a surplus in good times, that slows down economic booms, and mitigates (or, hypothetically, eliminates) the crash at the end of the boom.

If government runs a deficit in bad times, that softens recessions.

I don't think in terms of emergency funds, but if you do want to think in those terms, then building up the fund in good times keeps the good times lasting longer, and keeps them from ending as painfully.

-

Why don't I think in terms of funds?

Partly, it's because, when we send tax monies to the government, we could accomplish exactly the same thing by burning the money in our front yards. That would have the same anti-inflationary impact, which is one of the reasons for collecting taxes.

Partly, it's because, when we say there's a fund, it's a bookkeeping trick, a sleight of hand. We put the money in the emergency fund, and then we take it out again, and say we're "borrowing" it to build roads. So the fund consists entirely of a bookkeeping move.

Partly, it's because, when we're supposed to run a deficit because of a depression, we're supposed to do that regardless of whether we behaved ourselves by running a surplus during good times. The "fund" can be empty, but government is still supposed to spend more than we take in; that's how we get back to good times.

 

[Bronzeage]

Technical point about printing money: The "money supply" is the total amount of currency, coins, and demand deposits, in the country. Some economists see unused credit card limits as part of the money supply.

If I borrow $100 from a bank, I may walk out with a hundred dollar check, but the depositor whose money I now hold in my hand, still has $100 in their account. If I deposit this in another bank, the money supply just went up by $100. The second bank can now loan a portion of my $100 to another customer, who uses a debit card buy a clock radio from a store that deposits all receipts at the end of the day in a third bank. The original depositor has their money, I have my money, and the clock radio store has their money, and the original $100 in the money supply has almost doubled and no one has seen a piece of legal tender.

The arithmetic gets complicated at this time, but the government does not need to print money in order to increase the available amount of money.


There is an economic reality which is often glossed over, and that is the simple fact that people with access to large amounts of money are vastly outnumbered by those with very little money. Wealthy people depend upon stability to keep their wealth intact. This stability comes at a cost. It can be bought with castles, moats, and guards, or what is preferable in modern times, insuring that the lives of the less wealthy is tolerable and they feel they have vested interest in maintaining the status quo. When life becomes intolerable and the status quo is not acceptable, there are enough poor people to simply take what they want. This is a very inefficient process, as a tremendous amount of wealth is destroyed in the process.

 

[Wiploc]

If a fund is called an "emergency response fund" its purpose by definition is to be in place to deal with emergencies whenever they arise.

Since it is smoke and mirrors, since it can have no effect on how government responds to emergencies, I'm guessing that it's purpose is to make elected officials look good to voters.

 

[bigfield]

Here's a great jargon-free vid explaining it as plumbing diagrams :

[YOUTUBE]https://www.youtube.com/watch?v=bHQCjFebIf8[/YOUTUBE]

Here are the competing conceptual models presented in the video, side-by-side:

 

[Horatio Parker]

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.

Gimme a break. You don't even understand the difference between a currency user and a currency issuer. It takes some comprehension to determine relevancy, in which you're lacking. You'd rather carry on with your junior gaslighting activities.

 

[Horatio Parker]

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.

I don't think it's about creating money or issuing bonds but running a surplus while the economy is running well and putting some of that surplus into an emergency fund, which is invested and makes money until the point when an emergency happens and the government draws from the fund to deal with the emergency.

Which is nothing more than basic responsible management. Just like we who cannot print money are compelled to do.

This discussion of surpluses is missing trade, which is where they typically occur. Norway e.g. can run govt surpluses because they export a lot of oil. The US imports more than we export, so we run deficits. Not everyone can run a surplus; surpluses are balanced by deficits.

So do you want to export your resources in order to accumulate financial claims against other countries, to fund your emergencies, or keep your resources and run a deficit?

 

[SimpleDon]

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.

A sovereign government can't really save in its own currency. The concept is meaningless.

Look at what happened with the Social Security and Medicare fund when we increased the payroll tax in the 1980s to put money aside to pay the boomers' Social Security and Medicare. Social Security was given government bonds as "savings" for the boomers and the government spent the proceeds from the payroll tax increase on the normal things that the government does, the military, salaries for government workers, transfer payments, etc. The government issued new debt to cover the amount of the payroll tax increase and gave the bonds basically to itsels

Now that Social Security needs the money they cash in the bonds that they were given and the government gives them the money from the general fund. What the congress in the 1980s was trying to avoid.

In the same vein, it is not only true that a sovereign government can't save in its own currency, they can't be in debt in their own currency either. This concept is also meaningless.

 

[barbos]

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.

Gimme a break. You don't even understand the difference between a currency user and a currency issuer. It takes some comprehension to determine relevancy, in which you're lacking. You'd rather carry on with your junior gaslighting activities.

The fact that you keep insisting that I did not know that when I mentioned Greece for exactly that reason, is very telling.
A five year old would know the difference between Greece and US, because talking heads would not stop talking about it for two years.
You are projecting.

 

[Horatio Parker]

Gimme a break. You don't even understand the difference between a currency user and a currency issuer. It takes some comprehension to determine relevancy, in which you're lacking. You'd rather carry on with your junior gaslighting activities.

The fact that you keep insisting that I did not know that when I mentioned Greece for exactly that reason, is very telling.
A five year old would know the difference between Greece and US, because talking heads would not stop talking about it for two years.
You are projecting.

You said

Yes, printing money would be forced (by too much accumulated debt) response.
And it is a fucking cause of hyperinflation.
Alternative would be paying up, ask Greece about that.

Greece's debt has zero relevancy to the US deficit.

I think you're aware of the fear many people have over govt debt and it pleases you to twit that. Because I haven't seen a single indication you have any idea what you're talking about. Blustering doesn't count.

 

[barbos]

You said

Yes, printing money would be forced (by too much accumulated debt) response.
And it is a fucking cause of hyperinflation.
Alternative would be paying up, ask Greece about that.

Greece's debt has zero relevancy to the US deficit.

It's relevant illustration of a country which was forced to pay sizeable debt.
Greece could not pay and still can't do it. Nobody can.

I think you're aware of the fear many people have over govt debt and it pleases you to twit that. Because I haven't seen a single indication you have any idea what you're talking about. Blustering doesn't count.

The fact that you think that somebody can be that ignorant tells more about you than about that somebody.
Again, these talking heads were bitching how Greece should never have got into Euro-zone nonstop for two fucking years.
Plus my boss at the time was Greek, so I knew a little about Greece and Euro-zone.

 

[barbos]

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.

A sovereign government can't really save in its own currency. The concept is meaningless.

Look at what happened with the Social Security and Medicare fund when we increased the payroll tax in the 1980s to put money aside to pay the boomers' Social Security and Medicare. Social Security was given government bonds as "savings" for the boomers and the government spent the proceeds from the payroll tax increase on the normal things that the government does, the military, salaries for government workers, transfer payments, etc. The government issued new debt to cover the amount of the payroll tax increase and gave the bonds basically to itsels

Now that Social Security needs the money they cash in the bonds that they were given and the government gives them the money from the general fund. What the congress in the 1980s was trying to avoid.

In the same vein, it is not only true that a sovereign government can't save in its own currency, they can't be in debt in their own currency either. This concept is also meaningless.

True. But we can go further and say that sovereign government can't really save in any currency because they would be at the mercy of currency issuer

In reality of course, if US tries to print cash to pay China, they would never agree to that and will make US pay one way or another.

 

[Jokodo]

Did the people who lived thru World War 2 hope to die because of that debt?

I resent your comparison of debt to kill Hitler with debt to buy an iPhone.
That debt was a reason why it was invented - for actual emergencies.
Current debt was mostly wasted and stolen.

Governments have unsustainable levels of debt because they bought an iPhone? One each or one between them?

 

[Jokodo]

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.

I think it is well established you don't know what you're talking about here, and yet you're very confident.