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girl gone mad

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Member since: Mon Sep 29, 2003, 03:05 PM
Number of posts: 20,634

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Kooky article.

Thanks for the translation.
Posted by girl gone mad | Sat Aug 18, 2012, 06:50 AM (0 replies)

Here is a partial list:

Posted by girl gone mad | Thu Jul 5, 2012, 05:26 PM (2 replies)

How has MMT been proven wrong by this current crisis?

Back up that statement.

I did end up reading the rest of your comment. It seems as if you are more interested in picking a fight than having a real discussion.

I have absolutely no idea why it matters to you which government body does the shredding. My point was that money sent to the IRS gets destroyed, removed from the economy. You ignored the larger point and went off on a tangent.

Oh for fuck sake, you don't even understand the difference between loans from the Fed and private loans?

Private lending has declined. Lending by the Fed has MASSIVELY increased.


You didn't answer my question about what would happen if the only way to get money into the economy was through lending, as you claimed. What would ultimately happen when borrowers needed to repay their debts rather than spend the borrowed money? (Here's a hint: read Fisher)

Fed lending has increased, but bank lending has still declined since before the crisis. The Fed lends to banks, it doesn't lend directly to consumers and it can't force the banks to lend to consumers, therefore the money has not made its way into the real economy. The Fed is operating under the failed neoclassical assumption that reserves fuel lending. In reality, demand from qualified borrowers is what drives lending. Banks are never reserve constrained to begin with. That's why we can't depend on monetary policy to pull us out of this crisis. We need real fiscal solutions.

Once again, I will ask you to reconsider the question. Pretend that the banks aren't lending and that we're running a trade deficit (precisely our circumstance after the global financial collapse). How can our GDP grow if the only way to get money into the economy is through lending? How can tax revenue and domestic demand for government debt increase? Where is this magical money coming from? Don't say Fed loans again! We've just established that the banks aren't lending, so the Fed could loan the banks $500 trillion and it wouldn't matter!

The GDP did go up, despite the conditions mentioned above. I will save you the trouble of explaining where the money came from. The government spent it into existence in the form of the stimulus package, increased use of food stamps, unemployment compensation, welfare etc (this is exactly why these programs are called "automatic stabilizers").

No, it creates money via a printing press.


Very little of our money supply is actually printed. Most money gets added to the economy in the manner I described, via the government directly crediting accounts. Only a tiny fraction of our money supply circulates as dollars (or coins). ETA: less than $1 trillion, or 1/16 of M3

But lets say printing is the means by which all of our money is created. After the money is printed, how does it find its way into the economy? Random helicopter drops?

You: The government doesn't have any bank accounts. It shreds and prints money as needed.
Me: Then what was the debt ceiling crisis about? If you were correct, they'd just keep shredding and printing money.


I never said the government doesn't have accounts. Don't put words in my mouth. What I said is that our government can always meet its same currency debt obligations. There is absolutely no danger of default, unless Congress chooses to default (which would only happen if the majority went insane) and the President refuses to use Treasury's Constitutional authority to mint. A sovereign fiat currency government literally cannot run out of money. That's what people mean when they say the crisis was fake.

Well lookie here, you aren't reading this properly....

This is private lending, not public debt. Public debt doesn't involve loans from banks....

Lending from the Fed to banks. Not public debt. In fact, the exact opposite with private entities borrowing from the government.


Here is a Bernanke quote on the Fed controlling the yield curve. If you want to go up against the central bank because you believe they can't control rates, go for it! Bet the farm.

However, a principal message of my talk today is that a central bank whose accustomed policy rate has been forced down to zero has most definitely not run out of ammunition. As I will discuss, a central bank, either alone or in cooperation with other parts of the government, retains considerable power to expand aggregate demand and economic activity even when its accustomed policy rate is at zero.

So what then might the Fed do if its target interest rate, the overnight federal funds rate, fell to zero? One relatively straightforward extension of current procedures would be to try to stimulate spending by lowering rates further out along the Treasury term structure–that is, rates on government bonds of longer maturities. There are at least two ways of bringing down longer-term rates, which are complementary and could be employed separately or in combination. One approach, similar to an action taken in the past couple of years by the Bank of Japan, would be for the Fed to commit to holding the overnight rate at zero for some specified period. Because long-term interest rates represent averages of current and expected future short-term rates, plus a term premium, a commitment to keep short-term rates at zero for some time–if it were credible–would induce a decline in longer-term rates. A more direct method, which I personally prefer, would be for the Fed to begin announcing explicit ceilings for yields on longer-maturity Treasury debt (say, bonds maturing within the next two years). The Fed could enforce these interest-rate ceilings by committing to make unlimited purchases of securities up to two years from maturity at prices consistent with the targeted yields. If this program were successful, not only would yields on medium-term Treasury securities fall, but (because of links operating through expectations of future interest rates) yields on longer-term public and private debt (such as mortgages) would likely fall as well.


I picked this particular quote to demonstrate that a sovereign currency government with a strong central bank can manage rates even under fairly adverse conditions. Deficit hysteria is a scare tactic, it's not a real problem for us right now.

Well lookie here, you aren't reading this properly....

This is private lending, not public debt. Public debt doesn't involve loans from banks....

Lending from the Fed to banks. Not public debt. In fact, the exact opposite with private entities borrowing from the government.


ETA: Looking once again at these comments, I think you have serious confusion on this topic, which is normal, most people do. The way the FOMC reduces rates is primarily by buying government securities from the banks. This keeps the demand for government securities high which keeps the rates on our public debt low. Forcing Treasury rates down in this manner also lowers the rates for private lending. The two are inextricably linked in our economy. Again, I'd like you to stop and think it through for yourself and if you do, you should quickly realize why this is the case.

Your claim: Central banks can set the interest rate at which they sell public debt.
My question: Ireland, Spain and Greece have central banks selling their debt at massively high interest rates. If central banks can set whatever interest rate they want for public debt, how come they can't? I pointed out they don't have their own currency, but you never claimed those banks needed their own currency to set the interest rate.


I only said our central bank controls the rate, I never said the same was true of the ECB (In fact, I explicitly stated that the ECB has never functioned as a true central bank). Once again, you have to resort to putting words in my mouth, either because you didn't bother to actually comprehend what I've written or you are desperate to "score points".

I also did specify "Bond vigilantes do not exist for sovereign currency issuer bonds." I guess you overlooked this detail? Eurozone nations have their own sovereign currencies, but their debt is denominated in Euro and their home currencies are tied to the Euro at a fixed rate.

The ECB is the central bank in control of Euro. The problem is that they prefer to act in a manner that benefits Germany at the expense of Greece, Spain, Ireland, etc. Imagine our Federal Reserve putting the interests of California ahead of Alabama, then you would have a fair analogy.

If you'd prefer something without the currency problem, how come the Fed isn't selling our debt at 1% or less? Would save us a fortune in interest, and you do claim they have complete control over the interest rate for our debt.


I think the Fed should target a higher rate. The interest the government pays on our debt is another way in which it can get money into the real economy, something we desperately need right now.

If you want to know precisely why the Fed has chosen its current target rate, you can read their minutes. The Fed's goal is not simply to get the lowest rate possible. They also have a mandate to control inflation and board members debate and decide what they think is best according to their own ideologies.

Or maybe it doesn't work like you think it does.


Of course it works the way I think it does. Read the excerpt from Bernanke again.

The risk is demonstrably false. Because the economy has done much better when the top marginal tax rate was much higher. If a small tax increase on a small number of people has the destructive power you fear, you have to explain how the economy boomed with a 90% top marginal rate in the 1950s. If you'd prefer something more modern, Clinton passed a tax increase in his first year, and then the economy boomed.


The 90% rate you cite was not the effective rate, but more importantly, once again you are giving examples from periods of credit expansion and (government) fiscal expansion. Clinton was able to raise taxes and run a budget surplus without doing too much economic damage because the private sector was net spending. Of course, once the internet bubble burst we ended up in a recession.

History didn't start yesterday. This is something "Freshwater" economists forgot, and have so far failed to re-learn.


Your proclamation about freshwater economists being ignorant of history is laughable. The economists I cited all have signifcant bodies of work full of historical information. Try reading a book rather than just relying on your imagination.
Posted by girl gone mad | Wed May 9, 2012, 02:21 PM (1 replies)

Your post is totally off base.

Goldbug? Paulite? That's pretty funny.

Have you really never heard of Minsky? Galbraith? Chartalism? Post-Keynesianism? Lerner? Modern Monetary Theory? L. Randall Wray? Bill Mitchell? This is not right-wing fantasy land. This is real word, 21st century economics.

If you want to talk economics with me, you need to get beyond this level of absolute ignorance. Take some time to try and actually comprehend the things that I've told you, rather than simply lashing out with outlandish accusations that I'm a goldbug or a Ron Paul supporter.

By the way, you're the one who threw out the "Weimar Republic" analogy, which is a classic goldbug, Paulite canard.

Literally? It was printed by the Fed or coined by the Mint. Then banks received money by withdrawing it from their account at the Fed, or using one of the various ways the Fed loans money to banks. One of the more "famous" ones is the "Overnight Funds window".


You're still missing quite a bit. Just stop and think about it for a minute. If the only way to get dollars into the economy was through banks borrowing from the Fed ("using one of the various ways the Fed loans money to banks"), what would our money supply look like? Explain how this would work, operationally. How could enough money exist in the economy for our government to even collect taxes or issue bonds? What do you think would happen if bank lending declined, the way it has since 2008? Use some basic logic.

In reality our sovereign government is the sole issuer of our currency, which it creates by spending. The government spends by crediting bank accounts. Banks can only create credit, they cannot create net new financial assets. The government purchases goods and services (or makes transfer payments such as social security and welfare) by crediting the bank accounts of the recipients. This also leads to a credit (not a debit, as you suggest) to the bank’s reserve account at the Central Bank. Honestly... this is how it works. I'm not making this stuff up, Jeff. Go study!

So, in your universe, the debt ceiling crisis last year didn't happen?


The debt crisis was a political crisis, not a fiscal crisis. There is no actual risk of our nation defaulting on its debts, except by choice. Obama could have easily avoided this political trap, but he lacked the courage.

Interest rates on sovereign debt is set on the open market. The treasury says "we'd like to sell $10M in bonds." and purchasers bid on what interest rate will be on those bonds. The central bank can not control that rate, because they have to find somebody willing to buy.


It's interesting to me that you are so convinced you are right, and yet you keep getting it so wrong.

I'll let Edward Harrison explain to to you since he is more erudite than I am in this subject:

  • The Federal Reserve is a monopolist. The US government, as monopoly issuer of its own currency, has given the Fed monopoly power in the market for base money. The Fed exercises this monopoly power by targeting the overnight rate for money, the fed funds rate.
  • Any monopolist can only control either price or quantity, not both. And the Fed wants to target rates i.e. price. It can’t do that unless it supplies banks with the reserves they desire to make loans at that rate. That means that they must be committed to supplying as many reserves as banks want/need in accordance with the lending that they do subject to their capital constraints. Failure to supply the reserves means failure to hit the Fed funds rate target.
  • Markets know, therefore, that the Fed, as a monopolist, will always be able to hit its Fed funds target now and in the future. Therefore, future overnight rates reflect only future Fed Funds target rates as set by the Federal Reserve. This means that future expected overnight rates reflect only market-determined median expectations of future Fed Funds target rates as set by the Federal Reserve (plus a risk premium).
  • Long-term interest rates are a series of future short-term rates. All I need to do to mathematically represent any long-term interest rate is smash together a series of short-term interest-rates over the long-term period. For example, I wrote in May 2010 about the five-year bond: “Bootstrapping the yield curve is simply the math used to translate these three-month zero-coupon prices into a series of expected future 3-month interest rates. Doing this would mean we have a full term structure of interest rates every three-months out to five years.”


Now you know how the Central Bank manages (short, and subsequently long) rates. The Fed just showed you though quantitative easing that they are ready and willing to be the buyer of last resort. No bond trader would be successful if he or she didn't understand these concepts.

Perhaps you could explain exactly how the central bank could force people to loan them money at below-market rates? I'm sure the central banks of Ireland, Spain and Greece would love to know. (And it should be noted their issues are caused by not being able to inflate their currency)


I think I've explained this to you a few times now. Ireland, Spain and Greece are Euro member nations. They are not sovereign in their debts, which are denominated in Euro. Their sovereign currencies are tied to the Euro at a fixed exchange rate. What's more, the ECB has never functioned as a true central bank the way our Federal Reserve does. We are not Greece. We are not Spain. We have a sovereign flexible rate currency and a strong central bank.

Increasing the money supply is always inflationary. It may or may not change headline inflation based on other pressures.


Right, it's always inflationary. Except when it isn't.

And again, you are utterly missing the political bonus of Democrats proposing very popular tax increases and Republicans proposing very unpopular spending cuts.


Tax hikes may or may not be popular, but it would be economically risky and, as I've mentioned, a waste of progressives' time and energy. The time to raise taxes and thereby remove money from the private sector is not in the midst of a balance sheet recession.

It took me many years of reading every economics book, article, blog and lecture I could get my hands on to get to the point where I am extremely comfortable with this subject. I shared a lot of this journey with fellow DUers. I am certain that if you made the effort to learn, rather than simply espousing these neoclassical and neoliberal cliches, you would be better able to devise cogent arguments. You do seem pretty interested in the subject.
Posted by girl gone mad | Tue May 8, 2012, 06:49 PM (1 replies)

"Money flows into that account via taxes and bond sales"

Where did the money come from in the first place, Jeff?

The government has to spend money first before it can be taxed or "borrowed". That's sovereign fiat money mechanics 101.

Money is not simply printed - that would be massively inflationary, as in the Weimar republic. Instead, the government receives income from taxes, and any shortfall is funded by selling bonds.


No, government spending or "printing" is not massively inflationary. This is partly because the destruction of fiat via taxation acts as a check and drives demand for dollars, but also because our productive capacity is large and can grow naturally through population increases and technological innovation.

It's absurd to compare the US to the Weimar Republic. Weimar owed its debts in gold and foreign currencies, and as such, it was a merely a currency user, like a household or a business. Weimar also suffered a devastating decline in productive capacity. These are the two factors that led directly to Weimar's hyperinflation. Your analogy can never work and we would all be better pretending the words 'Weimar Republic' had not come up in this conversation.

False. Cash is only destroyed by the Federal Reserve, which is not the treasury. The Fed shreds money when it's worn out. If you used new bills to pay your taxes, those bills would return to circulation through the Federal Reserve system.


True, good condition dollars might be put back into circulation, but much of the money the IRS takes in is simply shredded. Good condition dollars are recirculated, not sent over to Treasury to be spent by Treasury. The electronic funds are erased from existence with the push of a button. If you like, you can imagine someone transfers these digital sums over to an account somewhere at Treasury and that the government couldn't spend if this act did not occur, but, come on... get serious, Jeff. We all know it doesn't really work this way.

False. The danger from deficits is the interest rate we have to pay on those funds. A high interest rate would create problems, because it would cost so much more to service our debt. One possible solution to a high rate would be to print more money, which would be inflationary. The other responses would be to raise taxes or cut spending.


Interest rates are not the issue. Both the long and the short rate can easily be managed by our central bank. Check out Japan, which has run massive deficits for two decades yet pays very low rates. I thought that the general knowledge of economics on DU had progressed far beyond these types of debates. You're flat out wrong here. Bond vigilantes do not exist for sovereign currency issuer bonds.

Printing money is inflationary under some circumstances (mainly full employment and max. productive capacity), and when those conditions are met, the government should start to look at the deficit and adjust tax rates and/or cut spending to help reduce the money supply.

Printing money is not inflationary under all circumstances, or we would be facing high inflation right now.

When any attempt to pass progressive legislation is met with "how do we pay for it?!?!!?!", you aren't going to get much progressive legislation. So raising taxes enables the progressive agenda you want.


Actually, the complaint is usually: "Democrats want to raise your taxes to pay for it!!11!"

Once people understand that we can invest in education, energy, infrastructure, jobs and pro-growth programs without raising taxes they are generally much more agreeable to the spending. Bush understood this concept. Why can't Democrats?
Posted by girl gone mad | Mon May 7, 2012, 06:56 PM (1 replies)
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