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girl gone mad
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Member since: Mon Sep 29, 2003, 02:05 PM
Number of posts: 20,634
Number of posts: 20,634
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How has MMT been proven wrong by this current crisis?
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, 01:21 PM (1 replies)
"Money flows into that account via taxes and bond sales"
Posted by girl gone mad | Mon May 7, 2012, 05:56 PM (1 replies)
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