Gobernuak behar dituen erreminta guztiak dauzka, atzerapenari aurre egiteko

Mitchell-en lana: The government has all the tools it needs, anytime, to resist recession1.

Ekonomia dela eta, jendea (kazetariak, politikariak, ekonomialariak,…) sorpresa batetik beste batera ibiltzen da, harrituta edo2, aurreikusten zutena lortzen ez delako.

Testuinguru honetan, azken bolada honetan helikopteroak atera dituzte plazara. Afera ezjakintasunari dagokio3.

Alta, Nazioarteko Moneta Fondoak berak (aka IMF), Lagarde andrea buru dela, politika fiskala ekarri du taulara4.

Aspalditik ezagutzen dugunez, moneta jaulkitzen duen gobernu baterako, ‘espazio fiskala’ baliabide produktiboei dagokie5.

Eta euroguneko EBZ-ri dagokionez, gauza bertsua esan behar da, behin eta berriz6.

Bien bitartean, politika monetario mota guztiek zutik diraute, nahiz eta aspalditik salatuak izan. Ortodoxiak bere ezjakintasunean segitzen du7.

Orain bonbardatuak izan gara helikopteroei buruzko eztabaidekin8.

Ben Bernanke comes to the rescue9. Bernanke-k emaitzaz ere hitz egiten du10.

Esan dezagun ozenki, ea korronte nagusiko ekonomialariek (gehi politikariek, kazetariek, progreek eta abar) entzungo duten:

There is no crisis large enough that the government through appropriate fiscal policy implementation cannot respond to.

There is no non-government spending collapse big enough that the government cannot maintain full employment through appropriate fiscal policy implementation.

A currency-issuing government can always use that capacity to buy whatever idle resources there are for sale in the currency it issues, and that includes all idle labour.

A currency-issuing government always chooses what the unemployment rate will be in their nation.

If there is mass unemployment (higher than frictional – what you would expect as people move between jobs in any week), then the government’s net spending (its deficit is too low or surplus too high).”

Hortaz, gorde helikopteroak hangarrean11.

Mitchell-en adierazpen batzuk, segituan linkean12.

Strong ideas, ideia sendoak:

Could the central bank buy all the outstanding debt and write it off? Answer: Certainly

Would it cause inflation? Answer: unlikely.

Would it cause interest rates to rise? Answer: the opposite

Could the European Central Bank do the same? Answer: Definitely, notwithstanding the Lisbon Treaty

Would it help the Eurozone recover? Answer: Definitely, the Member States could increase their deficits as the ECB bought all the debt issued in the secondary markets and recovery would be rapid

Would any of these central banks go broke: Answer: Never, the term is inapplicable to an institution that issues the currency in use”


(a) Korronte nagusikoak OMF (Overt Monetary Financing) delakora narras eramanak izan dira bistako bilakatu delako aurreko zikloa ez dela bukatu eta hurrengoa hurbiltzen ari delako

(b) Eurogunean birpizteko baldintzak sortzeko porrotak enpresen eta negozioen hondamendia, langabezia altua, eta pobrezia eta desberdintasuna barreiatu ditu.

(c) Gizarteak ez du toleratuko horrelako gainbehera luzerako, oinarrizko erakundeak zalantzan jarri barik.

(d) Benetan dibertigarria da korronte nagusikoak (ekonomialariek eta abar luzeak) orain ‘deskubritzen’ ari dena, aspalditik oso bistakoa izan dena, irakurtzea.

Duda existentziala:

Noiz ‘deskubrituko’ dute hemengo, Euskal Herriko progreek (ekonomialariek, politikariek, kazetariek, eta abarrek) oso bistakoa izan den guzti hori?

Abisatu, mesedez!

2 Ingelesez: “Several new articles have appeared in the last few weeks in the major media outlets expressing surprise that central banks have had little effect on economic growth despite the rather massive buildup of their ‘balance sheets’ via various types of quantitative easing programs. I have indicated before that I am coming to the view that most of the media, politicians, central bankers and other likely types (IMF and European Commission officials etc) seem to be in a constant state of ‘surprise’ as each day of reality fails to confirm what they said yesterday or last week (allowing for lags :-)). What a group of surprised people we have to effectively run our nations on behalf of capital. Poor souls, constantly be shocked out of their certainties. That is what Groupthink does – creates mobs that deny reality until it smacks them so hard in the face that they can only utter “that was surprising!”.”

3 Ingelesez: “And in that context, the latest media trend appears to be something along the lines of ‘well let’s get the turbines moving’ or ‘those helicopters are about to launch’ and when we read that and what follows we learn that the media input into our lives only reinforces the smokescreen of ignorance that we conduct our daily lives within.

I have written about this topic before and won’t go into all the gory detail again:

1. Keep the helicopters on their pads and just spend

2. OMF – paranoia for many but a solution for all

3. Overt Monetary Financing – again

4. Takahashi Korekiyo was before Keynes and saved Japan from the Great Depression

The discussions are all in the context of the current myth that economic policy makers have ‘run out of ammunition’ and can no longer defend their economies against another major downturn.

Various lies are told to ferment this piece of nonsense and the conversations seem to be confined to observations about monetary policy and its limitations, with fiscal policy capacities quickly being dismissed because governments have ‘no fiscal space left’ or some other monstrously ridiculous contrivance such as that.

It is a moving joke really – the way the neo-liberal Groupthinkers are continually coming up against reality and the higher profile members of the ‘group’ such as the IMF can ill-afford to remain in total denial.

4 Ingelesez: “ … with Madame Lagarde wandering around the world calling for more fiscal action whereas a few years ago the IMF headed the charge against responsible use of fiscal policy.

In her latest input – The Managing Director’s Global Policy Agenda: Decisive Action, Durable Growth – she now has a new “virtuous trinity” with the newly credible (in the mainstream dialogue) fiscal policy joining the duet of monetary policy and structural policies as the way forward.

Pity this lot didn’t say that in 2010 when they were busy bullying governments to run pro-cyclical fiscal policy (aka austerity) at a time when non-government spending was weak and weakening. Millions of people lost their jobs unnecessarily because of that.”

5 Ingelesez: “The only ‘fiscal space’ that has any validity for a currency-issuing government is the idle productive resources that are for sale in that currency. (…)

That definition of fiscal space tells me that there is massive capacity to expand fiscal deficits in every country. That reality has not yet seeped in to the mainstream narrative.”

6 Ingelesez: “And if the ECB would do its role as a central bank then the same would apply for the Member States of the Eurozone, who use the currency that the ECB issues.”

7 Ingelesez: “But slowly the awareness that all the monetary policy gymnastics that various central bankers have been engaged in (QE, negative interest rates, interest on reserves, etc) have failed is seeping into the mainstream narrative even if the understanding of why those policy initiatives have failed remains lacking.

In early 2009, I wrote this blogQuantitative easing 101 – which explained why the reliance on monetary policy (without allowing fiscal deficits to increase) would fail.

It seems to take a long time for the message to catch on but that is one of the problems that patterned behaviour like Groupthink presents – denial is a powerful defence of ignorance.

But, anyway, all these characters are becoming surprised that the massive buildup of bank reserves has not caused hyperinflation, is not sent the central banks broke, and, has done little to stimulate bank lending. Surprise, surprise!

Modern Monetary Theory (MMT) provides a coherent explanation of why none of the predicted outcomes would eventuate. I might add, for those who claim that MMT offers nothing new, you will not find detailed explanations such as those provided by MMT economists elsewhere in this context.

The literature coming out of New Keynesian theory and standard Post Keynesian theory does not explain these monetary policy failures.”

8 Ingelesez: “Anyway things move on and now we are becoming bombarded with discussions of helicopters.

The UK Guardian article (April 7, 2016) – Helicopter money is closer than you think – is one to jump on the theme.

Yesterday’s (April 19, 2016) Bloomberg articleLending data released Tuesday shows continued recovery – though it isn’t all down to the ECB – has a similar theme.

Larry Elliot’s follow up UK Guardian article (April 17, 2016) – The bad smell hovering over the global economy – continues with the theme and exhorts us to: “Put your ear to the ground though, and it is possible to hear the blades whirring. Far away, preparations are being made for helicopter drops of money onto the global economy”.

9 Ingelesez: “On April 11, 2016, former US Federal Reserve Bank Chairperson Ben Bernanke published a blog – What tools does the Fed have left? Part 3: Helicopter money – which appears to have given all and sundry carte blanche to lift their heads above the awareness ceiling imposed by the ideological straitjacket that mainstream economics imposes on the public debate and talk about the ‘not to be spoken’.

Bernanke said that:

When monetary policy alone is inadequate to support economic recovery or to avoid too-low inflation, fiscal policy provides a potentially powerful alternative—especially when interest rates are “stuck” near zero.

The reality is that monetary policy is largely ineffective in supporting economic recovery, irrespective of whether interest rates are low or high.

10 Ingelesez: “Despite claiming that fiscal policy (backed by central banks crediting bank accounts on behalf of the treasuries) is a “presumably last-resort strategy”, Bernanke’s input does have one beneficial outcome when he says that:

It’s important that markets and the public appreciate that, should worst-case recession or deflation scenarios occur, governments do have tools to respond.

That should be shouted loudly.

11 Mitchell-ek argi dioenez, “I explain the so-called helicopter money option in this blog (…) Keep the helicopters on their pads and just spend.

By way of summary (…):

1. Introducing new spending capacity into the economy will always stimulate demand and real output and, as long as their is excess productive capacity, not constitute an inflation threat.

2. When there is weak non-government spending, relative to total productive capacity (and unemployment) then that spending capacity has to come from government.

3. The government can always put the brakes on when the economy approaches the inflation threshold.

4. A currency-issuing governments does not have to issue debt to match any spending in excess of its tax receipts (that is, to match its deficit) with debt-issuance. That is a hangover from the fixed-exchange rate, convertible currency era that collapsed in August 1971.

5. Quantitative easing where the central bank exchanges bank reserves for a government bond – is just a financial asset swap between the government and non-government sector. The only way it can impact positively on aggregate demand is if the lower interest rates it brings in the maturity range of the bond being bought stimulates borrowing and spending.

6. But non-government borrowing is a function of aggregate demand itself (and expectations of where demand is heading). When elevated levels of unemployment persist and there are widespread firm failures, borrowers will be scarce, irrespective of lower interest rates.

7. Moreover, bank lending is not constrained by available reserves. QE was based on the false belief that banks would lend if they had more reserves. Please read the following blogs – Building bank reserves will not expand credit and Building bank reserves is not inflationary – for further discussion.

8. Governments always spend in the same way – by issuing cheques or crediting relevant bank accounts. There is no such thing as spending by ‘printing money’ as opposed to spending ‘by raising tax receipts or issuing debt’. Irrespective of these other operations, spending occurs in the same way every day.

9. A sovereign government is never revenue constrained because it is the monopoly issuer of the currency.

10. If the government didn’t issue debt to match their deficit, then like all government spending, the Treasury would credit the reserve accounts held by the commercial bank at the central bank. The commercial bank in question would be where the target of the spending had an account. So the commercial bank’s assets rise and its liabilities also increase because a deposit would be made.

11. Taxation does the opposite – commercial bank assets fall and liabilities also fall because deposits are reduced. Further, the payee of the tax has decreased financial assets (bank deposit) and declining net worth (a liability/equity entry on their balance sheet).

12. A central bank can always credit bank accounts on behalf of the treasury department and facilitate government spending. This is the so-called ‘central bank financing’ option in textbooks (that is, “helicopter money”). It is a misnomer.”

12 Ingelesez: “The idea that debt-issuance to the private sector in some way is less inflationary (for a given injection of government spending) is totally fallacious.

Bernanke (…) says it is an “appealing” option because it will stimulate the economy “even if existing government debt is already high and/or interest rates are zero or negative”.

The reality is that an appealing option because it will always stimulate the economy irrrespective of what interest rates are doing or what levels of outstanding public debt exist.

It should be the standard fiscal option rather than some extreme option only to be pulled out in dire circumstances. If economies get into dire states then the damage is already extensive and the path to recovery is slow and costly.

On April 15, 2016, Deutsche Research (a division of the bank) issued a report – Helicopters 101: your guide to monetary financing – which claimed that “Little has been written on the practical implementation of ‘helicopter money’”, which just goes to show they do not read much. There has been a lot written and most of it is wrong.

The Deutsche Bank article erroneously appears to think it is offering something new here.

I devoted a chapter in my current book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale (published May 2015) to the topic.

The DB article though does get to the nub of what they call a “fundamental principle”:

Unlike any corporate, government or household, a central bank has no reason to be bound by its balance sheet or income statement. It can simply create money out of thin air (a liability) and buy an asset or give the liability (money) out for free. It can run perpetual losses (negative equity) because it can fund these by printing more money.

End of story really for all those who think government spending has to be financed by taxes or bond issuance.

In effect, central banks are already ratifying the on-going fiscal deficits in many nations by expanding their portfolios of government bonds through secondary market purchases.

While the intent of the banks under QE is to give the banks more reserves to lend (as noted above), the impact is that bond traders know that they can safely bid for government debt in the primary auctions and offload the debt at higher prices to the central bank in the secondary market.

It would be far better if the government just abandoned the auction (OMT) by the central bank and instructed the central bank to credit bank accounts as necessary.”

Iruzkinak (1)

  • joseba

    Bill Mitchell: Overt Monetary Financing would flush out the ideological disdain for fiscal policy


    “… the MMT realm which stresses real resource constraints and exposes the fallacies of financial constraints that are meant to apply to currency-issuing governments.

    I wrote about helicopters etc in this blog back in 2012, well before, the current popularisation of OMF entered the debate – Keep the helicopters on their pads and just spend.
    The title is self-explanatory.

    I last wrote about Overt Monetary Financing (OMF) in this blog – The Bank of Japan needs to introduce Overt Monetary Financing next.

    (…) The facts are that governments are ‘paying back’ debt continually as it matures. It doesn’t need to raise taxes at all – ever – either to pay back debt or to spend.
    Please read my blog – Taxpayers do not fund anything – for more discussion on this point.

    It is much better to set the short-end of the yield curve at zero and then keep investment rates as low as they can be. Then, let fiscal policy, which is more direct and transparent, do the work of maintaining full employment and price stability.
    Please read my blog – The natural rate of interest is zero! – for more discussion on this point.


    This is standard Modern Monetary Theory (MMT), which we have articulated for 20 or more years now.
    Please read the following introductory suite of blogs – Deficit spending 101 – Part 1 – Deficit spending 101 – Part 2 – Deficit spending 101 – Part 3 – for basic Modern Monetary Theory (MMT) concepts.

    …standard Modern Monetary Theory (MMT), which we have articulated for 20 or more years now. It is explained in detail in the first version of our MMT textbook – Modern Monetary Theory and Practice: an Introductory Text.

    Bank reserves…
    Please read the following blogs – Building bank reserves will not expand credit and Building bank reserves is not inflationary – for further discussion.
    What this means in MMT-speak is the following.
    1. All national government spending is achieved not by ‘printing money’ but, rather, by creating deposits in the private banking system.
    2. The national government, as the monopoly issuer of its own currency is not revenue-constrained. This means it does not have to ‘finance’ its spending, unlike a household, which uses the fiat currency
    3. All commercial banks maintain accounts with the central bank which permit reserves to be managed and also allow the clearing (payments) system to operate smoothly.
    4. The central bank sets a ‘support’ rate to be paid to the banks for any reserves left in the accounts overnight. This rate, which could be zero, becomes the interest-rate floor for the economy.
    5. Treasury spending amounts to nothing more than the treasury debiting one of its cash accounts at the central bank (usually) which means its reserves at the central bank decline by that much and the recipient deposits the payment in their private bank and its reserves at the central bank rise by that amount.
    6. So a rise in the fiscal deficit will lead to a rise in bank reserves, which then need to be ‘managed’ by the central bank in accordance with the above discussion about ‘liquidity management’.
    7. In other words, an ongoing fiscal deficit places downward pressure on short-term interest rates by pushing up bank reserves, which would drive the short-term interest rate to the support rate (or zero) if the central bank doesn’t intervene and offer portfolio swaps for the excess reserves.
    An important contribution of MMT has been to fully understand the mechanics of deficits and their impact on the banking system (as described above). You will not read about these dynamics in any mainstream macroeconomics or monetary economics textbook.
    Further, up until recently, the broader Post Keynesian literature was blithely ignorant of these operational matters, despite now claiming in many cases that “we knew it all along”. The correct response is that they didn’t otherwise they would have written about it in the past.
    Mainstream economists would say that by draining the reserves, the central bank has reduced the ability of banks to lend which then, via the money multiplier, expands the money supply and causes inflation.
    However, the reality is that:
    Building bank reserves does not increase the ability of the banks to lend.
    The money multiplier process so loved by the mainstream does not describe the way in which banks make loans.
    Inflation is caused by aggregate demand growing faster than real output capacity. The reserve position of the banks is not functionally related with that process.
    The banks are able to create as much credit as they can find credit-worthy customers to hold irrespective of the operations that accompany government net spending.
    None of this leads to the conclusion that fiscal deficits do not carry an inflation risk. All components of aggregate demand carry an inflation risk if they become excessive, which can only be defined in terms of the relation between spending and productive capacity.
    Simple as that, which means all the scaremongering about public debt are groundless. A currency-issuing government can always service its outstanding liabilities as long as they are in the currency it issues.
    So there are major political advantages in using OMF.
    Monetary policy is really such a blunt and ineffective tool that it should be rendered redundant. The mainstream have never provided a convincing case that manipulating interest rates is somehow the preferable and effective option for stabilising the spending cycle.
    The GFC experience would suggest otherwise. All the monetary policy gymnastics have had very little impact.
    It would be much better to set the overnight rate at zero and leave it there and allow the longer term rates (which are impacted by inflation risk) settle as low as possible.
    Then, manage the spending cycle with fiscal initiatives that can be targetted, adjusted fairly quickly and which have direct impacts.
    (…) monetary policy is just an ideological stunt to allow the neo-liberals to push fiscal policy into the undesirable basket.
    OMF would bring this ideological crusade further out into the public arena and sink it once and for all.”

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