No s’han atrevit ni a posar la paraula independència als seus eslògans. Parlen de sobiranisme i republicanisme i de no sé quines mandangues per no emprenyar als amos de la colònia i jo m’he de creure, que trencaran amb Espanya.

CLAR.

2021 ots. 2

(Euskal Herrian gauza berbera, aspalditik!!)

Iruzkinak (5)

joseba says:

2025/09/16 at 13:19

Bill Mitchell eta MTM
Bill Mitchell: ECB researchers find fiscal policy is very effective and more so if central banks buy up the debt
(https://billmitchell.org/blog/?p=48349)
September 21, 2021

The ECB published a Working Paper recently (September 2021) – Monetary and fiscal complementarity in the Covid-19 pandemic – which represents progress in the narrative. While the technical model that the ECB uses is just an ad hoc attempt to reverse engineer the reality so they can claim they can explain it, what is useful from the exercise is that the old mainstream narratives that fiscal policy is ineffective in providing permanent boosts to real output (or that austerity does not permanently damage the growth trajectory) can no longer be sustained. The taboo surrounding central bank purchases of government debt because they cause accelerating inflation can no longer be sustained. The claims that fiscal deficits drive up interest rates can no longer be sustained. Now the public debate just has to reflect that reality and we will have made progress. Of course, this is all core MMT – we knew it all along!
The ECB authors, Jagjit S. Chadha, Luisa Corrado, Jack Meaning, and Tobias Schuler analyse the implications of the way that monetary policy is interacting with expansionary fiscal policy.
They note that in the US we see “the Federal Reserve System purchasing extraordinary quantities of securities and the government running a deficit of some 17% of projected GDP”.
And the US central bank has also “pushed the discount rate close to zero” and has provided banks “with emergency liquidity … through a new open-ended long-term asset purchase programme.”
Their overall conclusion that is this approach:
… the central bank uses reserves to buy much of the huge issuance of government bonds and this offsets the impact of shutdowns and lockdowns in the real economy. We show that these actions reduced lending costs and amplified the impact of supportive fiscal policies.
And if monetary and fiscal policy was not working together for once, the US would have “experiences a significantly deeper contraction as a result from the Covid-19 pandemic”.
The point is obvious and runs counter to the way in which mainstream macroeconomics has been taught and practiced in this New Keynesian era, where monetary policy was assigned the primary role (adjusting interest rates) and fiscal policy was deemed to be passive and biased towards surplus creation.
It also establishes that fiscal policy is highly effective in reducing the negative consequences of a significant non-government spending reduction.
Which runs counter to the received wisdom of the standard New Keynesian approach.
The NK approach to fiscal policy is exemplified by the 1993 textbook of John Taylor – see Macroeconomic Policy in a World Economy: From Econometric Design to Practical Operation (Norton) – or the analytical model presented by Frank Smets and Rafael Wouters (2007) – Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach (American Economic Review, 97 (3), 586-606).
The Taylor approach characterises the response of the economy to a fiscal stimulus as being immediately positive (typically) then diminishing more or less quickly as the crowding out impacts of higher interest rates bite on private sector investment and acceleration inflation squeezes real profits.
In the Smets-Wouters approach the crowding out is more or less immediate as the government injects each new dollar into the economy.
Private consumption and investment expenditure immediately declines and mostly offsets the fiscal stimulus.
The point is that within the NK paradigm there are less and more extreme versions in the short-run after a fiscal stimulus but they all converge on the same result in the long-run – that fiscal policy essentially has no long-run impact on output but worsens the inflation profile of a nation.
In relation to yesterday’s blog post – They never wrote about it, talked about it, and, did quite the opposite – yet they knew it all along! (September 20, 2021) – the mainstream economists who claim that Modern Monetary Theory (MMT) is unnecessary because the standard NK framework is perfectly capable of allowing a fiscal stimulus in the short-run to deliver positive output effects, will all converge on this long-run ineffectiveness conclusion.
The debate within NK economics is the speed to which the economy converges on the long-run equilibrium after a shock and how strong the short-term impact of a stimulus turns out to be.
But make no mistake, the conventional paradigm in economics believes that fiscal policy stimulus has no long-term positive impacts and only, ultimately invokes a higher inflationary path.
That is what the ‘we knew it all along’ crowd teach and build into their research models.
Further, the NK economists are not really macroeconomists at all, despite them claiming to be.
Why would I say that?
I discussed this point in this blog post – Mainstream macroeconomic fads – just a waste of time (September 18, 2009).
The reason is that they build their aggregate framework (what they call the ‘macroeconomic’ level) from simple maximising, microeconomic principles beginning with an individual.
That micro level of analysis yields certain conclusions – for example, a single firm might benefit if its workers took a pay cut because while the unit costs the firm would face would fall, it would be unlikely that the damage to sales would be significant if no other workers took a similar pay cut.
Whether that increased employment for the firm or whether it just pocketed the increased gap between costs and revenue is moot.
But if all firms tried the same strategy – cutting wages – unit costs would fall across the economy but so would incomes and consumption expenditure which would damage sales, and, probably push the economy into recession.
This is the famous case of the fallacy of composition, which I analysed in this blog post (among others) – Fiscal austerity – the newest fallacy of composition (July 6, 2010).
Consequently, treating macro as if it is micro means there is a tendency to conclude that what applies at the individual level also applies at the aggregate level, which is demonstrably false.
Why is this important?
It is important because the NK approach to ‘macroeconomics’ claims the higher authority because it says it is derived from consistent, microeconomic optimising principles – a sort of appeal to technical superiority, which they claim the old-style Keynes approach lacked.
The problem then is that to escalate the single consumer/firm micro analytical results up to economy-wide relationships – all households, all firms, all industries etc – the link between the micro optimisation and the aggregate proves to be impossible to achieve.
To resolve that problem, the NK approach creates the ultimate fudge – it assumes what they call the ‘representative agent’ – which they assert obeys the same behaviour and motivations as the micro optimising agent.
So there is one ‘infinitely-lived household’ or one representative firm used in the framework at the macro level.
Which means that, in fact, they never really leave the world of neoclassical microeconomics and in trying to assert any results about what happens at the aggregate level they fall into the fallacy of composition trap.
The ‘we knew it all along’ crowd don’t often admit to that do they? They just pretend to be doing macroeconomics.
If we dig deeper, we find that NK models essentially predict financial instability and accelerating inflation will inevitably accompany a zero interest rate policy deployed by a central bank.
The NK approach is an amalgam of what has been referred to as fixed wage Keynesian economics and the classically-inspired real business cycle theory based on rational expectations.
I won’t go into the details of that conflation here except to say that it effectively abandons everything that is Keynes from the Keynesian part and replaces it with the old Classical beliefs that governments cannot change the course of the real economy in the long-run and only influence nominal variables (inflation etc) if they try.
The rational expectations influence really began with the 1975 publication by Thomas Sargent and Neil Wallace – Rational Expectations, the Optimal Monetary Instrument, and optimal Money Supply Rule (Journal of Political Economy, 83, 241-254).
When I started studying economics in the mid 1970s, this was a raved about paper. I read it and couldn’t believe how asinine it was. But that was the times.
Sargent and Wallace effectively established the framework that permeates NK economics to this very day.
If we took the model seriously then Japan would have hyperinflated two or more decades ago
The ECB find that fiscal policy is very effective and more so when the central bank ‘funds’ it
Anyway, the ECB paper shows that the world is moving beyond this moribund framework, which is a good sign.
They seek to conjecture about the following juxtapositions:
1. A large supply shock (the shutdown).
2. A large decline in money velocity – how much the money supply turns over in transactions per period (the lockdowns stifling expenditure).
3. A massive fiscal stimulus – accompanying by debt-issuance.
4. The stimulus accompanied by the central bank buying the debt issued with credits to bank reserve accounts.
The hard-core NK framework predicts rising interest rates, accelerating inflation, and, only short-term real output gains followed by falls in household consumption expenditure (rising saving to pay for the implied higher taxes to pay back the public debt increase) and business investment (as the rising interest rates crowd out non-government borrowing), which, ultimately, undermine any temporary output gains.
The reality that the ECB authors want to try to understand is why the NK predictions systematically failed.
They find that, in fact:
… the provision of reserves stabilised the value of collateral and amplified the impact of supportive fiscal policies … the fall in output in the first stage of the pandemic might have been as much as twice as large, with a significant deflation, loss of employment and falls in asset prices, if such extensive fiscal and monetary policies had not been implemented.
Which is the standard result that core MMT has come to 25 years ago!
I might be tempted to say ‘we knew it all along’ but I won’t (-:
The US situation is thus:
1. Total US public debt has risen by $US5,328.1 billion since the December-quarter 2019.
2. The US Federal Reserve Bank holdings of the debt since then has risen by $US3,007 billion.
3. Which means that the US Federal Reserve system of banks has purchased around 56.4 per cent of the debt issued over the pandemic.
4. The US Federal Reserve holdings has risen from 11.4 per cent to 19.8 per cent (by June-quarter) of all outstanding public debt.
That is quite a shift.
The following graph shows the proportion of outstanding US public debt held by the US Federal Reserve Banks since the March-quarter 1970.
You can see that over the Monetarist period, the proportion fell steadily and then the two big jumps coincided with the GFC and the pandemic.

Long-term US bond yields remain low.
Have a look at the history of the US 10-year Treasury bond yields since the beginning of 2021.
You can get for all available maturities from the US Department of Treasury’s site – Daily Treasury Yield Curve Rates.
As the economy started to opened up a bit in February and sentiment improved, investors started to diversify their portfolios away from the risk-free Treasury bonds and yields rose a little.
This set the mainstreamers off into a conniptive-fever (don’t look that word up as I just made it up. Etymology – derived from conniption or hysterics).
They started to increase their attacks on MMT economists like me with the ‘I told you so’ banter.
Well then mid-March came along and yields fell again and they have been largely flat since the middle of July.
Nothing going on here is the message.

Another way of looking at this is shown in the next graph, which shows the US Treasury yield curve across all maturities since the start of the 2021 – at various snapshots.
The longer end certainly rose in the first six months but since then, the yield curve has flattened rather than steepened.

In this blog post – Rising prices equal an inflation outbreak (apparently) but then the prices start falling again (June 21, 2021) – I explained why these trends militate against the accelerating inflation narrative.
If investors expect that inflation is becoming an issue, then they will demand higher yields at the primary issue and will be prepared to pay less for outstanding bonds in the secondary market.
The higher the expected inflation, the higher the risk premium that will be built into required yields.
The facts thus do not support the mainstream ‘inflation’ narrative.
The ECB authors tried to come to terms with these results that run counter to the standard NK framework – that used by the ‘we knew it along’ gang.
The combination of a declining GDP (total sales in the economy) and the expansion of bank reserves and bank deposits (coming from the fiscal stimulus) has reduced the velocity of money in the US (the turnover rate of the stock of broad money).
The ECB authors note that this was due to households cutting back “spending sharply” and increasing their saving.
They write:
Total household income did not fall by nearly as much as spending, largely because those who are still employed, working from home or elsewhere cut back on their purchases. Savings jumped as a result …
Fiscal policy thus had significant increased space in terms of real resources to operate in.
Remember, MMT defines fiscal space in terms of idle real productive resources rather than in terms of current numbers pertaining to deficits/surpluses or public debt.
Fiscal space is not a financial concept but a real resource concept, which is totally at odds with the way the IMF and conventional economics defines it.
And the US Federal Reserve bought up a significant quantity of the new debt issued, which meant the private investors really no longer determined yields.
The technical model that the ECB has contrived is designed to reverse engineer the empirical reality.
I wouldn’t study it in detail.
The point is that they have had to fundamentally alter the standard NK approach to generate the intended results.
But the conclusion is inescapable.
1. “A combined fiscal-monetary response may have helped avoid turning the Covid-19 crisis into an economic recession of even greater magnitude and severity”.
2. “if the Federal Reserve had not intervened, output would have fallen by more than 10% more on impact and in the following quarter”.
3. “Real wages would be down by more than 15% more and unemployment up by more than 20%. Wages would be 20% lower than with QE. As a result inflation would have fallen even further.”
4. “we find that prompt, combined fiscal-monetary interventions mitigated the impact of the pandemic shocks and helped to establish a more rapid recovery to pre-crisis levels of activity.”
Conclusion
The point is that the old mainstream narratives that fiscal policy is ineffective in providing permanent boosts to real output (or that austerity does not permanently damage the growth trajectory) can no longer be sustained.
The taboo surrounding central bank purchases of government debt because they cause accelerating inflation can no longer be sustained.
The claims that fiscal deficits drive up interest rates can no longer be sustained.
Now the public debate just has to reflect that reality and we will have made progress.
Of course, this is all core MMT – we knew it all along!
ooo
Derek Henry
September 21, 2021 at 19:43
It should be obvious by now and not some conspiracy theory.
That Geopolitics is what was hidden behind the green curtain. The exact same thing played out in Greece, Rome and the British Empire.
The Central bankers knew exactly what to do buy the debt, set the interest rates low and in some cases start using the ways and means account. They knew exactly how it works and as I’ve said many times before you can’t run a central bank for over a 100 years and not know how it works. You can’t set up the Eurozone exactly the way they did ( geopolitically) without knowing how it works and the French couldn’t set up the African currency without knowing how it works.
When you read Zach Carter’s book the price of peace you can see the Americans thought process in action and everything today stems from the fall of the Berlin wall. That is when the pivot took place from fiscal policy that helps your own country to geopolitical economic policies to raid and take over the East.
Every empire has tried it and what the Nazis did in Holland described beautifully in the award winning World at war series that is currently on PBS in the UK when they took control of the Netherlands. Was a blue print of things to come across Europe. Keep the Dutch government in power but put your men in charge and control the media and change their culture. EU uber alles but this time with the Americans in charge. who took the whole strategy of the Nazis further by creating the Euro. Making sure it was so easy to control nation states within Europe in their fight against Russia.
They had to lie about and create smoke and mirrors to fool Dorothy as they moved ever eastwards and had to show to the East that this is what they do at home in America thus Friedman and Mankwi and the whole Chicago School became a cupboard at the Pentagon.
Russia fell for it a couple of times with their dollar debt and interest rate backwards theories so did Turkey and the whole of South America in order to keep the left at bay. However, not anymore the game is up. China never fell for it and specifically set up their monetary system to fight against the Chicago School and to protect themselves.
It still rolls on in Europe and South America because the elites in each country are rewarded well to keep up the charade.Just like with Greece, Rome and the British Empire and the Nazis the governors of colonies are rewarded and allowed to sit at the top table and share the spoils.
Now what, now that Dorothy has pulled the curtain back. Now that the geopolitical charade is over and the East see as clear as day what the West strategy has been for the last 50 years with their wall street infested central banks ? Now what – what is next geopolitically now that their game is up ?
The recent skirmish between France, Australia, UK and the US regarding submarines is just a small glimpse of things to come.
Yes, they knew all along but used universities and business schools to hide it from view. It was a masterclass in espionage. With anybody highlighting the fact being side lined or shut out of their career. The history of economics removed from the curriculum with groupthink taking its place. Not a science but a tool in the sand box of geopolitics like Greece, Rome and the British Empire before it.
(…)
Derek Henry
September 22, 2021 at 02:41
I hope you are right Newton but change won’t come from the top it will be via different grass roots movements from the bottom. I feel it will take another assault on capitol hill to get their attention.
The media keeps the geopolitical show on the road. Those politicians who we are allowed to choose from In elections all pass the geopolitical litmus test with flying colours. In the UK the Labour party has to either split or a new left wing party needs to be created. America’s 2 party system is the same corrupt to the core. The EU is a geopolitical shit show.
I’ve never liked the term MMT is lens. I would prefer ” MMT is the true middle ground “as the statement because quite simply it is. MMT is the middle ground and where all economic debates should start from – the middle.
“MMT is the true middle ground ” slogan would catch on and grab the attention simply by saying the middle ground is the starting point of how the monetary system works and from there the left and right can do anything they want with it. Or those that like the lens narrative can say ” MMT is a lens it is the true middle ground” MMT is the middle ground would be a good title for a book and also snag some liberals in the process and small c conservatives and the liberal left. Who always think they are voting for the middle but are really voting for the middle of the right wing spectrum.
Liberals who refuse to believe the middle ground is currently in the middle of the right wing spectrum which it is. Who actually vote for the liberals believing they are voting right in the middle between left and right and who are deluding themselves.
In 1988 the one and only time I ever voted. I voted for the what I thought was the middle now I am called a marxist and my political views never changed between now and then. What changed was the culture of the UK by a systematic step by step process to fit a geopolitical agenda. The SNP are carrying out the same step by step process in Scotland as we speak each and every day moving further right in everything they do. So they can slip nicely into the EU uber alles narrative and live in the middle of the right wing spectrum under Brussels control and call themselves progressive.
” MMT is the true middle ground ” would move the middle back to where it belongs. That is what MMT activists the world over need to achieve. Drag the middle ground back to where it belongs and away from the middle of the right wing spectrum. So the hard work can then begin of what policies you want to add to the true centre of the political spectrum. That should be where the debate should be from the centre moving left or right. The starting point of ideas.
For me ” MMT is a lens ” doesn’t quite capture the fact that MMT is the true middle ground. even though MMT describes the starting point of any debate with perfection.
If we can achieve that and get MMT known worldwide as the true middle ground we have won. If we don’t we will ever be living in a world of geopolitical madness and insanity. On our way to complete destruction of the planet one way or the other.
“MMT is the true middle ground” works because it is the truth. We just don’t sell it that way enough in my opinion. A lens just fails to grab those that vote for the middle attention.
Derek Henry
September 22, 2021 at 02:52
Whoever writes the Book with the title – MMT is the true middle ground.
Is onto a winner and just has to show why and be brave enough to “feed” both the left and the right when they write it

(…)
Warren Mosler
September 28, 2021 at 17:22
Good stuff!
Quick note- Fiscal policy doesn’t need help from the CB outside of the euro area.
QE is just a placebo. The US Treasury, for example, would have done the same deficit spending
with or without the Fed’s QE or rate policy.
In the euro area qe is about the ECB has buying member nation debt (which would be analogous to the Fed buying debt of US states, which hasn’t happened). That’s because the euro area deficit spending is done by member nations and the ECB debt buying is part of the informal ‘do what it takes to prevent default’ guarantee.
oooooo
The Merkel failure
(https://billmitchell.org/blog/?p=48400)
September 27, 2021

Its seems the conservative economics press is going through a hard time as it tries to wrest itself from its past litany of errors of judgement, backing the wrong horse, whatever. The latest example is The Economist Magazine, which ran a Leader Article over the weekend (September 25, 2021) = The mess Merkel leaves behind. It eviscerates the Merkel period for leaving Germany with a legacy that will cause headaches for future leaders and for the German people. This runs counter to the usual stuff the Magazine has offered about the soundness of Germany over many years as a bastion of stability and good financial management. It also provides a dose of reality to the raft of ridiculous glowing assessments of the Merkel years. In my view, she has overseen a government that has undermined its own prosperity, deliberately disobeyed the very rules it enforces on other nations in the Eurozone, and bullied leaders of other nations to enact dreadful policy shifts that have impoverished defenceless citizens. It is a cause of celebration that she is going not because we laud her work, quite the opposite. One failure less in public office.
The Economist Magazine article considers “Mrs Merkel’s achievements are more modest” relative to the other long-serving German Chancellors – Otto Von Bismarck and Helmut Kohl.
I would take exception at the inference that Kohl was a great achiever for Germany – after all he took Germany into the euro, which has been a disaster not only for his nation but also the other 18 Member States.
But that point is an aside.
The Economist writes that:
… as Mrs Merkel prepares to leave office when a new government forms after an election this weekend, admiration for her steady leadership should be mixed with frustration at the complacency she has bred.
The complacency relates to “signs of neglect” that are “plain to see” and relate to the failure of the German state to “invest adequately or wisely, falling behind its peers in building infrastructure, especially the digital sort.”
German industry, once considered a power-house in Europe and the World, is now in decline.
A report from the German Economic Institute (IW) in 2020 concluded that peak of German motor industry strength is over as a result of the failure of German companies to invest in electric technology.
This DW Report (September 8, 2020) – Germany’s car industry struggles with transformation amid coronavirus crisis – provides more detail.
The reason for Germany’s decline?
Penny-pinching is hard-wired into the state. In 2009, on Mrs Merkel’s watch, Germany hobbled itself with a constitutional amendment that makes it illegal to run more than a minute deficit. With interest rates so low, sensible governments ought to have been borrowing for investment, not fainting at the first spot of red ink.
I have documented this austerity bias in several blog posts (see list at end for some links).
It is obvious that Germany has made several errors:
1. Entering the Eurozone.
2. Pressuring the other nations to accept the unworkable SGP.
3. Its own Schwarze Null constitutional amendment.
All of which have progressively crippled the German state as a provider of quality infrastructure upon which other sectors can leverage productivity growth from through their own investment.
The Economist Magazine documents Merkel’s many failures including its “sluggish” response to climate change, its reluctance to support a European-wide debt instrument, its insistence that most of the pandemic relief be in the form of loans rather than grants and its general dithering on important geo-strategic matters (like giving Russia a “a chokehold over European energy supplies by backing the new Nord Stream 2 gas pipeline”).
The reality is that the pandemic assistance, biased towards debt rather than grants, is “a one-off” and:
Worse, the “stability” rules that will force countries back into austerity to shrink their stocks of debt are ready to revive, unless amended.
There is no expectation that Germany will shift its position on the harshness of these rules, which will make it very hard for any European nation to come back strongly from the pandemic.
If you followed the German election campaign, none of the likely governing parties, in whatever coalition one can imagine, gave any impression that they were up for serious reform.
They all talked about fiscal responsibility, which in the German context is actually code for irresponsibility – undermining the future.
The final assessment of the Economist:
That is the mess Mrs Merkel has left behind.
The infrastructure problem
I wrote about this in this blog post (among others) – The German government celebrates its record surplus while infrastructure collapses (January 15, 2020).
It has been obvious that Germany’s public infrastructure has been deteriorating for many years now – dated, poorly maintained and inefficient.
On September 18, 2014, Spiegel International ran an article – A Nation Slowly Crumbles – where a senior German researcher opined about the “Die Deutschland Illusion” and said that Germany was on a:
… downward path … [living] … from its reserves.
He indicated that “Hardly any other industrialized nation is so negligent and tight-fisted about its future. While the government and the economy were investing 25 percent of total economic output in new roads, telephone lines, university buildings and factories in the early 1990s, the number declined to only 19.7 percent in 2013.”
Since Germany entered the Eurozone, its net public investment has been declining, even negative in some periods (which means the rate at which it was building capital was more than offset by the depreciation of existing public infrastructure).
Overall, growth in Germany’s capital stock has been among the weakest in the European Union.
The German Statistical Agency’s recent publication (in German) – – published detailed infrastructure investment data by Sector (see Chapter 3).
The following graphs show Gross and Net public investment (in millions euro and percent of GDP, respectively) since 1991 to 2020.
The first graph reveals that for most of the period shown, which includes the period of convergence towards Stage 3 of the accession to the common currency (pre-2000) when austerity really began as the Eurozone nations struggled to get close to the deficit criteria specified under the Stability and Growth Pact, the German government has been allowing the public infrastructure to contract (net negative).
Millions of euro

And while the first graph shows gross investment grew from 2005 in nominal terms, once we scale that in terms of GDP, the situation is different.
In 2000, the share of GDP of gross investment was 2.3 per cent and in the pre-pandemic year 2019, it was still 2.4 per cent.
The net graph is a bit misleading because DeStasis rounded the negative numbers at zero.
But whichever way you want to spin it, this history of public investment is disastrous for the future of the nation.
The fiscal rules have crushed future prosperity in Germany and left the future generations (the ‘grandkids’ with a reduced quality of life).
Per cent of GDP

The result has been declining productivity growth as shown by the following graph which indexes GDP per person employed at 100 in 2000 when the common currency began. The vertical red line marks the beginning of the Merkel period.
The average annual growth rates for the decades shown are 1.35 per cent in the 1990s; 0.31 per cent in the 2000s; and 0.47 per cent in the period since 2010.

The persistent violation mentality in Germany
Under Merkel’s regime (from 2005 onwards), Germany has been a serial offender in terms of the rules they claim should be enforced for others.
Of course, ‘claim’ is to weak. The Germany state has pressured the European Commission to enforce austerity in various nations to the end that some have been permanently impaired.
One of the stark persistent violations of EU rules is the external position of Germany.
I covered this issue in a number of blog posts including:
1. German trade surpluses demonstrate the failure of the Eurozone (April 24, 2017).
2. The European Commission turns a blind eye to record German external surpluses (October 31, 2016).
3. Germany’s serial breaches of Eurozone rules (May 11, 2015).
In the early days of the Eurozone, there were dramatic shifts in the current account balances (which reflect trade and income flows between nations).
Germany’s ‘mercantilist’ strategy dominated the early years and they started to record very large external surpluses which were mirrored by expanding external deficits in the peripheral economies.
What happens if a nation exports more than it imports (ignore, for simplicity, the income side of the current account)?
The net outflow of real goods and services would be accompanied by accumulating financial claims against the rest of the world.
This is because the demand for the nation’s currency to meet the payments necessary for the exports would exceed the supply of the currency to the foreign exchange market to facilitate the import expenditure.
How might this imbalance be resolved? There are a number of ways possible.
A most obvious solution would be for foreigners to borrow funds from the domestic residents. This would lead to a net accumulation of foreign claims (assets) held by residents in the surplus nation.
Another solution would be for non-residents to draw down local bank balances, which means that net liabilities to non-residents would decline.
Thus a nation running a current account surplus will be recording net private capital outflows and/or the central bank will be accumulating international reserves (foreign currency holdings) if it has been selling the nation’s currency to stabilise its exchange rate in the face of the surplus.
Current account deficit nations will record foreign capital inflows (for example, loans from surplus nations) and/or their central banks will be losing foreign reserves.
Large current account disparities emerged between nations in the 1980s as capital flows were deregulated and many currencies floated after the Bretton Woods system collapsed.
European nations such as Germany, the Netherlands and Switzerland were typically recording large and persistent current account surpluses and with a significant proportion of their trade being with other European nations, the imbalances grew within Europe as well as between Europe and elsewhere.
German government policy (Hartz reforms – see below) deliberately created widening imbalances in Europe by undermining the competitiveness of the other nations through the harsh attack on its own workers.
The next graph shows the evolution of the German current account balance (as a % of GDP) from 1995 to 2020.
Germany’s current account surplus was 7 per cent of GDP in 2020 and the most recent quarterly data suggests that figure will rise further in 2021.
As we see, when Germany entered the Eurozone, it was recording small external deficits but throughout the early part of the common currency, it clearly shifted focus and started to run ever increasing current account surpluses.
From a sectoral balance perspective, with an external surplus of 7 per cent of GDP and a constitutionally-required fiscal balance (more typically a surplus in Germany’s case barring the recent pandemic deficit), the private domestic sector must be running a surplus of around 7 per cent of GDP – a massive domestic saving amount.
The other aspect of the persistent external surpluses is that the strategy is depriving German citizens of some degree of material prosperity by ‘exporting’ German resources (products) for the enjoyment of foreigners.

I document the German turnaround with respect to trade in this post – The European Commission turns a blind eye to record German external surpluses (October 31, 2016).
What the data confirms is that Germany is continually ‘gaming’ its EMU partners and undermining prosperity in the rest of the Eurozone.
The persistent violations of EU rules come about because the on-going external surpluses are well above the limits set by the so-called Macroeconomic Imbalance Procedure, which was introduced as part of the ‘reinforced Stability and Growth Pact (SGP)’ that became operational on December 13, 2011.
Among other rules that were tightened, the European Commission introduced the ‘Imbalance Procedure’ under the so-called Excessive Imbalances Procedure (EIP), which aims to reduce macroeconomic imbalances (particularly unit costs and so on).
The European Commission claimed that it would force nations to submit “a clear roadmap and deadlines for implementing corrective action”.
The whole system was to be subjected to a huge surveillance operation (EU monitoring) with rigorous enforcement (fines equal to 0.1 per cent of GDP) and central intervention in a nation’s budgetary process.
They made the rules even harsher in 2012 with the – Treaty on Stability, Coordination and Governance in the Economic and Monetary Union (TSCG) – also known as the ‘Fiscal Compact’.
These changes were driven by the Germans, who in 2009 enshrined a ‘balanced budget rule’ or ‘debt brake’ in their Basic Law (Constitution).
The ‘Macroeconomic Imbalance Procedure’ embedded in the Six-Pack, exposes the inherent, anti-people biases that dominate European policy making.
I document that point in the blog post cited above.
In terms of trade, the upper warning threshold (for a surplus) is 6 per cent of GDP.
Germany persistently violates this limit, which is one reason that so much debt was incurred in Spain and elsewhere.
Germany’s huge surpluses and lack of domestic investment means it is supplying large flows of capital to the rest of the world.
Such surpluses rely on offsetting external deficits elsewhere.
While the European Commission concluded that Germany would have to find ways to ‘strengthen domestic demand and the economy’s growth potential”, it dodged the main issue and has failed to enforce the procedure.
Conclusion
Merkel has been in charge while Germany has maintained its destructive role in the Eurozone by suppressing domestic demand and forcing austerity onto its partner Member States, while hiding behind the common exchange rate.
If there was no common currency, the German mark would have been appreciating significantly and would have undermined it trade advantage by some margin.
What we are seeing is a sort of reprise of the fixed exchange rate system under Bretton Woods applied to the Eurozone.
The only adjustment possible for nations running external deficits in the face of the massive external surpluses being run by Germany is to repress domestic demand through wage suppresion, cutting pensions etc.
Clearly these policies are not allowing the other Member States to make relative competitive gains against Germany. It is a race-to-the-bottom – towards the impoverishment of European citizens.
That is another aspect of the mess that Merkel has created and is now leaving behind.
For reference: some prior blog posts tracing the failure of Germany
1. The monetary and fiscal normality of Wolfgang Schäuble – stagnation and entrenched unemployment (June 8, 2021).
2. Dr Die Schwarze Null still not thinking beyond more austerity (April 19, 2021).
3. Bundesbank remits record profits to German government while Greek health system fails (March 5, 2020).
4. Eurozone 2020. Don’t mention the War! (February 11, 2020).
5. The German government celebrates its record surplus while infrastructure collapses (January 15, 2020).
6. Germany to play smokes and mirrors again (September 12, 2019).
7. German external investment model a failure (August 19, 2019).
8. Germany is now suffering from the illogical nature of its own behaviour (August 13, 2019).
9. The German undervaluation obsession is resistant to ‘reform’ (March 26, 2019).
10. Die schwarze Null continues to haunt Europe (May 21, 2018).
11. Germany – a most dangerous and ridiculous nation (December 27, 2017).
12. Wolfgang Schäuble is gone but his disastrous legacy will continue (October 16, 2017).
13. The chickens are coming home to roost for Europe’s so-called powerhouse (August 10, 2017).
14. More Germans are at risk of severe poverty than ever before (July 6, 2017).
15. German trade surpluses demonstrate the failure of the Eurozone (April 24, 2017).
16. The European Commission turns a blind eye to record German external surpluses (October 31, 2016).
17. The reality of Germany and the buffoons in Brussels intervene … (February 3, 2016).
18. Germany should look at itself in the mirror (June 17, 2015).
19. Germany’s serial breaches of Eurozone rules (May 11, 2015).
20. Germany is not a model for Europe – it fails abroad and at home (March 2, 2015).
(…)
Derek Henry
September 27, 2021 at 19:21
After following the Labour conference over the weekend.
After being in Germany for 3 weeks in the run up to the election.
Following the Scottish independence debate very closely.
If you are from the left then it is imperative that..
a) Born again New Labour NEVER win an election and vote against them.
b) The SNP or Alba NEVER win Scottish independence in their current form.
c) The Greens are no different. They ARE the liberal left in disguise.
It is very clear it is geopolitics on steroids. EU uber alles, EU uber alles. All are still trying to overturn the Brexit result and then call themselves democratic. Blame everything on Brexit without a basic understanding of economics. All of them are a pathetic attempt at being the Lib Dems.
What would you do if you were the Greens and SNP who fully support the EU and all the rules that go with it ? What would you do apart from write the Growth Comission that was a cut and paste job of an EU convergence program ?
What would you do politically ?
How would you play it if you were the SNP and the Greens who support neoliberal globalist Europe?
a) Make the tough decisions now so it is easier to rejoin the EU. Fudge the reasons Why you have done so many U turns and why you have steam rolled over decisions from conference.
Doing a full 360 on a public energy company. Why did the Scottish ship builders not get the Calmac contract ? Why , are they adopting free market solutions all of a sudden ? Why is The investment bank being used the way it is? Why are they banning protest outside of the Scottish parliament and moving further right on the political spectrum?
Every decision you make from here on in would you consult with the treaty lawyers to make sure any policies you do introduce moving forward from here. Does not make it harder for you to rejoin the EU. Comply with what is expected as a new joiner of EFTA or the EU ?
Or
b) would you Introduce left wing policies now. Only to be shredded apart latter by the EU treaties and the decisions made by the EFTA court. Which would be highly embarrassing for you and make you lose more support than New Labour dud in Scotland. Would you allow Scottish voters to finally see what EFTA and the EU membership is all about.
Which certainly isn’t independence.
For me these massive U turns by the SNP and the Greens are just a warning of things to come under EU membership. The U turns are only the beginning.
For me the new version of New Labour which will be no different to what the SNP and Greens can offer the electorate because of neoliberal globalist Europe treaties and geopolitical ideology has to be stopped. If that means voting Tory because there is no alternative to defeat these liberal tribute acts so be it.

(…)
Derek Henry
September 27, 2021 at 20:04
Never voted since 1988 apart from to support Brexit. Never voted for Scottish independence because that was never on offer.
But I will vote to try and stop stop these liberals on the left who pretend to be the voice of the working class. I will lend my vote to the right just like the North Of England did to try and finally get rid of these charlitans once and for all.
The liberal left can label me as much as they like and call me a populist. I will wear it with pride. Under current circumstances that is playing out in full view .The union has to be saved. The return of New Labour decimated.
The liberal left were always the looney left to me as they keep voting for the middle of the right wing spectrum. That was until you deal with the left in Scotland They are bat shit crazy. Still don’t know what true independence actually means and struggle with the word trade.
Hopefully, now the left will split. Give me something worth voting for. You can only live in hope and the left says enough is ebough.

oooooo

British Labour Conference seems to be going well
(https://billmitchell.org/blog/?p=48423)
September 29, 2021

It’s Wednesday, and I have been following the British Labour Party conference and it seems they are conducting business as usual. That is, working out new and old ways to keep themselves unelectable even when the Tories are one of the worst British governments in history I would think. But so it goes. A split is the only way forward I guess. The Blairites can then hold conferences, stack votes to have unelectable leaders and design fiscal rules to their hearts content. At least they will be saving me time this time around. I will just be able to cut and paste my previous critiques of John McDonnells’ neoliberal Fiscal Credibility Rule and apply the analysis to the new Rachel Reeves’ rules. Not much has changed. Who is giving this lot advice? After that, I am sure you will appreciate that the IMF is now considered to be past its use-by date and currently mired in a data-fudging scandal. And then some Rock Steady to calm us down. That’s what today’s blog post offers.
British Labour Conference seems to be going well
I always find this time of the year entertaining (footy finals, etc) because it is conference time for the British Labour Party and this year’s event is proving to be hilarious.
The grip that identity politics has on the Party was brought to the fore this week when one of the MPs (Duffield) got involved in a Twitter rage over a statement that “only women have a cervix”.
The right-wing press saw the issue as music to its ears and the debate set elements on the progressive side into conniptions about transphobia.
The complexity was lost but then the Labour leader and the Shadow Chancellor were skewered by the media and it is clear their own performances were rather wan to say the least – and at odds with each other.
Then the shadow employment minister resigned because he was told not to advocate a £15-an-hour minimum wage pledge despite the Leader previously seeking plaudits for that policy while seeking the leadership.
The minister claimed Labour was “more divided than ever and the pledges you made to the membership are not being honoured.”
Not a good start to the Conference.
Then the Shadow Chancellor adopted the time-honoured tradition in Labour of walking the plank when she started down the ‘credibility’ route with the announcement of her fiscal rules and new office to save money.
The conservative press called it “oxymoronic” that the Party would propose “a new watchdog aimed at keeping an eye on unnecessary spending of taxpayer money… funded with taxpayer money” (Source).
While one could contest the oxymoronic claim, the claim by the Express journalist was certainly moronic.
The new office will not be ‘funded’ with taxpayer money. It will be resourced with government fiat currency as all spending in the UK is.
The real oxymoronic status is that it is designed to stop ‘wasteful’ spending but its very existence will be superfluous, and by definition, wasteful.
George Osborne created the ‘Office for Budget Responsibility’ and now Labour want to have their toy, the ‘Office for the Value of Money’.
Both are reflections of an erroneous understanding of the fiscal capacities of the British government.
Reeves told the Labour Conference that:
It’s thanks to the OBR that we know the Tories have missed everyone of their debt and deficit targets.
Which tells us the sort of nonsense that Labour is infested with.
Maybe the smart question she could have raised was along the lines of whether the original targets were sensible given the spending and saving decisions of the non-government sector and whether missing the targets was the vehicle to a better outcome in terms of employment and income generation than would have been the case had the targets been met.
Just getting up at a Conference and shouting about debt and deficits as if both are to be avoided is really poor conduct and typifies that the Labour Party hasn’t learned any lessons from its recent failures.
Apparently, this sort of nonsense makes Reeves “credible” with the “financial institutions and large sections of the media” (Source).
We got fiscal rules where a Labour government would enforce the balancing of the recurrent fiscal position (net of capital spending), require ‘tax’ revenue to match daily public spending, and reduce the debt ratio.
The Tories said they would do the same.
So John McDonnell’s ridiculous Fiscal Credibility Rule has been tightened under Starmer and Reeves, but it will be equally unworkable.
The Labour Party cannot get beyond their obsession that somehow amorphous financial market speculators will ruin the currency unless the government appeases them with these stupid (neoliberal) fiscal rules.
Given the Bank of England has bought a fair proportion of all the new debt issued over the last few years without the sky falling in, when will the Labour Party realise that the investors are at the behest of the government not the other way round?
The legislative power is much larger than the ‘market’ power.
Iceland, for example, showed during the GFC just how constrained the big hedge funds are when the government legislates to advance public interest.
The Tories should be very confident going into the next general election.
Things too stupid to even think about
1. The perennial US debt ceiling fiasco.
2. The calls for a trillion dollar coin in response to the stupid Republican antics about 1.
3. Rachel Reeves proposing an Office for Value of Money to appease the City.
4. Keir Starmer thinking he should be leader of the British Labour Party.
IMF has outlived its usefulness
Which implies it was useful at all – and one could argue that under the Bretton Woods scheme it served some utility in helping nations defend their exchange rates when their current account positions created instability.
And that would be before they started to introduce stupic and damaging conditionality to the loans they provided (late 1960s into the 1970s).
But once the fixed exchange rate system ended (after August 1971, although it didn’t really end until a few years later when the Smithsonian Agreement collapsed), the IMF had no further purpose.
It invented one – to be a neoliberal attack dog in tandem with the World Bank and inflict shocking damage to the poorest countries. It also allowed itself to be a pawn for advanced nations to depoliticise austerity attacks – circa Britain in 1976, for example.
Well I have been arguing all this for years now.
And like all things that are outside the box, at some point they become the fashion.
The Financial Times article (September 27, 2021) – Georgieva data scandal heightens IMF identity crisis – confirms that thesis.
Apparently:
The IMF has an identity crisis. Its traditional role as lender of last resort has been usurped by the central banks that have pumped trillions into financial markets …
For most rich and middle-income countries, the IMF had already long lost its importance — thanks, in part, to the quantitative easing programmes in place since the 2008 financial crisis. Why sign up to IMF loans with stiff conditions when investors starved of yield are eager to lend just as much, almost as cheaply, with no strings attached?
The article quotes Carmen Reinhart, yes, she of the spreadsheet scandal, who still thinks she is relevant to anything.
Apparently governments who have borrowed from the IMF will face a “solvency issue”.
She has been banging on about solvency crises for just about ever.
Irrelevant.
And, the IMF boss has been accused of manipulating (or demanding manipulating) of data that changed China’s rankings in an index, while at the same time seeking funds from China. This is when she was at the World Bank.
There is denial about this but the investigative report documents some pretty weird going-ons.
Here is the Report (September 15, 2021) – Investigation of Data Irregularities in Doing Business 2018 and Doing Buiness 2020 – that has fed the allegations.
There seems to be evidence of bullying, Groupthink, and basic crookedness if the external report provided to the World Bank board is credible.
What would one expect from these institutions that really should have been disbanded and replaced decades ago given the damage they have inflicted on nations around the world.
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(…)

Derek Henry
September 29, 2021 at 18:56
It is incredible to think the liberal left just might get away with it.
Move back to what was described in George Monbiots book – Captive State. That lists everything That was done under New Labour That Bill and Thomas Fazi would call depoliticisation.
That lost the Labour party Scotland and large parts of the North of England. Given the Labour Party has just spent more than four years trying to undermine the votes of millions of working-class northerners by trying to reverse the Brexit result. It’s more than a bit rich for Labour members to start bleating about ‘democracy’.
Ken Loach article in the Guardian yesterday was excellent. If you get a chance you should read it.
Why is there a liberal left in the Labour party ? It is a “socialist “democratic party. If you want to vote for the liberal left that is what the Liberal Democrats are for. Vote for them instead. Who will never win and continue to try and hijack the Labour party like they have done to every social democratic party across Europe.
Who want PR voting put in place just like parts of Europe run by Brussels to depoliticise democracy further. Try to force The Lib Dems down people’s throats. Let’s be very clear The Guardian is a liberal paper. Not only do governments in Europe have virtually no say but with PR they can’t organise a fight back against Brussels.
The SNP and the Scottish greens are infested with the same problem. Now following Tony Blair’s roadmap which is the reason Labour lost Scotland and how the SNP kicked them out. It is insane, but we all know why they are now moving right along the political spectrum. EU uber alles.
The Brexiverse really is when the right acts like the left and left have turned into Liberal democrats voting to stay in the middle of the right wing spectrum. Turning true left wing and right wing voters into populists. With nobody to vote for.
(…)
Derek Henry
September 29, 2021 at 20:53
If you ever get the time to read captive state by George Monbiot or reclaim the state by Bill and Thomas.
They show clearly what the strategies of
a) Well it is better to vote for New Labour than the Tories.
b) Stay in the EU we can change it from within.
Actually means in reality. What happened over many years be living in those strategies.
What is even more frightening than actually believing those strategies will work. Is the people who believe it can’t even change their own political party from within. Never mind the whole EU block of all the different countries. In Scotland those that honestly believe they can move the EU to the left of centre if they are members call it a work in progress. Can’t even move the SNP to where they want them to go.
It is delusional.
They cling onto and seek out people who share that view. They going looking for people like Richard Murphy and Dirk Ehnts who think they can change Europe from within. Cling onto them like a life raft. Rather than stopping it at source, seeing it as a real danger to democracy and stop it from happening in The first place.
The liberal left will do anything but take on the SNP and Labour and call them out on it. Anything that might stop their dream of independence even though it is, and never will be independence that they will have voted for. Clinging to ideologically rats that will NEVER be able to deliver what they promise.
With a PR system already in place in Scotland set up that way by London for obvious reasons. Under Brussels control democracy will be as far away as ever.
It is heart breaking to watch the delusions taking place.
(…)
Neil Wilson
September 29, 2021 at 21:16
“The Brexiverse really is when the right acts like the left”
Still a bazillion miles away from convincing them that they are overtaxing for the size of government we have.
Who would have thought that the RightLeft (or are they LeftRight?) like paying more taxes than they need to?
Derek Henry
September 29, 2021 at 22:40
Don’t we know it Neil.
The amount of time we spend on Conservative blogs trying to convince them.
?
I think we have moved some of them a little bit. Or made them think about it more than they ever did.
(…)
George S Gordon
September 30, 2021 at 23:55
Hi Derek, you said “They going looking for people like Richard Murphy and Dirk Ehnts who think they can change Europe from within.”
I think that’s a bit harsh on Dirk Ehnts, who lives in works in Germany. He only has two options – work to change it, or leave.
(…)
Derek Henry
October 1, 2021 at 09:39
George S Gordon
You missed the point I was making entirely. So please allow me to be clear on how I see it.
My point was no reflection on Dirk at all. We’ve known for years what Dirk’s stance is and he never lies about it like Richard Murphy does.. Dirk highlights with precision what is wrong with the EU and is very open about it. Murphy is the complete opposite a circus clown.
The point is some of these people that think MMT can be a success in Scotland and live in Scotland look for people like Dirk to cling onto and sit on the fence and call the EU ” a thorn in our side” , ” a work in progress “, any poor excuse they can come up with. Any fairy tale that pops into their head.
I’ve heard them all with my own ears listening to the MMT podcast. When asked, people from Scotland answer with a fudge. Either afraid to make their true feelings known or think the listeners are completely stupid with the answer they give and can’t see right through them.
Why do they never just come out and say it when asked George ? Why do they NEVER give the standard MMT response ? Why do they cling onto people like Dirk and Murphy and allow them to do their bidding for them ? That’s the question you should be asking.
Another strategy they use is they’ll get somebody else “not them” to make a video about it.
I’ll tell you exactly why George. Why they always fudge the answer when asked rather than laying it out clearly like every other MMT’r on the planet. Laying it out clearly like the MMT economists and Dirk.
They sit on the fence George and fudge it because God help us all George if the SNP do get their way and drag us into the heart of Europe. These people do not want to be held responsible or accountable for what will happen. They are trying to distance themselves from that outcome and be able to lay the blame elsewhere. Secretly hoping somebody else will stop It from happening for them but NEVER challenging the Scottish voters on it. NEVER challenging the Scottish greens on it.
It wasn’e me I said what Dirk said they’ll cry. They are users of people George. They’ll cling to anybody rather than take a stance themselves. They will lay nothing on the line using an evil version of Groupthink.
More importantly if somehow Dirk and MMT economists miraculously can change the Scottish voters views about EU membership by laying out the facts. These people who seek out and hide behind other people’s views will be first in line to try and take all the credit.
Their daily, monthly, yearly fudge making factory try and make it a win, win for themselves. If it goes wrong it is not their fault. If it goes right they expect the credit.
So I hope I have made myself clear George ?
I’m also pleased to say that some of these people have jumped ship and joined the Alba party. Finally decided to made a stance on the issue as the SNP rode roughshod over the top of them.Which I said would happen 4 years ago and was ridiculed and laughed at. Who was right George ?
They have thrown their weight behind EFTA instead of full EU membership. With a motion to a full debate on how Scotland’s future should be tied to Europe if Alba win the election. I don’t agree with it at all, but at least these people have come down off of the fence and been brave enough to accept personal responsibility and accountability of the outcome.
For me it is less of a fudge. Which is always a start in the right direction. Until, hopefully they realise there is no need whatsoever to stand in front of a neoliberal judge in a neoliberal EFTA court just to get permission on how you want to use your OWN skills and real resources.
Neil Halliday
October 2, 2021 at 16:04
Some Scots want independence from the UK AND remain part of the EU? Like Catalonia with regard to Spain? (The Catalonians have the wealthiest economy in Spain, independence is driven by self-interest). But you are right, lack of MMT literacy is the problem with either EU – or UK – membership.
Meanwhile Senator Manchin is revealed to own millions of shares in a coal company, earning half a million bucks annually in dividend payments. One man whose vote – a self-interested veto – in a 50-50 Congress……. which might determine the future of the planet since Biden can’t go to Glasgow and point the finger at other nations, with his own GND in tatters….
George S Gordon
October 6, 2021 at 17:29
Hi Derek,
Apologies, I thought you were also having a go at Dirk.
I understand and agree with your views on the EU. However, most Scottish independence supporters need persuading that the EU is a wholly neoliberal concept (and most have not even heard of MMT).
And, as I’m sure you know, they use the “dragging us out against our will” argument to try to persuade more folk to believe in independence, which makes it even harder to change their views.
I’m not hopeful.
(…)
oooooo

Erantzun
joseba says:

2025/09/17 at 09:28

Bill Mitchell. Eskozia: nazioa bat ezin da independentea eta beste nazio baten moneta erabili
(…)
Derek Henry
April 23, 2021 at 19:18
It’s all part of the same problem and is all linked together everywhere. However, I’m not sure if I could ever get my thinking about it across properly. I’ve spent the last 12 months thinking about this and only this and nothing else.
Non government sector saving desires – A money scarcity problem.
* Unemployment is always an unspent income story. What happens with a JG in place which means there is no to low unemployment. Income unspent will not cause long term unemployment as they walk into a job guarentee program. However, not enough income unspent can cause some serious issues. Generational ones.
* Export your way to growth means keep fiscal policy tight ( Maastricht Treaty) keeps domestic demand low. Sell your currency and buy the currency of your target market abroad to try and keep your own running costs low. Accumulate reserves of the nation you have targeted. But what happens when the ECB doesn’t do that and only subscribes to the tight fiscal policy. They can’t keep their running costs low and wages rise, exports go up your currency just keeps getting stronger. Household disposable income gets less and less as rent seekers claim it for themselves.
* No need to reward working class savers as they are going to save anyway. Too much saving is an unspent income story that causes unemployment. Yet when you look at Japan’s 266% debt to GDP ratio, low unemployment rates and inflation rates for years. At what point does too much saving actually become a problem. Does that not mean in other countries Japan shows there is massive room in the UK economy to not only reward working class savers for saving more but give them enough disposable income that allows them to buy everything they need. On top of being rewarded for saving more.
* How can you save for your own home and buy everything you need when most of your disposable income goes on rent and paying for privatised public services and education. Making the furlough payments a bail out for the land lords and rent seeking part of the economy. To keep them afloat and nobody else. Only causes real problems further down the line as pensioners live in poverty without enough saved income to pay the rent seekers and government in retirement.
I could write another 50 things down I think about in the bath. But for me it always leads to the same thing. Yes, it is an unspent income story but not an unspent income story that causes unemployment. There simply isn’t enough unspent income floating around. It is a money scarcity story which was once mentioned at a MMT conference. Now I’m really starting to understand what that means working at the cliff face everyday. New, safe, low risk , saving vehicles are no longer being offered in some places.
Each and every time you try and fix it it ultimately ends up a productivity story. As any fix depends on the skills and real resources you have available and what you do with them. For me we take the unspent income causes unemployment story very seriously but not so much the there is not enough unspent income floating around story and what we are going to do about it.
No need to reward working class savers for saving as they are going to save anyway. Completely ignores the money scarcity story. Not just when the working class are working, even more so when they are retired. That at all times just end up being consumption units. Middlemen between the monopoly issuer of the currency and the rent seeking class. With no surplus left over to pocket themselves. When they do pocket it have nowhere to put it to give them a reward and security.
With a job guarentee in place it will be harder to tell when an unspent income story becomes an unemployment story. However, you can certainly see every day of every week what happens when there’s not enough non government sector savings to go around.
With a job guarentee in place when does too much saving become a problem ? When does it become a real issue. When does riskier activity take hold. When do bubbles appear in markets. When does too much saving with a JG in place start to hurt the economy ? Nobody knows.
One thing is certain. There’s plenty of room in economies today to be able to reward working class families for saving and giving them enough disposable income to buy everything they need whilst working. Get rid of this generational money scarcity problem once and for all. Allow the working class to retire peacefully knowing their financial needs are taken care of. Without any risk and middlemen robbing them of their lifetime savings.
Introducing the JG and then carrying out fiscal adjustments after replacing a budget constraint with an inflation constraint is NOT going to solve the problem. We need to go much further than that.
We also need to challenge, fight and win the other side of the story. Which is the narrative that was created by the FIRE sector that caused the generational money scarcity problem in the first place below.
https://michael-hudson.com/2017/03/why-deficits-hurt-banking-profits/
Starting writing up what the MMT lens advises when these 2 worlds and 2 narratives collide. As there will be a big bang when they do collide if the day ever comes we win an election. Start taking the non government sector savings desires money scarcity problem seriousley. Instead of the working class will just have to save more and save for a longer period of time to get the security they deserve. Should be a very large part of the ” public purpose” narrative not an after thought.
We need to be ready for when these 2 worlds collide and have all the right answers attached to the correct narratives. Narratives that large parts of the economy will vote for.
Neil Wilson
April 24, 2021 at 17:35
“Allow the working class to retire peacefully knowing their financial needs are taken care of.”
Which is a myth.
It’s not the financial needs that are the problem – that can be solved with a sufficient state pension. It’s the real production required to service that finance.
Working class saving is just a ‘self insurance’ replacement for state pensions. And we’re already doing that via ‘compulsory pension schemes’ and NEST. That’s what ‘working class savings’ looks like – another nice earner for the finance industry as they privatise the social insurance schemes.
We have a current production and distribution problem. Everything else is just insurance.
(…)
Derek Henry
April 24, 2021 at 19:10
I know all of that Neil.
You know’ I know all of that. We’ve bumped our gums about it many times about what would be the best way to do it. Even brought it up in the BBC interview to highlight it.
“Allow the working class to retire peacefully knowing their financial needs are taken care of” is only a myth if you allow it to remain a myth.
It can all be set up very differently. Then the myth dies forever. Why the productivity story needs to be sorted out first before anything else so that any changes we purpose work efficiently and effectively.
Yes, the JG can help with a little part of that and a competition and monopolies commission with some teeth but we need to go much, much further than that and change the whole set up.
All we need is a change of perspective and move away from a broken model that promotes money scarcity and that the free markets needs to provide the returns on savings. Increasing the pension doesn’t help anybody when it comes to saving £50k for a deposit for a home. Building more houses won’t sort out the saving problem.
A lot of people are one pay check away from destitution. Which makes a nonsense of no need to worry about non government sector savings they are going to save anyway.
When we propose to set the interest rate to zero. We need to have a proposal at the ready that changes the system that voters ( savers) will vote for. If the non government sector save anyway that means a proposal “everyone” will vote for.
We’ve ignored it for far too long and it would be such a waste not to highlight what the lockdown shows because of the furlough payments and take advantage of that.
A paper has to be written and judged by our peers. As we will be attacked relentlessly by our opponents on that part of the zero rate policy.
Saving more for longer is not a vote winning policy when 1 in 2 of us are likely to get cancer. Families do not want to take on risk.
It needs to changed for ” public purpose” reasons under ” nice things to have” especially when you know how these returns and pension payments could be paid to the working class. The different ways they could make the payment. Instead of linking returns on savings to the FTSE 100 index.
Derek Henry
April 24, 2021 at 19:18
When attacked relentlessly by our opponents on that part of the zero rate policy.
Is all we have to say is don’t worry about it folks. The working class save anyway they will just have to save more for longer ?
Is that it ?
Is that our response ?
Good luck with that ?
Derek Henry
April 24, 2021 at 19:32
Public Purpose – nice things to have.
Living a full enriched life while you work with saving security and not pick up a pension payment when your dead ?
Stop worrying if you’ll ever reach pension age to get your reward ?
Stop worrying about the FTSE 100 index as it should never be linked to savings returns which most if not all structured short term saving products are are linked to.?
There’s a vote winner that everybody can vote for…??
(…)
Derek Henry
April 25, 2021 at 06:24
Newton,
I say you are right all it takes is a change in perspective and breaking free from broken models that have enslaved us.
Example to further the debate as it is always good to throw things out there.
Let’s say banking is nationalised for talking sake. Warren says it is already nationalised. But let’s say.
The government says save with us and we’ll give you 10% interest per year on your savings. I’ve used 10% to shake things up a bit. That return is not linked to anything not the FTSE 100 index or government bonds. Every year it is just going to be paid to savers as a furlough payment with no strings attached.
The government also say take a loan from us and the interest on your loan is zero. If you borrow £5K from us over 5 years all you pay back is what you borrowed £5K over the 5 years.
Now there’s a different perspective. That banks could never compete with.
What does the MMT lens say about that different perspective ?
a) Do we need a competitive banking sector to provide that return on savings and that loan instead at different rates ? Do we actually need banks to provide those services ?
b) Would the different perspective cause inflation ?
c) Can the private sector cope with that change in perspective. Do we as a nation have enough skills and real resources to absorb that change ?
d) Will it cause too much saving by the non government sector and create problems in the economy ?
e) How many job losses would there be and what are we going to transition these workers into ? What are we going to have them doing instead ?
Etc, etc, etc….
All of the usual questions that are asked when you look through the MMT lens.
So let’s say you can improve productivity before you introduce these changes so there are no issues at all. What’s the problem ? For the next ten years all the government concentrates on is improving productivity which is a MMT paper in itself. So that this change can be delivered.
Or
We’ve done everything we can to improve productivity over the last 10 years but just can’t get this change to work. However, we can make it work if the government offers 5% interest on our savings every year and only charges 3% On every loan ?
This is my bug bear nobody is looking at this stuff. It seems we’ve accepted the old models and work around them. The MMT is a lens meme shows you how to look but nobody is looking. We could create concrete proposals and get millions of more people onside. Show the real benefits of the MMT lens instead of another paper about the accounting.
If the right wing ever accept MMT that is exactly what they will be doing. Writing papers on how to build Trumps wall for example.
We could do the exact same thing with pensions. Change of perspective – what would happen after 20 years of concentrating on productivity if we slashed the pension age to 50 and doubled the pension payment and never took payments off people every year that pretends to pay for it ?
Work out what would happen and what could be achieved without causing any problems. At the very least find out what would happen. So at the very least we would know what we need to do to change it.
But we suffer from a skill shortage. So writing these papers will take time. My view is that skill shortage needs to be addressed. So that we can start looking at these things. As there are so many things that could be looked at it if we ever are asked to create a manifesto by a political party that’s ready to accept MMT.
Derek Henry
April 25, 2021 at 07:06
Could be wrong……. But…
We need to start moving away from the basics. Bills master classes are doing that.
Get the next generation of MMT economists primed and ready. Are any coming through ?
Start running with the lens so we are ready to win an election if asked. (I don’t think we are ready without a manifesto.)
It can’t all be left to the original founders who have already done more than enough.
Of course you have to tread that line of, if you start writing things up to win an election and write a manifesto you might put people off the idea of MMT. Those with vested interests to protect.
The right don’t care about that, they never have in the last 60 years. They just get on with things in an organised way. If the right accept the MMT lens. They’ll be off to the races and have a manifesto written before you can say the words “business purpose.” Public won’t even come into it, as everyone else is caught sleeping AGAIN.
How ironic would that be ?
(…)
Derek Henry
April 25, 2021 at 20:02
Newton,
Exactly !
Which in the main, is what my posts over the last fortnight have been about. It’s difficult to get a year thinking about it across. As So many thought experiments run right through my thoughts throughout the year.
We need to move forward and show voters what the MMT lens can do. Stop complaining about things and moaning and show how we are going to change them.
Instead of just the same faces on social media repeating the same basics for years. It would send you to sleep.
The Powell manifesto – Universities- New York – Chile – Central banks – Euro – the World.
The chain of events of how they introduced neoliberalism across the world. The Right is a machine that is heavily funded and organised that runs over the top of anything in its path. For all we know they could be getting ready now as we speak. They’ll be ready alright that is a certainty.
If there is a move in geopolitics that finally means the MMT lens can be used to improve lives in the West. Who is going to be ready to use it first ?
Imagine if Stephanie Kelton said to Biden. We can show you beyond doubt that you can cut the pension age to X and increase the pension payments to Y. You can improve productivity using Z to achieve it. Will it win you many votes Joe ? Will it help you win the next election Joe, help millions of Americans and The US economy Joe ?
The whole debate changes. From the same tired old infrastructure spending, education, invest in R&D, spending increases and tax cuts which only concentrates on Z. Which would have to be done anyway along side a JG.
Z Needs to be done anyway it we are ever going to attach “any nice things to have” to the JG from the bottom up. Z is the key stone that holds the MMT lens together when you want to use it.
Let’s start getting really creative with the MMT lens. Start looking through it and start selling and advertising what we see. Really concentrate on Z so we can use it as there is so much more to the MMT lens than just the JG.
We shouldn’t just be happy if we get the JG implemented. We need to go much, much further than that and prove beyond doubt whatever we choose to do won’t be inflationary.
Anyhoo, thanks for listening to my rants for the last fortnight. Let’s see where we are this time next year and see if the MMT narratives on social media changes into some proposals.
Whilst the right get organised. Which the recent article in the American Conservative magazine called – MMT for Conservatives – Suggests they might be thinking about doing that.
Derek Henry
April 25, 2021 at 20:36
A simple change that could be done tomorrow is use the MMT podcast.
How many podcasts do we actually need On
a) The JG
b) The accounting
c) The history of economics
Surely we have enough already ? No ?
Patricia and the gang are clever enough to come up with a designated podcast using the MMT lens and come up with a topic and different scenarios. Using their own thought process.
Give the podcast a fancy name :
Public purpose – Nice things to have using the MMT lens. Will it be inflationary.
Whenever they get prominent MMT’rs on or invite them on especially for the topic. We are off to the races and would be a very interesting podcast. the list of public purpose nice things to have and what we would do to change things is A very Big list. So they would never run out of ideas.
A very simple change that for me would be a step forward in the right direction.
oooooo
US and UK fiscal stimulus supporting growth while the delays in the Eurozone lead to a double-dip recession
(https://billmitchell.org/blog/?p=47361)
May 3, 2021
), the US Bureau of Economic Analysis published the latest national accounts data – Gross Domestic Product, First Quarter 2021 (Advance Estimate) – which showed that the US economy grew by 1. The following day (April 30, 2021), saw Eurostat announce that the Eurozone contracted by 0.6 per cent in the first-quarter 2021, which means it is now enduring a double-dip recession. The European Union, now without Britain as a member, contracted by 0.4 per cent. In contrast, with Britain now out of that mess and determining its own future, we saw the British economy return a positive GDP growth rate in February as exports rose and government stimulus sustained domestic activity. Why should we be surprised about this. In this post, I examine the US situation in more detail and reflect on some interesting trends in the UK. The Eurozone situation is too depressing to write about on a sunny day!
The US rebound
The US Bureau of Economic Analysis said that:
Real gross domestic product (GDP) increased at an annual rate of 6.4 percent in the first quarter of 2021 … In the fourth quarter of 2020, real GDP increased 4.3 percent.
Note that the BEA is using the annualised quarterly figure here (multiplying the March-quarter growth by 4) rather than the actual annual (year-on-year) growth rate which is the percentage shift from the March-quarter 2019 to the March-quarter 2020.
That aggregate was 0.4 per cent, which still means that the US economy managed to grow a tad during the pandemic.
The quarter-on-quarter growth outcome for the March-quarter was 1.56 per cent, which built on the 1.06 per cent in the December-quarter.
The following sequence of graphs captures the story.
The first graph shows the annual real GDP growth rate (year-to-year) from the peak of the last cycle (December-quarter 2007) to the March-quarter 2020 (grey bars) and the quarterly growth rate (blue line). Note the date line starts at March-quarter 2008.

The next graph shows the evolution of the Private Investment to GDP ratio from the December-quarter 2007 (real GDP peak prior to GFC downturn) to the March-quarter 2021.
The decline in the investment ratio as a result of the crisis was substantial and endured for 2 years. As a result the potential productive capacity of the US contracted somewhat. There are various estimates available but the overall message is that potential GDP fell considerably as a result of the lack of productive investment in the period following the crisis.
In more recent times, the investment ratio has stalled and then took a small hit during the pandemic.
Since March 2020, the ratio has risen from 17.7 per cent to 18.8 per cent in the March-quarter 2021. The ratio rose 0.9 points in the first three months of 2021.
It is now at the highest level since the current BEA data series began in the March-quarter 1947.

I will have more to say about the current impact on the evolution of potential GDP in a later blog post.
Contributions to growth
The accompanying BEA Press Release said that:
The increase in real GDP in the first quarter reflected increases in personal consumption expenditures (PCE), nonresidential fixed investment, federal government spending, residential fixed investment, and state and local government spending that were partly offset by decreases in private inventory investment and exports. Imports, which are a subtraction in the calculation of GDP, increased …
The increase in PCE reflected increases in durable goods (led by motor vehicles and parts), nondurable goods (led by food and beverages) and services (led by food services and accommodations). The increase in nonresidential fixed investment reflected increases in equipment (led by information processing equipment) and intellectual property products (led by software). The increase in federal government spending primarily reflected an increase in payments made to banks for processing and administering the Paycheck Protection Program loan applications as well as purchases of COVID-19 vaccines for distribution to the public. The decrease in private inventory investment primarily reflected a decrease in retail trade inventories.
The next graph compares the December-quarter 2020 (grey bars) contributions to real GDP growth at the level of the broad spending aggregates with the March-quarter 2021 (blue bars).
The major driver of the GDP rebound has been the recovery in personal consumption spending, which is also probably driven the run down in retail trade inventories.
The change in Administration in the US has seen the government sector increase its contribution to the recovery.

The next graph decomposes the government sector and shows that Federal non-defense spending has dominated.

The next graph breaks down the contributions to real GDP growth of the various components of investment.
The overall decline was driven by the inventory reductions, while other capital formation expenditure was positive and contributed to production.
That is a good sign.

One would expect the inventory cycle to drive an increase in stocks in the June-quarter reinforcing the positive sentiment in the other investment catgories.
US Household consumption and debt
The Federal Reserve Bank of New York publication – Household Debt and Credit Report – was last updated for the December-quarter 2020 (published February 2021) – (PDF Download).
It shows:
… total household debt increased by $206 billion (1.4 percent) to $14.56 trillion in the fourth quarter of 2020, driven in part by a steep increase in mortgage originations. The total debt balance is $414 billion higher than at the end of 2019. Newly originated mortgages, which include refinances, reached a record high of $1.2 trillion, surpassing in nominal terms the volumes seen during the historic refinance boom in the third quarter of 2003. Auto and student loan balances increased by $14 billion and $9 billion, respectively …
Credit card balances are $108 billion lower than they had been at the end of 2019, the largest yearly decline seen since the series begins in 1999, consistent with continued weakness in consumer spending as well as paydowns by card holders.
So the housing market is robust but households are taken the opportunity of an increased saving rate to pay down their credit card debt.
The data also shows that:
Aggregate delinquency rates have continued to decline in the fourth quarter and continuing what was seen in the second and third, reflecting an uptake in forbearances (provided by both the CARES Act and voluntarily offered by lenders), which protect borrowers’ credit records from the reporting of skipped or deferred payments.
So government fiscal support is both allowing US consumers to save and pay down some debt but also stimulating investment in housing.
The following graph shows the US personal saving rate (personal saving a a percentage of disposable personal income).
The strengthening consumption expenditure and the credit card pay downs are the result of the fiscal support being provided by the government sector.

UK Household saving ratio
A similar trend of paying down credit card debt is occurring in the UK. UK households have substantially reduced their credit card exposure over the last year.
The ONS data for the – Household’s saving ratio – is shown in the next graph.
The rise in the household saving ratio is observed in most countries as the impacts of the lockdowns reduced expenses (working from home) and reduced opportunities to spend.
The British ratio peaked at 25.9 per cent in June 2020 (the average since 1963 has been 8.7 per cent).

The question is what happens next.
Many commentators are projecting that the build up of savings and pent up frustration will unleash a consumption expenditure boom and expose the UK economy to accelerating inflation.
However, it is unclear what the impacts of the short-term crisis borrowing which some households have engaged in to stay afloat as the pandemic reduced their incomes.
Evidence provided by the UK Parliamentary Committee on Work and Pensions – Universal Credit: the wait for a first payment (published October 19, 2020)- found that:
1. “people on Universal Credit are more likely to need a food bank or have rent arrears than people on the legacy benefits that it replaces …”
2. There was a longer than 5 weeks delay in first payment receipt for “more than 200,000 people” and “many disabled people and people with health conditions must wait much longer than five weeks to receive their first payment in full”.
3. These delays increased the likelihood that low-income persons would fall prey to so-called payday lenders.
In November 2020, the StepChange Debt Charity group released a report – Tackling the coronavirus personal debt crisis –
which showed that:
A personal debt crisis is emerging: the number of people affected by coronavirus in severe problem debt has almost doubled since the beginning of the outbreak to 1.2 million people.
The number of those affected who have fallen into arrears or borrowed to make ends meet has increased from 4.6 to 5.6 million …
… 28% of adults in Great Britain had experienced at least one negative change of circumstances following the beginning of the coronavirus outbreak
So how all that plays out is uncertain but it is hard to see a massive consumer-led boom occurring in the coming year for the UK.
UK Debt trends
However, while some households that are experiencing financial stress are resorting to emergency credit, overall UK households are taking the opportunity to improve their balance sheet positions.
I have been trawling through the latest data from the Bank of England to understand how far this dynamic has gone.
The following graph shows the monthly growth (annual rate) in consumer credit in the UK since March 1995 to February 2021.
It gives a good indication of the speed at which credit is expanding or contracting over a year.
The data series began in 1994 and you can see two main features:
1. The credit boom before the GFC was not repeated in the slow recovery following the extended recession. British consumers were more cautious in their use of credit card debt.
2. The pandemic has seen a massive decline in the net credit card debt. That means that consumers are paying off their credit card debt at a faster rate than they are taking on new debt.

The House of Commons Library issued an interesting report last week (April 30, 2021) – Household Debt: Key Economic Indicators – which showed that “Household debt peaked in Q2 2008 at 150.1% of household disposable income … In Q4 2020 it was 129.5%.”
The Insolvency Service in the UK publishes monthly statistics and the latest (issued April 15, 2021) – Monthly Insolvency Statistics March 2021 – shows that for England and Wales:
1. “The number of registered company insolvencies in March 2021 was … 20% lower than the number registered in the same month in the previous year … [and] … 37% lower than the number registered two years previously …”
2. “For individual insolvencies, the number of bankruptcies in March 2021 was 1,028, while the number of Debt Relief Orders (DROs) was 1,591. Both were 31% lower than in March 2020 and 34% lower than in March 2019.”
3. “Overall numbers of company and individual insolvencies have remained low since the start of the first UK lockdown in March 2020, when compared with pre-pandemic levels.”
This is, in part, a reference to the introduction of the – Corporate Insolvency and Governance Act 2020 (June 26, 2020) – which effectively invoked a moratorium on debt repayments to allow companies “to restructure unmanageable debt”.
The lower insolvencies were mostly due to government liquidity support rather than the moratorium in place.
The financial support that the UK government has clearly provided in the wake of the pandemic has helped considerably. Whether it has been enough is debatable but not the issue here.
The point is that this is what the UK government should have done when the GFC hit.
Instead of invoking a deficit and debt hysteria and introducing austerity measures, George Osborne should have expanded the fiscal deficit further to provide essential support for private saving and a household debt reduction effort.
That is what we know about so-called balance sheet recessions where the problem is that non-government debt is too high and an extended period of saving and debt reduction is needed, which must be supported by larger than normal fiscal deficits.
The fact that it didn’t meant that the economy took so much longer to get moving again but also left households with a legacy of excessive debt.
The pandemic has seen a different response from government which is allowing British households in total to pay down credit card and other debt in a significant way.
Conclusion
One of the major responsibilities of a government is to reduce the possibility of a deep and extended recession.
The faster an economy can recover from a recession the less damage there is to business firms and workers.
Fiscal support should always err on the side of ‘too much for too long’ rather than ‘too little for not long enough’.
The scarring from the latter error is much worse and harder to rectify than any slight ‘overheating’ issues that arises from erring in the former way.
Fortunately, and in contradistinction to what we saw during the GFC, governments are not showing any strong tendency to invoke austerity any time soon

(…)
Derek Henry
May 3, 2021 at 20:02
I love this …
As it shows once you scratch the surface of the sectoral balances.Of what to look at and where to find it under certain conditions.
Concerns would be 3 fold or 100 fold depending….
1. Economic rent seekers – Out of one side of their mouth they’ll say wages cannot rise because of the fear of inflation even though they do not have to compete for labour. Out of the other side of their mouth they’ll say they have to increase what they charge for household bills, watching TV, mobile phones, internet usage, travel, education, housing, using the fear of job losses. Even though they captured the majority of furlough payments. We’ve heard it all before how the rent seekers and FIRE sector create this narrative for the last 50 years to entrench their power over everyone else for geopolitical reasons.
2. How is the investment figure to GDP calculated ?
I take it no loans are included in that figure. Loans that were not used for investment but for survival so businesses could continue to pay the FIRE sector for and rent seekers?
Is the investment figure big enough considering the amount of savings held by the non government sector? Shortages have been reported everywhere from chickens to wood. What happens if the private sector can’t adjust to demand quick enough and inflation does indeed start to rise. What will the response be ?
3. We know what the response will be. They’ll increase interest rates thinking they are fighting inflation which will only increase the chance of causing it. Get trapped in a cycle of madness continually raising the rate and increasing the chances of inflation every time they do it. Whatever they do they do it early to stay ahead of the curve they say that destroys the recovery.
So unless, they have been listening to Bill, Warren and Stephanie we know what the recovery will look like. The status Quo recovery of the last 50 years. Low growth that allows both the FIRE sector and the economic rent seekers to increase their power for geopolitical reasons. If inflation gets out of control because of their actions it will be a great opportunity for them to blame MMT. Kill two birds with one stone.
We are on the very cusp of finding out if we are indeed living through a paradigm shift in economics or if politics stay the sane. The politics of not caring what happens inside your own borders but more interested in what happens abroad.
My money is on politics stay the same and the paradigm shift won’t happen. There are no signs whatsoever that things are going to change. What we see is the usual status quo recovery of the last 50 years and fiscal should ONLY be used in a downturn.
I do however see many examples of the US doubling down on foreign policy and going even further than they ever would have 20 years ago. To achieve their goals without sending in the US military they need a very powerful and consolidated and coordinated FIRE/ rent seeker sector.
Pay your money and take a chance – What’s it going to be a paradigm shift in economics or politics stay the same ? Well at long last we are about to find out.
(…)
Derek Henry
May 3, 2021 at 23:01
Overall model of the FIRE sector: producers, consumers, government, world
Incorporating the Rentier Sectors into a Financial Model
https://michael-hudson.com/2012/09/incorporating-the-rentier-sectors-into-a-financial-model-3/
” Creating a more realistic model of today’s financialised economies to trace this phenomenon requires a breakdown of the national income and product accounts (NIPA) to see the economy as a set of distinct sectors interacting with each other. These accounts juxtapose the private and public sectors as far as current spending, saving and taxation is concerned. But the implication is that government budget deficits inflate the private-sector economy as a whole. “
Patrick B
May 3, 2021 at 23:59
“The main component of a house (land) price is planning permission”. With that difference in value (for the UK) per Neil Wilson, no wonder developers are so keen on dodgy Jenrick as Secretary of State for Housing, Communities and Local Government. And even more reason for local government provision of affordable housing, instead of the 5 bedroom detached gated communities favoured by developers. But there are thousands of acres around London where the planning permission was given many years ago and the mansions and grounds have already been set out and inherited. A lot of this ought to be compulsorily repossessed for affordable housing before any more green fields are concreted over. If an American company can buy up a town to turn it into a coal mine, as I recently read, then a government ought to be able to act in the face of a housing crisis.
(…)
Derek Henry
May 4, 2021 at 04:09
Another concern would be considering the right understand MMT more than the left. Is if the right decide to implement the JG as part of a pandemic recovery.
The Right say okay we are going to get right behind the JG and introduce it straight away. Then once they’ve rebuilt the whole infrastructure of the economy via a green new deal. They then implement tax cuts that bankrupt local councils, states, Euro countries etc. That then forces councils, states, Euro countries to sell off the infrastructure for a penny to the private sector.
Who then set up rent extracting opportunities on the infrastructure they bought for a penny. Take even more from the household sector savings whilst not increasing wages.
I’d actually be surprised if they have not thought about that. Get everything built for free then take it and charge for it. Under the neoliberal sell it or go bankrupt New York, Chile, Greece blueprint.
Another sound reason why the FIRE sector has to be nationalised because nobody can stop them if they decide to go down that route. What’s needed is what what Dennis Kucinich proposed in his National Emergency Employment Defense Act of 2011 and a new political party set up that can win elections.
Derek Henry
May 4, 2021 at 08:20
Mr Shigemitsu,
That’s just an example of the right understanding MMT better than the left. No change in stance whatsoever. Announcing something they’ve known as fact for 100 years and more.
” instead calling for deregulation and simplifying the tax system” and ” government to curb spending and behave extra prudently. ”
That’s the Thatcher and Regan bible. Forrest Capie and Geoffrey Wood. Forrest is a mouth piece for the FIRE sector. In 1999, Capie was appointed by Francis Maude as a member of the new Council of Economic Advisors, tasked with assisting the Shadow Chancellor of the Exchequer to develop the Conservative Party’s economic policy.
Professor Geoffrey Wood has lectured in Economics at the University of Warwick and in Banking and Finance at City University, London, where he has been Professor since 1986. He worked at the Bank of England as Economist. Another mouthpiece for the FIRE sector.
Probably funded by the City Of London. Same place as Professor John Hearn who promotes a reverse income tax that Warren has debated with my times.
The drown the government in the bath tub brigade. Banks should be the allocator of real resources. That can never get voted out or be held accountable or held responsible for their actions by the voters. These two FIRE sector spokesmen are the” we need a balanced budget” twins , dumb and dumber. John Hearn being the dumbest of the lot.
(…)
oooooo
Inflation is coming, well, it could be, or, it might happen, gosh …
(https://billmitchell.org/blog/?p=48012)
August 5, 2021

One could make a pastime observing the way that so-called ‘expert’ commentators change their commentary as the data unfolds. As one rather lurid prediction fails, their narrative shifts to the next. We have seen this tendency for decades when we consider the way mainstream economists have dealt with Japan. The words shift from those implying immediacy (for example, of insolvency), to those such as ‘could’, ‘might’, ‘perhaps’, ‘under certain conditions’ and more. The topics shift. The commentariat were obsessed with ‘this time is different’ during the GFC and the ‘debt insolvency threshold’ rubbish that the likes of Reinhardt and Rogoff propagated. That is, until they were sprung for spreadsheet incompetence. More recently, we have apparently forgotten how many governments were about to go broke and the mania has shifted to inflation. The data shows some price spikes earlier in the year which set of the dogs. Now, things might be shifting again. It is a pastime following all this. Short memories, no shame is the only requirement that is required to be a mainstream economics commentator. Prescient knowledge is not included in that skill set.
On April 15, 2021, a Project Syndicate Op Ed, republished in the UK Guardian – Why stagflation is a growing threat to the global economy – saw Nouriel Roubini jumping on the inflation mania, which was all the rage around 3-6 months ago.
The causality seemed to be this:
1. National statisticians publish data showing that the CPI was rising a bit.
2. Eek, must be a return to the 1970s inflation.
Pretty simple really.
Roubini thought in April that accelerating inflation was coming because:
1. “the US has enacted excessive fiscal stimulus for an economy that already appears to be recovering faster than expected.”
So this is what we call a “demand-pull” motivation – where aggregate spending outstrips productive capacity and firms use market power to push prices up.
2. ” the bulge of private savings brought by the stimulus implies that there will be some inflationary release of pent-up demand.”
Another demand-pull motivation, where households will go on a spending binge because they haven’t been able to spend much during the various lockdowns.
3. The QE programs run by the US Federal Reserve “will drive inflationary credit growth and real spending as economic reopening and recovery accelerate.”
So apparently Roubini thinks that banks loan out reserves.
I don’t know of one country where the banks use the funds in accounts with the central bank that are designed to facilitate the integrity of the payments system (making sure ‘cheques clear’) to make loans to retail customers.
4. “Centrals banks have been monetising large fiscal deficits in what amounts to “helicopter money”, or an application of Modern Monetary Theory.”
Roubini clearly has not comprehended what Modern Monetary Theory (MMT) is.
Even if the central bank had bought zero government bonds, the monetary systems would still be demonstrating the principles of MMT.
MMT is not defined by central banks buying government bonds.
But his point is that because central banks have bought so much government debt, if they tried to sell that again – a process he refers to “Monetary-policy normalisation” (whatever that is) – then bond prices would fall dramatically and credit markets would collapse and there would be “a recession”.
Apparently, this means that “Central banks have effectively lost their independence”.
Of course, they never were independent – that is just a myth propagated by the mainstream to allow governments to depoliticise macroeconomic policy settings by appealing to the volition of technocrats rather than politicians.
Central banks and treasuries cannot be independent because the impacts of fiscal policy have daily implications for the core liquidity management functions of the central bank such that close coordination is always required for both fiscal and monetary policy to be effective.
But there is no reason for central banks to sell off their debt holdings.
The debt will mature and the government will just make some accounting adjustments between the treasury and the central bank and no-one will be any the wiser.
5. Roubini then moved onto the 1970s scare, which is becoming common among commentators.
He wrote:
The problem today is that we are recovering from a negative aggregate supply shock. As such, overly loose monetary and fiscal policies could indeed lead to inflation or, worse, stagflation (high inflation alongside a recession). After all, the stagflation of the 1970s came after two negative oil-supply shocks following the 1973 Yom Kippur War and the 1979 Iranian Revolution.
So back to the 1970s.
We need to be careful here.
The 1970s inflationary episode did begin with the OPEC oil price hikes, which increased imported raw material costs for oil dependent nations and those nations, such as Australia, that foolishly prices its own produced oil on an import parity basis (as a sop to big multinational oil companies who make threats they will stop drilling unless they get super profits).
But that supply shock alone was not sufficient to drive the accelerating inflation that followed and was not fully extinguished until the deep recession in the early 1990s.
What happened next was crucial.
The inflation of the 1970s which persisted into the 1980s was not because there was excessive nominal demand coming up against finite productive capacity.
Rather it reflected the ‘battle of the markups’ as bosses and unions slugged it out (in the ‘distributional’ arena) as to who was going to bear the real income losses associated with the OPEC oil price hikes that cut national incomes for the nation as a whole.
Inflation resulted because workers pushed for nominal wage rises (so-called ‘real wage resistance’) and firms responded by pushing up prices (so-called ‘margin resistance’).
The causality work in the opposite direction – I do not suggest here that the trade unions began the process.
This blog post provides more detailed background reading – Distributional conflict and inflation – Britain in the early 1970s (April 7, 2016).
The question then is whether this sort of wage-price or price-wage spiral could respond to the current supply chain cost shocks to perpetuate an accelerating inflation.
My assessment is that there is little prospect of a 1970s-style stagflation because the structural and institutional factors that were crucial to the 1970s episode are no longer relevant.
There was an article in the New York Times (September 18, 2019) – A Rerun From the 1970s? This Economic Episode Has Different Risks – that reflected on these issues.
The article considered the spike in strike action in the US at that time and concluded that:
… there are big underlying differences between the early 1970s and now. Understanding those differences is important in properly understanding the world economy in 2019 and the risks posed by this combination of events.
It noted that:
The early 1970s was also a period of labor strife … That was an era of rapid inflation, and labor unions were at the height of their power – two phenomena that were connected. The G.M. workers demanded pay increases that would outpace the already high rate of inflation, and with the strike, they got it …
Autoworkers and other powerful unions in that era fueled higher inflation economywide by demanding – and getting – ever-escalating pay increases, which fed into consumer prices …
That’s not what is happening in 2019. It’s not just that union membership has fallen to 10.5 percent of the work force in 2018 from about 25 percent in the early 1970s.
And, importantly, the “autoworkers striking today are essentially trying to claw back some of the compensation they have lost over a brutal decade.”
In most nations, the bias towards austerity and the persistence of elevated levels of unemployment have led to a widening and large gap between productivity growth and real wages growth.
That gap, representing a major shift of national income distribution to profits, means there is substantial non-inflationary room for real wage increases.
The decline of trade unions as a powerful counterveilling force in our communities is a global phenomenon.
The following table is taken from the OECD trade union coverage database and shows the evolution of coverage from 1960 to 2018. The entries are aligned at the beginning of each decade although the * entries are for situations where the data is not continuous for the entire period. In those cases, the data is the highest value in the relevant decade.
The trends are obvious.
In Australia’s case, for example, the coverage of the unions has shrunk from 54 per cent in the 1960s to just over 13 per cent now.
And much of the loss of coverage has come from the private sector as the decline of the manufacturing sector and the rise of the services sector has made it much harder for unions to organise.
Legislative shifts have also undermined the capacity of unions to engage in industrial action in defence of their members’ wages and conditions.
OECD Trade Union Coverage Rates, 1960 to 2018, per cent of total workforce

The question then is how are workers going to prosecute declining real wages in the event of a supply side shock that firms pass on in the form of higher prices?
The answer is that they have only limited capacity and that capacity is not sufficient to drive a major 1970s style inflation.
It is possible that the increased concentration of industry, which means that firms have greater market power now than in the 1970s, could drive a continuous rise in prices.
But that would be easily dealt with via anti-competitive industrial regulation.
After all that, it seems that Nouriel Roubini has moved on a bit.
His latest Op Ed in the UK Guardian (August 3, 2021) – Biden has a better handle on economics than Trump – but there are still risks – is now more muted.
The article suggests that Biden is really more like Trump than he like Obama and Clinton.
Biden has continued the “sharp break from the neoliberal creed followed by every president from Bill Clinton to Obama.”
Biden and Trump both have deployed “nationalist, inward-oriented trade policies” in contradistinction to the ‘free trade mania’ of their predecessors.
Both have been comfortable with the Federal Reserve Bank funding “large budget deficits”.
Both use “large direct transfers and lower taxes for workers, the unemployed, the partially employed and those left behind.”
And then as an aside, Roubini remembers that a few months ago (cited article above) he was preaching a major inflation outbreak.
So he concludes by briefly rehearsing the “risks” of the maintenance of this policy approach.
And the nuance is in the words:
Loose fiscal and monetary policies may help to increase labour’s share of income for now. But, over time, the same factors could trigger higher inflation or even stagflation (if those sharp negative supply shocks emerge) …
Could.
Which means the commentator has no real idea.
Conclusion
Could (pigs) might fly.
ooo
(…)
Derek Henry
August 5, 2021 at 16:31
What will probably happen when the rampant high inflation does not materialise is the narrative will switch. Rather than admit they have no idea what they are talking about they will then switch their commentary to asset price inflation.
House prices have been inflated and Stock markets have been inflated and this is where the inflation ended up due to MMT zero rate policy. That is what they did after QE and that is what they did after 2008.
So when talking about inflation We should talk about asset price inflation more. Because if I am right then this is how their narrative will change rather than admit that they were wrong. It is just rinse and repeat with these guys.
Has housing and stocks for example attracted funds because of the zero rates or are they backed up by fundamentals. Will asset price inflation increase inequality and the difference between capital goods and consumption goods etc, etc, etc….
Is all worth highlighting as we have all been here before. As the narrative coming down the track will be, we didn’t mean that type of inflation We meant the other type of inflation.
(..)
Derek Henry
August 6, 2021 at 16:40
Artificial asset price suppression.
Yeah, all of it Neil. The whole shebang. Cause it is coming down the track on a TV near you rinse and repeat.
Since 2008 and QE which they think is a MMT policy choice along with helicopter drops and cranking up the printing press. Some have never stopped talking about it. MMT inflates assets.
We’ve won the inflation debate in Bills piece. Time to break down the other side into little pieces and win that debate within the mainstream media also. We are never going to win it on seeking alpha but have to win it on mainstream TV.
(…)
oooooo

Erantzun
joseba says:

2025/09/17 at 09:40

Derek Henry
September 21, 2021 at 19:43
It should be obvious by now and not some conspiracy theory.
That Geopolitics is what was hidden behind the green curtain. The exact same thing played out in Greece, Rome and the British Empire.
The Central bankers knew exactly what to do buy the debt, set the interest rates low and in some cases start using the ways and means account. They knew exactly how it works and as I’ve said many times before you can’t run a central bank for over a 100 years and not know how it works. You can’t set up the Eurozone exactly the way they did ( geopolitically) without knowing how it works and the French couldn’t set up the African currency without knowing how it works.
When you read Zach Carter’s book the price of peace you can see the Americans thought process in action and everything today stems from the fall of the Berlin wall. That is when the pivot took place from fiscal policy that helps your own country to geopolitical economic policies to raid and take over the East.
Every empire has tried it and what the Nazis did in Holland described beautifully in the award winning World at war series that is currently on PBS in the UK when they took control of the Netherlands. Was a blue print of things to come across Europe. Keep the Dutch government in power but put your men in charge and control the media and change their culture. EU uber alles but this time with the Americans in charge. who took the whole strategy of the Nazis further by creating the Euro. Making sure it was so easy to control nation states within Europe in their fight against Russia.
They had to lie about and create smoke and mirrors to fool Dorothy as they moved ever eastwards and had to show to the East that this is what they do at home in America thus Friedman and Mankwi and the whole Chicago School became a cupboard at the Pentagon.
Russia fell for it a couple of times with their dollar debt and interest rate backwards theories so did Turkey and the whole of South America in order to keep the left at bay. However, not anymore the game is up. China never fell for it and specifically set up their monetary system to fight against the Chicago School and to protect themselves.
It still rolls on in Europe and South America because the elites in each country are rewarded well to keep up the charade.Just like with Greece, Rome and the British Empire and the Nazis the governors of colonies are rewarded and allowed to sit at the top table and share the spoils.
Now what, now that Dorothy has pulled the curtain back. Now that the geopolitical charade is over and the East see as clear as day what the West strategy has been for the last 50 years with their wall street infested central banks ? Now what – what is next geopolitically now that their game is up ?
The recent skirmish between France, Australia, UK and the US regarding submarines is just a small glimpse of things to come.
Yes, they knew all along but used universities and business schools to hide it from view. It was a masterclass in espionage. With anybody highlighting the fact being side lined or shut out of their career. The history of economics removed from the curriculum with groupthink taking its place. Not a science but a tool in the sand box of geopolitics like Greece, Rome and the British Empire before it.
(…)
Derek Henry
September 22, 2021 at 02:41
I hope you are right Newton but change won’t come from the top it will be via different grass roots movements from the bottom. I feel it will take another assault on capitol hill to get their attention.
The media keeps the geopolitical show on the road. Those politicians who we are allowed to choose from In elections all pass the geopolitical litmus test with flying colours. In the UK the Labour party has to either split or a new left wing party needs to be created. America’s 2 party system is the same corrupt to the core. The EU is a geopolitical shit show.
I’ve never liked the term MMT is lens. I would prefer ” MMT is the true middle ground “as the statement because quite simply it is. MMT is the middle ground and where all economic debates should start from – the middle.
“MMT is the true middle ground ” slogan would catch on and grab the attention simply by saying the middle ground is the starting point of how the monetary system works and from there the left and right can do anything they want with it. Or those that like the lens narrative can say ” MMT is a lens it is the true middle ground” MMT is the middle ground would be a good title for a book and also snag some liberals in the process and small c conservatives and the liberal left. Who always think they are voting for the middle but are really voting for the middle of the right wing spectrum.
Liberals who refuse to believe the middle ground is currently in the middle of the right wing spectrum which it is. Who actually vote for the liberals believing they are voting right in the middle between left and right and who are deluding themselves.
In 1988 the one and only time I ever voted. I voted for the what I thought was the middle now I am called a marxist and my political views never changed between now and then. What changed was the culture of the UK by a systematic step by step process to fit a geopolitical agenda. The SNP are carrying out the same step by step process in Scotland as we speak each and every day moving further right in everything they do. So they can slip nicely into the EU uber alles narrative and live in the middle of the right wing spectrum under Brussels control and call themselves progressive.
” MMT is the true middle ground ” would move the middle back to where it belongs. That is what MMT activists the world over need to achieve. Drag the middle ground back to where it belongs and away from the middle of the right wing spectrum. So the hard work can then begin of what policies you want to add to the true centre of the political spectrum. That should be where the debate should be from the centre moving left or right. The starting point of ideas.
For me ” MMT is a lens ” doesn’t quite capture the fact that MMT is the true middle ground. even though MMT describes the starting point of any debate with perfection.
If we can achieve that and get MMT known worldwide as the true middle ground we have won. If we don’t we will ever be living in a world of geopolitical madness and insanity. On our way to complete destruction of the planet one way or the other.
“MMT is the true middle ground” works because it is the truth. We just don’t sell it that way enough in my opinion. A lens just fails to grab those that vote for the middle attention.
Derek Henry
September 22, 2021 at 02:52
Whoever writes the Book with the title – MMT is the true middle ground.
Is onto a winner and just has to show why and be brave enough to “feed” both the left and the right when they write it

(…)
Warren Mosler
September 28, 2021 at 17:22
Good stuff!
Quick note- Fiscal policy doesn’t need help from the CB outside of the euro area.
QE is just a placebo. The US Treasury, for example, would have done the same deficit spending
with or without the Fed’s QE or rate policy.
In the euro area qe is about the ECB has buying member nation debt (which would be analogous to the Fed buying debt of US states, which hasn’t happened). That’s because the euro area deficit spending is done by member nations and the ECB debt buying is part of the informal ‘do what it takes to prevent default’ guarantee.
oooooo
Derek Henry
September 27, 2021 at 19:21
After following the Labour conference over the weekend.
After being in Germany for 3 weeks in the run up to the election.
Following the Scottish independence debate very closely.
If you are from the left then it is imperative that..
a) Born again New Labour NEVER win an election and vote against them.
b) The SNP or Alba NEVER win Scottish independence in their current form.
c) The Greens are no different. They ARE the liberal left in disguise.
It is very clear it is geopolitics on steroids. EU uber alles, EU uber alles. All are still trying to overturn the Brexit result and then call themselves democratic. Blame everything on Brexit without a basic understanding of economics. All of them are a pathetic attempt at being the Lib Dems.
What would you do if you were the Greens and SNP who fully support the EU and all the rules that go with it ? What would you do apart from write the Growth Comission that was a cut and paste job of an EU convergence program ?
What would you do politically ?
How would you play it if you were the SNP and the Greens who support neoliberal globalist Europe?
a) Make the tough decisions now so it is easier to rejoin the EU. Fudge the reasons Why you have done so many U turns and why you have steam rolled over decisions from conference.
Doing a full 360 on a public energy company. Why did the Scottish ship builders not get the Calmac contract ? Why , are they adopting free market solutions all of a sudden ? Why is The investment bank being used the way it is? Why are they banning protest outside of the Scottish parliament and moving further right on the political spectrum?
Every decision you make from here on in would you consult with the treaty lawyers to make sure any policies you do introduce moving forward from here. Does not make it harder for you to rejoin the EU. Comply with what is expected as a new joiner of EFTA or the EU ?
Or
b) would you Introduce left wing policies now. Only to be shredded apart latter by the EU treaties and the decisions made by the EFTA court. Which would be highly embarrassing for you and make you lose more support than New Labour dud in Scotland. Would you allow Scottish voters to finally see what EFTA and the EU membership is all about.
Which certainly isn’t independence.
For me these massive U turns by the SNP and the Greens are just a warning of things to come under EU membership. The U turns are only the beginning.
For me the new version of New Labour which will be no different to what the SNP and Greens can offer the electorate because of neoliberal globalist Europe treaties and geopolitical ideology has to be stopped. If that means voting Tory because there is no alternative to defeat these liberal tribute acts so be it.

(…)
Derek Henry
September 27, 2021 at 20:04
Never voted since 1988 apart from to support Brexit. Never voted for Scottish independence because that was never on offer.
But I will vote to try and stop stop these liberals on the left who pretend to be the voice of the working class. I will lend my vote to the right just like the North Of England did to try and finally get rid of these charlitans once and for all.
The liberal left can label me as much as they like and call me a populist. I will wear it with pride. Under current circumstances that is playing out in full view .The union has to be saved. The return of New Labour decimated.
The liberal left were always the looney left to me as they keep voting for the middle of the right wing spectrum. That was until you deal with the left in Scotland They are bat shit crazy. Still don’t know what true independence actually means and struggle with the word trade.
Hopefully, now the left will split. Give me something worth voting for. You can only live in hope and the left says enough is ebough.
oooooo

Erantzun
joseba says:

2025/09/17 at 09:50

MTM eta Bill Mitchell
In the battle between government and the hedge fund gamblers – the government has all the cards
(https://billmitchell.org/blog/?p=48587)
October 28, 2021

(…)

Derek Henry
October 28, 2021 at 23:13
So how did the mainstream media report the budget ?
What narrative did they create and how did they frame it. That was then repeated 100 times Joseph Goebbels style.
They took back control ! Put the sheep back in their sheep pens ready for the one man and his dog show. Just like they did after 2008 when they blamed the government budget deficit for the world financial crash.
How they got away with it is incredible. Osborne, Cameron and Clegg sold it to the sheep like second hand car salesmen.
Here’s the mainstream media official narrative and framing before the pandemic…….
“The Tories can’t offer tax cuts – there will be no money left after Brexit”
https://www.theguardian.com…
Please read that over and over and over again. This the standard mainstream media framing and narratives of how the UK monetary system works. In short the UK uses the Euro.
Yesterday the mainstream media took back control of that narrative and framing and repeated it relentlessly. Just like 2008. It was a textbook case how the mainstream media support the bank lobby.
Now after you’ve read that link a few times just think about what actually happened over the last 18 months.
What did you witness before your own eyes ?
1. Was there no money left ?
2. Was there a shortage of money ?
3. Was there this field on the Isle of Wight that has a heap of £’s sitting in the corner of it. Once they run out The MONOPOLY issuer of the £ is out of £’s ?
The mainstream media took back control. Told you to completely forget what you witnessed with your own eyes over the last 18 months while the green curtain was getting pulled back.
Getting the sheep ready for the dip. Move along now nothing more to see. Back to the MONOPOLY issuer of the £ has no £’s narrative and framing.
Will the country fall for it ?
You can bet your last £ on it. Brainwashed by that box hanging on their walls in their living rooms.
The real question is why do the establishment owned media support the bank lobby view ? The answer to that question is very simple indeed. The UK is a US colony and it’s all geopolitics and the banks are the tools that further neoliberalism. Rape and pillage everything before them without sending in the army.
Yesterday the bank lobby took back control of the framing and narrative.
(…)

Derek Henry
October 28, 2021 at 23:31
If the virus didn’t happen and for the past 18 months we lived a normal life.
And Bob came along and said you know what pop pickers why don’t we ask workers to stay at home and the Government can pay them furlough payments. Just credit their bank accounts while they are sitting at home ?
What would the response have been ? How would the world responded to Bob ?
“Bob you are out of your tiny little mind the Government has no money. They are skint – inflation would be 20% ,interest rates would go through the roof and the £ would collapse. The yields on the 10 year bonds would be out of control because of bond vigilantes and Nobody would buy them.”
And all the other nonsense the mainstream media present as facts.
Poor Bob would be standing in his own saying
” But guys we left the Gold standard and fixed exchange rates years ago “
Newton E. Finn
October 28, 2021 at 23:46
“They also worked out that large-scale bond buying by their central banks complemented the effective use of fiscal policy….” Only when the ruse of bond buying is ended, and fiat money is directly created and invested to serve the needs of current-sovereign societies, will the obvious, elemental truth of MMT be impossible obfuscate. But it’s a chicken and egg problem, isn’t it?
Derek Henry
October 29, 2021 at 06:50
Bill,
What do you make of this by the New economic foundation – Fiscal referees ?
https://neweconomics.org/2021/10/calling-time
Now the liberals are in charge of the Labour party again. Rachel Reeves mentioned a ” value for money ” group to monitor fiscal policy.
Is this not just Simon Wren Lewis and Jonathan Portes idea of fiscal councils being introduced ? After all these guys have so much more power over the left’s economic policies now the liberals are back in charge.
Fiscal referees, value for money group is creeping into the narrative a lot more nowadays. Surely those associated with Wren Lewis and Portes are pushing this ? Just with a different name.
What do you make of it ?
The same or something different ?
Derek Henry
October 29, 2021 at 07:00
Are these fiscal referees and value for money group just different names to get the Fiscal Credibility Rule in via the back door ?
Jerry Brown
October 29, 2021 at 13:45
Derek Henry @ 23:31,
Derek , I ‘m not sure what ‘pop pickers’ means and I also don’t know what ‘skint’ means. But I do know that there are lot of jobs that were very necessary to be done even during the pandemic. So if ‘Bob’ just said pay every worker to stay home- well that just wouldn’t work no matter about interest rates or government money or whatever.
It is a shame that very many of these most necessary jobs are also lower paying jobs and we should try to do something about that. But it doesn’t look like we will at least here in the US. Christ- it’s like pulling teeth to get Senators here to support even making sure these workers are able to have their children looked after while they are doing their ‘essential’ jobs. More than a few of these Senators deserve to have their teeth re-arranged by some more essential workers.
Neil Wilson
October 29, 2021 at 16:24
What we’re seeing here, Derek, is the ancient battle between the Church and the King playing out for a new generation.
The elected government is still “The Crown” and has the powers of the King.
The new technocratic elite have adopted the manners of “The Church”, including high priests of doom, all speaking from sacred texts and censoring anybody who dares cross them. It’s the new Holy Roman Empire.
Labour have decided to back the Church.
Derek Henry
October 29, 2021 at 23:01
” Of course, the absence of any discussion of the role the bias in fiscal policy towards surplus generation (fiscal drag) has played in the persistently low inflation environment is telling. ”
They won’t discuss it because when business as usual returns to the EU. The fiscal rules will be put back in place. The everyone export their way to growth model while trying to achieve a Fiscal surplus will be the front and centre framing and narrative again.
Fiscal policy is the devil – Walk this way and I will provide you with a loan instead.
oooooo
Derek Henry
November 3, 2021 at 22:16
Morning,
Whenever there is a shock first 2 things they do is drop rates to zero and QE and strip interest income out of the economy. That tells me they only pretend to have the interest rate thing backwards. When they are really scared of inflation that’s what they do.
If they actually did what they say then whenever there is a shock and are scared of inflation then like Geoffrey Howe and Volker interest rates would be in double figures.
That tells me they know how interest rates work. But they have the voters and investors on a bit of string and have spent decades brainwashing via their media. That the opposite is true on just about everything they do.
Why ?
1. To offset what they are going to do.
If everyone knew increasing interest rates causes inflation at the margins what would nation state currencies look like ? That would be a problem when they want to increase rates. So by convincing investors that the opposite is true. That helps to weaken how the markets react when they do things. Forward guidance helps with that. Forward guidance starts that offsetting process.
Draghi’s whole central bank stint was a master class in doing exactly that. He convinced the world’s portfolio managers into selling euro by doing things that they think are inflationary, but they weren’t inflationary at all. If the portfolio managers knew the truth the Euro would have got stronger which is not a good thing when the continent has chosen an export your way to growth model.
2. It is how they hijacked the state in the first place.
You have to ask yourself why Howe, Volker did what they did. Why Norman Lamont accommodated George Soros when George Soros shorted the £. Their actions of pegging the £ and throwing liquidity into the market helped Soros as they tried to defend the £.
For me they were all in it together working hand in glove to create a crises in order not only to hijack the state but it also allowed them to drive through their neoliberal ideology afterwards. To install in voters and investors minds that the markets are in charge for decades to come.
Then this doctrine was introduced into business schools and University economic textbooks. Why we are where we are today.
I also believe the Chicago School already had this worked out years before and had figured out exactly what needs to be done. After the wall fell down when Wall Street, the city of London manage to get into a country this is the model they all used. Exactly What they did in Russia and South American countries.
Still use it today in Argentina, Turkey, the Eurozone. Only this time the key is to get them to borrow in a foreign currency. Then you own them. Why they do everything they can to get their man in charge. The first thing they do is borrow in $’s.
As Lord Acton warned everybody in the 1800’s. “The day will come when the people have to take on the banks.”
(…)

oooooo
(…)
Derek Henry
November 10, 2021 at 21:16
Morning,
Oh, it is a lot worse than that Bill. Her total knowledge of the monetary system is zero. The Scottish Greens just rinse and repeat what Craig Dalzell from the common weal says. Richard Murphy has hitched a ride on the bandwagon that allows him to massage his ego.
Lorna and Patrick who lead the Greens are fully signed up members of the EU is a work in progress crowd. That once Scotland are members they will be listened too and convince all the other countries to move to the left and starting implementing progressive policies.
At least they said recently that under the Scottish growth commission framework fighting climate change would be impossible. Years after we told them it would destroy the Scottish economy.
Of course that’s what they promise but as soon as they get a little bit of power they fall right into the framing and narrative that is expected of them. As explained in this article.
Oh dear Scottish Greens, so soon?
http://robinmcalpine.org/oh-dear-scottish-greens-so-soon/
Just a little taste of what is to come at The heart of Europe.
The SNP think bonds not just green bonds are needed for revenue – to find the funds. John Swinney announced this to the nation along with his ignorance on what QE is. As the SNP embrace the corporation’s on every issue on a daily basis.
I can see why they want to hand the keys over to Brussels. They are useless Bill with one policy failure after the other for years now. Just think what they could have achieved the length of time They have been in power in Scotland. If they knew what they were doing and actually planned for independence properly.
Voters are sleepwalking into a bear trap cheered on by Richard Murphy. Because of our PR voting system a trap they will never escape from. Here’s the results.
They have increased the number of Conservative seats in Scotland from 1 to 31 which is 21.9% of the Constituency votes.
Roughly 35% voted leave in the EU referendum. Some Tories voted to remain.
So you can see what’s going to happen when Scotland sleep walks into the bear trap. When the Tories are the only party who said we told you so. What that 21.9% increases to is not clear but was is certain is it is going to increase in a big way. The only party that will represent the 35% who voted to leave the EU will be the Tories.
Nobody even talks about it. Never mind the dangers MMT’rs point out regarding EU membership but the other danger that the Tories will win a Scottish election.
From 1 Tory seat in Scotland to winning an election. That’s what happens when you are stupid enough to listen to Richard Murphy and his merry band of liberals. Who talk like the left when they want your vote but act like the right when in power.
” structural reforms” two words Scottish voters have never had to bother with before. Just wait until they find out exactly what they mean. When the order is passed down from Brussels. Will Richard be there front and centre explaining it to them ?
You can make up your own mind on that one.

(…)
Newton E. Finn
November 11, 2021 at 00:27
“But the embrace of the ‘green bonds’ narrative also reflects the ignorance about the capacities of our governments, which goes to the heart of the core Modern Monetary Theory (MMT) agenda.” YES! And that heart or core is the concept and reality of fiat money. Period. Once we get that point across, the rest of MMT, at least in broad outline, follows as a matter of course. This is where I have learned to start in explaining MMT to friends and acquaintances, with the nature of modern money, inexhaustible like points on a scoreboard, inflation-constrained only by available resources. If I can get that point across, I’ve made a convert. Being a liberal Protestant clergyman, I’m reminded of the similar heart or core of Christian conversion–not some dogma about who Jesus was or how he sacrificed himself for us, but rather the resplendent vision of the Kingdom of God, embodied in a society or community structured according to the Golden Rule shared by all the great religions of the world. Edward Bellamy nailed this in the late 1800’s, writing two books (“Looking Backward” and “Equality,” both free on the net) with stunningly intertwined economic and religious impact. What a loss for all of us, especially MMTers, that he has been neglected or forgotten.
Derek Henry
November 11, 2021 at 02:33
The best of it is Bill…..
The strategy of using Brexit like a bottle of poison and swear allegiance to the Heart Of Europe. To try and move the polls further in the favour of independence failed. It was always going to fail and should never have been welded onto the back of Independence in the first place. ” Heart of Europe” was always going to be the biggest mistake since ” keep the pound”. I tried to warn them but they wouldn’t listen.
Even having Boris in number 10 the polls haven’t moved. All they did was ramp up the number of Tory seats in Scotland. When they sleep walk into the single market and customs union and the four prisons. They have to get a majority under a PR system if they change their minds to get out. Good luck with that the prison door is locked and the keys will have been thrown away.
When that’s what is on offer. The wise choice is to stay within the UK and try to get MMT lens and the Job guarentee implemented in London. Rather than try and convince a bunch of other countries who have their own geopolitical and foreign policy agendas. That are completely different to Scotland’s.
(…)
oooooo
(…)
Derek Henry
November 24, 2021 at 21:37
Morning,
“It really is like a tired broken record, isn’t it.”
Because it is all geopolitical and foreign policy demands it. Every world power which has expanded its borders has done the exact same thing. The are only interested in the real resources and to take those they have to put the nation state they have invaded into a straight jacket. Only difference is that it is bankers that carry out the invasion not soldiers.
The ruling class in each nation state that has been invaded works with the invader for many reasons. Rome and the British mastered it. If Hitler had won world war 2 he would have looked to set it up in the same way. Europe wouldn’t look that much different to what it is today under Hitler. Something similar to the Euro would have replaced the swastika.
We wasted 20 years calling them stupid . The truth is the ruling class knew exactly what they were doing. They know exactly how things really work. To hide it, they use all the power they have and ask their own citizens to play the 3 card monte every time they vote.
For me it is time to stop playing the 3 card monte. Time to stop calling them stupid and treat it as the class war it is. Ask Boadicea, Robert the Bruce, Martin Luther King, Gandhi and the IRA. They worked out what you needed to do a long time ago. You have to be prepared to put your life On the line to force through change.
There is no better example of the Scottish clan leaders who worked with their invader and got rewarded for it. It is no different the world over today. Russia and China refuse to play unless it is them who are going to get the real resources.
When you look at the poll tax riots and Brexit and when the left and right United with a cause it scares the living daylights out of them. Only problem is when the left and right go back home to their entrenched positions. The ruling class got the poll tax through by stealth and just increased it over time to what it would have been without the riots. They’ll probably reverse Brexit because they can just wait it out. They have the wealth to wait 50 years if they have to.
So if you are going to put your life On the line to try and implement change you have to make sure the changes stick. Which is extremely difficult when you only live for 70 years and every year the ruling class get 5 year olds into a class room and brainwash them until they are 18. As they get the next generation ready to support their right to be leaders and their cause.
Many people put their lives on the line to get the social changes after the war. The next generation gave them all up willingly and cheered and waved flags when they did it. The ruling class just waited it out, played the long game because they can and pumped and primed the next generation.
It is easy to think all you have to do is win the intellectual debate. When really it is a class war and always has been. Those that did put their lives on the line will tell you all about it. If the majority won’t even support Julian Assange what chance does anybody have. This generation just wants the latest I phone.
They want you to believe you can implement change by winning the intellectual debate. They want you to go down that route. As they place a guard every 100 paces along that route to protect the system. MMT’rs have come across many of these guards over the years. You get passed one and another is standing 100 paces away who learned how you got passed his colleague and makes it more difficult the next time around. The system learns from its mistakes and makes sure any loop hole is closed. See Trump and Bannon and Alex Jones for details. They are closing that loop hole in America right now as we speak. Never again will they get into the white house via those channels again. They are shutting it down and will make sure moving forward they will decide who you can vote for.
The liberal ruling elites use fake progressives to silence true progressives. The guards every 100 paces to protect the system. It’s like the owners of a prison who order “trustee” inmates to torture regular inmates. If the “trustees” don’t torture, they are tortured themselves after being thrown to the regular inmates. The liberal establishment’s function is to protect the rich and those marching for freedom and liberty today are their “trustees”
You come across them in every profession and there are thousands of them in every below The line comment section in every mainstream online newspaper. MMT’rs are confronted by them on a daily basis.
Chris Hedges has been highlighting for years – The Rule of the Uber-Rich Means Either Tyranny or Revolution
“The German psychoanalyst and sociologist Erich Fromm in his book “Escape From Freedom” explained the yearning of those who are rendered insignificant to “surrender their freedom.” Totalitarian systems, he pointed out, function like messianic religious cults.
“The frightened individual,” Fromm wrote, “seeks for somebody or something to tie his self to; he cannot bear to be his own individual self any longer, and he tries frantically to get rid of it and to feel security again by the elimination of this burden: the self.”
This is the world we live in. The totalitarian systems of the past used different symbols, different iconography and different fears. They rose up out of a different historical context. But they too demonized the weak and persecuted the strong. They too promised the dispossessed that by subsuming their selves into that of demagogues, or parties or other organizations that promised unrivaled power, they would become powerful. It never works. The growing frustration, the ongoing powerlessness, the mounting repression, leads these betrayed individuals to lash out violently, first at the weak and the demonized, and then at those among them who lack sufficient ideological purity. There is, in the end, an orgy of self-immolation. The death instinct, as Sigmund Freud understood, has a seductive allure.
History may not repeat itself. But it echoes itself. Human nature, after all, is constant. We will react no differently from those who went before us. This should not dissuade us from resisting, but the struggle will be long and difficult. Before it is over there will be blood in the streets.
This devolution of the economic system has been accompanied by corporations’ seizure of nearly all forms of political and social power. The corporate elite, through a puppet political class and compliant intellectuals, pundits and press, still employs the language of a capitalist democracy. But what has arisen is a new kind of control, inverted totalitarianism.
Inverted totalitarianism does not replicate past totalitarian structures, such as fascism and communism. It is therefore harder to immediately identify and understand. There is no blustering demagogue. There is no triumphant revolutionary party. There are no ideologically drenched and emotional mass political rallies. The old symbols, the old iconography and the old language of democracy are held up as virtuous. The old systems of governance-electoral politics, an independent judiciary, a free press and the Constitution-appear to be venerated. But, similar to what happened during the late Roman Empire, all the institutions that make democracy possible have been hollowed out and rendered impotent and ineffectual.
Alienation has been further accelerated by social media. People at public events stare at their phones instead of talking to each other. They stare at their phones inside museums, at spectator events, and while driving, eating, and screwing. They take selfies while sitting on the toilet. They feel naked without their phones, like a baby without its pacifier. Their addiction to dopamine fixes makes them constantly check their emails and Twitter accounts, and frequently hear phantom ringtones. It makes them desperate for constant reassurance that they exist.
Social media creates nationwide echo chambers that sustain tribes which compete with each other for the coveted status of “victim.” Tribal bickering and rampant narcissism in turn keep the peasants from uniting against their rich owners, and from collectively addressing things like climate change and runway pollution. It makes leftists scream “Fascist!” while right-wingers scream, “Communist!”
All sides have regressed to infantile dream worlds. All sides cheer for wars that make rich people richer, and poor people into homeless refugees. Created by their own wars but the blame are out into their enemies. ”
This will not be won by winning the intellectual debate. They will have to be hung from every lamp post until they surrender. It’s time to stop playing the 3 card monte because money has replaced the vote.
(…)
Derek Henry
November 24, 2021 at 23:23
Jack Lang was a very interesting Labour politician in Australia.
Got Corbynised in the,exact same way as Corbyn and Bernie did only 90 years earlier. When he came up with the Lang plan.
http://home.alphalink.com.au/~eureka/lang.htm

(…)
oooooo

Erantzun
joseba says:

2025/09/17 at 09:54

Derek Henry
December 14, 2021 at 13:46
” There’s no real economic discussion of how economies actually work. Instead, you have a parallel universe of how a hypothetical economy would work in a completely different world – a world in which governments don’t exist, in which bankers are very productive and help the economy grow. The bankers, landlords and monopolists are depicted as the most productive organizers of society, trying to protect labour and industry from intrusive governments and taxes.”
” Neoliberalism is really not individualism, because it ends up destroying individual choice. It’s an anti-government policy. What they call individualism is getting rid of government controls. They don’t want governments to have the power to tax rentiers. They don’t want government to have the power to regulate the banks. Let the banks decide what to make money on, and let them decide who’s going to administer the Federal Reserve or the European Central Bank and other government agencies. This is a travesty of individualism. It’s dictatorialism. That used to be called fascism a century ago. ”
Living with Price Above Value
https://michael-hudson.com/2021/07/living-with-price-above-value/
This is the problem of not having – ” What MMT can do for you” a manifesto.
It’s alright saying set the interest rate to zero and bingo we have cheap mortgages for all. We also have to say okay we know this could help the rent seekers and monopolists more than the one house owner. So this is what we are going to do about that.
So the question then becomes if we introduce the following ….
eliminating government bonds (that provide interest income to rentiers), banning stock ownership by pension funds backed by the government, and regulations to constrain and narrow permitted banking activities-all of which remove most of the highest incomes in question at the source.
The only bonds Brexit Britain needs are Granny Bonds
https://new-wayland.com/blog/the-only-bonds-we-need-are-granny-bonds/
But we also need to put the City Of London back in its box at the same time. Show them who is in charge of they won’t get a banking licence.
The job of a bank is to promote the capital development of the economy. That is its public purpose; the job it is licensed to do. All other activities that conflicts with that purpose must be prevented.
For banking to be effective it must be boring - bowler hat boring. The job of a bank is to provide capital development loans to the economy based solely upon credit analysis. All other activities deflecting from that purpose are banned.
1. Banks can only lend directly to borrowers for capital development purposes (i.e. business credit lines and household loans), and the banks keep those loans on their books until cleared.
2. Banks must operate on a single balance sheet. No hiving things off into ‘off balance sheet’ subsidiaries to try and hide them.
3. Banks cannot accept collateral. Collateral is a fixed charge over an asset as an insurance policy and aligns the incentives of banks with those possessing assets, not ideas. It stops banks being capital developers and turns them into pawn shops. That is the wrong alignment of incentives. We want loan officers with skin in the game. Their success should depend upon the success of the borrower. Banks should line up in insolvency with the other unsecured creditors (and importantly behind the remaining preferential creditors - employees).
4. Depositors are protected 100% at all amounts. A depositor in a commercial bank is holding nothing more than an outsourced central bank account. They are not investors in the bank and should never be treated as such.
5. The job of the bank resolution agency is to ensure the banks are properly capitalised given their loan book and declare them solvent. If they are not, they take the bank over and resolve it with any excess losses absorbed by government. This aligns the incentives of the regulator. If they get the solvency calculation wrong and the capital buffers exhaust, the regulator stands the cost.
6. The Central Bank provides unlimited, unsecured lending to regulated banks at zero interest rates. Collateral serves no purpose since the bank has been declared solvent (and therefore there is no reason for it to be illiquid), and collateralised Central Bank lending just shifts the losses to depositors who are protected 100% anyway.
7. Once you get rid of interbank collateral and funding requirements, you get rid of one of the final excuses for keeping Government Bonds. National Savings annuities for pensions (allowing retiring individuals to receive a secure lifetime income) would get rid of the final one. Transferable instruments that confer government welfare on the owners do not serve the public purpose. Government welfare receipt is a social decision, not a market driven one.
See Granny bonds above for more details on number 7
8. As the asset side is now heavily regulated because of 1-7, you want the liability side to be as cheap as possible. Unlimited central bank access ensures liquidity for depositors and allows lending-only banks to arise. It gets rid of the Interbank overnight market and replaces it with central bank overnight accounts. It puts the Central Bank ‘in the bank’ as a major investor - with open access to the commercial bank’s loan book via the work of the solvency regulator.
9. All levies, liquidity ratios, reserve requirements and the like are eliminated. The cost of maintaining the collateral system is eliminated. The result is loans at a low price with the quantity restricted solely by credit quality. As an economy heats up, credit quality declines and loans become restricted - systemically preventing the Ponzi stages of finance that lead to a Minsky Moment.
10. Proscribed banks, forced to rely on credit analysis for profit, help prevent a boom by issuing less credit as project quality declines.You get a natural and steady withdrawal of funding that is far more surgically targeted and responsive to local conditions, than the carpet bombing approach of interest rate adjustments.
Banks are currently too complicated, too large, too impersonal, too intertwined and systemically dangerous. They need to be simpler, smaller, more local and relationship oriented in scope. All of which are easy to achieve once you adopt steps 1 to 10
And if we ramp up the number of social housing being built and change planning laws is that enough ?
That’s the question – if we change the banks or nationalise the banking system and build more social housing do we still need a land value tax ?
Until we get ” What MMT can do for you” a manifesto. Then everything is just noise and we can talk about it for another 20 years in below the line comments sections and keep standing still.
Of course the elephant in the room which is always the elephant in the room when it comes to these debates is geopolitics and foreign policy. If you are going to fix these things within your own borders then it is impossible to ignore the geopolitical landscape.
You have to understand why the system we have was set up in the first place. Michael Hudson in the link above paints the picture of what has been going on globally. Bill and Thomas expanded on that in reclaim the state.
So if you support a LVT or when you write the ” What MMT can do for you” a global manifesto. How or what is the plan to make 800 US military bases ” stand down” and accept your proposals. How are you going to do it by changing the culture of America ?
Good luck with that ! The civil war in that country never ended rain just stopped play.
You cannot keep treating the geopolitics and foreign policy agenda as if it does not exist. It is real and the elephant sits on your lap every room you go into. It is a mistake just to look at the problem from within your own border. If the 800 US military bases do not like a LVT tax or what we propose you will be Corbynised and forced to sit on a chair and wear Bernie’s mittens. Boris will tell you all about it and how utter ruthless these super imperialists and their media are.
History shows what needs to be done. The battle for Skye bridge further up the comment section showed what needs to be done. How many people sacrificed their lives and were jailed for the cause. As they tried to clog up the courts and jails on the mainland. so that the system couldn’t cope with the sheer numbers that were arrested. Why the leisure class have turned their police forces into armies and they will shoot you if you try if ketteling you does not work.
(…)
Derek Henry
December 15, 2021 at 01:24
100% Andreas
The leisure class have taken the book 1984 and Nazi propaganda to a whole new different level. Every day they take another little bit more of our freedoms away. Destroy our democracy.
There has to be at least 50% of voters on both the left and right who have nobody to vote for. Everyone else who suffer from Stockholm syndrome or battered wife syndrome keep turning up at the polling booth serving their masters thinking they will make a difference.
The Guardian, Independent and the Daily Mirror is full of them no wonder they get called the Looney left. That’s the liberals for you. I can’t stand them they are complete and utter poison. They seep into every political party and divide it. See SNP , Labour and Tories for details. They are the most divisive aspect in UK politics. Try to divide the nation at every turn.
SNP has divided into Alba party. Labour is divided and the Tories all because of the liberals poisoning the parties with their neoliberal globalist view of the world.
Why large swathes of the country now no longer even bother to vote. Apart from Brexit I’ve never voted since 1979. I simply refuse to play their games and take part in the charade.
The left and right are going to have to unite one way or another to get our democracy back. That’s what it boils down to. Starmer has had the easiest ride of any Labour leader since I was born he needs to be stopped he is the establishment, neoliberal globalist, war monger. The Olaf Schultz. Hillary Clinton. Macron of UK politics.
Starmer has to be stopped at all costs. The left and right have to unite somehow or eventually we’ll end up with far right wing gov across the West as it will be the only place the legitimate grievances of the masses disenfranchised, marginalised, impoverished, and dispossessed by the 40-year-long neoliberal class war waged from above will get a voice.
I can see evidence that because of the success of Brexit the left and right wing voters (not political parties) are uniting on other issues and just maybe starting to realise this is what needs to happen to level the playing field.
Here’s Ken telling it as it is….
https://m.youtube.com/watch?v=PVP6PlX_UUA
(…)
Derek Henry
December 15, 2021 at 13:08
Ikonoclast,
Asset price inflation would tend to exacerbate inequality since it will disproportionately benefit those who owns assets. This makes sense. But inequality is a policy failure, not a market failure. After all, a capitalist economy will always veer towards monopolistic behaviour if we allow it to. The extent to which we allow that to happen is not a failure of capitalism, it is a failure of policy makers to contain capitalism.
MMT’rs have listed many ways to stop in inequality at source. That “predistribution” rather than “redistribution” works better. Once you’ve let the rich become super rich, they have the incentive and probably the power to defeat the effort to tax them. We have enough taxes already.
The debate above is about is that enough of do we also need LVT?
If the central banks are driving investors to irrationally bid up asset prices then that must mean that prices are inflated in the short-run and likely to mean revert in the long-run. But if this is your view then what do you care?
It simply means that prices are temporarily higher than they otherwise would be and will eventually crash when markets come to their senses. Unless of course you believe that asset prices are perpetually manipulated in which case you also shouldn’t care because you don’t think they can ever collapse which means “everybody” should just be an owner and “don’t fight the Fed”
It’s very hard to believe that markets are so inefficient that they would never sniff out a complete manipulation of the entire system. In short the markets will sniff it out it just a matter of time. Stocks don’t keep going up forever.
The strangest contradiction here is that the asset inflation narrative always seems to come from people who are bearish about these assets. So, they’re certain that the Fed is manipulating prices and they’re certain that asset prices will go up because they claim these policies can never end, but they’re bearish about these assets at the same time. This doesn’t even make any sense.
One could argue that most of the asset price appreciation of the last 10+ years appears largely rational in the sense that it is supported by corporate fundamentals (record profits, record GDP, etc) and other robust economic data that is consistent with a growing economy. It isn’t just a fictitious boom as many “asset price inflation” narratives like to imply.
Derek Henry
December 15, 2021 at 13:18
Ikonoclast,
On top of this to stop inflation happening in the future. MMT’rs say when governments spend you do the following to fight it …….
Fadhel Kaboul and Scott Fullwiler- MMT Insights on Inflation and Central Bank Policies.
https://m.youtube.com/watch?v=ggcsd08LXFA
What would happen if 30 million new social type housing were built and the government built them ? What would happen to house prices ? What would happen to rents?
Inequality is a policy failure, not a market failure.
Derek Henry
December 15, 2021 at 13:21
Ikonoclast,
Brian Romanchuk has been writing about asset inflation and housing for over a decade ( yup 10 years) and just about to bring an excellent book out about it. Here’s 2 articles under the heading housing on his blog.
Principles Of Canadian Municipal Finance (And Why A Land Value Tax Is Inferior)
http://www.bondeconomics.com/2018/05/principles-of-canadian-municipal.html#more
Housing Bubbles And Their Financing
http://www.bondeconomics.com/2018/05/housing-bubbles-and-their-financing.html#more
If you haven’t read any of his books you should they are excellent!
MMT’rs understand LVT . Debates about it are all well and good and Why we need a ” What MMT can do for you ” handbook. So the debate starts from the correct starting point. Show we can fix it without a LVT.
Brian will cover it all in his book. Check both the inflation heading and housing heading on his blog and buy the book when it comes out they are normally under a fiver.

(…)
Derek Henry
December 16, 2021 at 00:58
The US will have plenty to say to however threatens to change how their banks operate and lend. Whoever threatens monetarism and wants to set interest rates to zero permanently.
Their name will not be On the ballot paper. They’ll be Corbynised wearing Bernie’s mittens.
Carol, I’ve read all his books and website from cover to cover several times. We understand LVT it is not a knowledge gap as it is not rocket science. Maybe you have to learn when others criticise LVT to stop treating it like a god and address their criticisms. Listen to other people’s point of view.
You can leave comments on Brian’s blog if you disagree with him. He will answer any questions you have.
We’ve known about LVT for years it is not something you can teach us, as if we have missed it and made a mistake. Warren has used as an example knows all about it.
Debating is healthy but I would wait until a ” What MMT can do for you ” handbook is published then start the debate from that point and if you still feel as if LVT is needed then say so. Then point out why and what we have missed.
Derek Henry
December 16, 2021 at 01:39
Jim,
” The current situation of low interest rates and rising prices for essential items like food and fuel, along with extreme asset price inflation is driving further social inequity and i think the underlying force behind the demonstrations we see around the world. Ok lets keep interest rates low but how do this and provide a more equitable economic environment? ”
Are you sure you are not being ” nudged ” by the same faces in the media after 2008 ?
For example the Financial Times op ed from Rana Foroohar entitled
“The left’s low-rate fantasy makes inequality worse”.
She is trying to brainwash readers to believe that debt fueled bouts of asset price increases have NEVER happened when interest rates have been high. That it is simply a low rate phenomenon.
Which is a huge myth of course. The Federal Reserve raised interest rates from August 2004 to August 2006 did very little to cool the U.S. housing market.
Asset prices can increase under any rate environment because Inequality is a policy failure, not a market failure.
Here’s what a MMT’r has to say about it.
https://www.crisesnotes.com/rana-foroohars-strange-case-for-raising-interest-rates-does-stringent-monetary-policy-really-produce-equality/
You have to be very careful not to allow yourself to be ” nudged” to believe that asset price inflation only happens when rates are low. It is a myth and the banks want you to believe that narrative and framing for a reason.
(…)
Derek Henry
December 16, 2021 at 19:24
Morning Joan,
Follow Mike Norman Twitter feed
Mike covers all of this On a daily basis
https://mobile.twitter.com/mikenorman
He did a taper video on the 9th December.
Derek Henry
December 16, 2021 at 22:36
Jim,
Yes, but the key is by using the MMT lens it allows everybody to see the Orwellian trap. Learn how to look out for it.
1. That alarm bells should be ringing from the very start because it is the financial times.
2. They use the same Orwellian trap when attacking the government budget deficit when talking about interest rates and only concentrate on one side of the coin. The side of the coin that will benefit the banks and their political donors and the leisure class.
3. Ignore the side of the coin that hurts households, the poor and small to medium size businesses.
4. Link their work to academic fairy tales that were produced by the ideological universities that they funded.
Nathan done a fantastic job at highlighting how they tried to nudge the reader to believe asset price inflation only happens in a low rate environment. Completely ignored the part fiscal policy played to save the economy and ignored the effects of high interest rates on wages and unemployment. The terrible record monetary policy has at achieving full employment.
If the general populace was better educated in these matters – that is, understood the actual operational capabilities of the national government it would be very difficult for the politicians to conflate their own ideological desires with the concept of a financial constraint. In that context, telling us that we had to have 5 or 8 per cent unemployment and rising underemployment because the government cannot afford to purchase all the labour and even if it did it would be inflationary, takes on a different slant.
We would know that they could afford to fully employ the available workforce as long as their were sufficient real resources available to provide the extra food and other things the higher employment levels would invoke. This would then require a higher level of sophistication in the public debate. Are there the extra resources? How close to real capacity are we? That would then promote new research that focused on the nub of the problem rather than the array of dishonesty that parades as knowledge out there in the form of academic papers – which say the government has a financial constraint and will cause higher interest rates, higher taxes, higher inflation if it fails to follow the neoliberal globalist ideology.
Businesses would also have to justify their opposition to true full employment in more sophisticated ways because we would all know that the usual reasons they give – again relating to government budget constraints and interest rate manipulation – are all deeply flawed.
How many voters have been taken in by these Orwellian traps Jim ? The narrative and framing has been relentless 24/7 by the mainstream media that they own and control.
How many voters take into account that Chinese regulations that actually affected coal mines in China. They increased the safety standards in mining that scared the hell out of some mining companies to the point that many closed down.
That flowed into the Chinese economy as 70% of electricity is by coal in China. Caused major shutdowns in industrial activity in China. So producing the real resources the West needs to complete their spending plans slowed significantly.
When it comes to shipping what they did manage to produce. In normal times shipping a container from China to the US is $2000 because of lockdown that is now $20,000. It is first come first served a bidding war.
Once they actually get to the ports in the west. Because they have not been upgraded in decades as government spending is seen as the devil and austerity is the bank lobby god. The ports can’t cope and are struggling to find the people who are sitting at home.
Once they get loaded on to the trucks what happens there is we have a driver’s shortage. Because drivers left as the free markets demanded poor working conditions combined with low pay. We Uberised the trucking industry on the back of the free market tooth fairy. Truckers were treated like Uber drivers. When you are paid by the load instead of by the hour. Sitting at a port for 8 hours suddenly turns it into a loss making exercise to deliver the containers so they don’t bother.
a) These sources of inflation have nothing to do with low income families. Who have had been attacked and whose benefits just to eat and heat and pay their rent have been cut.
b) Government spending has to be increased not slashed and needs to be invested in import substitution , the ports , our whole infrastructure to help ease future inflationary episodes and bottle necks. Regardless of borrowing costs as the BOE could just take on the debt.
c) The tooth fairy free markets does not work. The government needs to regulate how truck drivers and port staff are treated. The logistics monopoly power that port and shipping companies have has to be regulated and curtailed. Rent seekers need to be forced to compete and not allowed to extract rent from a monopoly perch.
Yet, How many believe we live with this insane neoliberal globalist belief that if we leave everything alone the tooth fairy will fix it, and the BOE run by the bank lobby by increasing or decreasing interest rates by O.25% The UK will be wonderful.
When it is as clear as day interest rate manipulation will fix none of it. The side of the coin that the Financial Times piece ignores. The side of the coin that says targeting the wealthy’s returns will require some combination of regulation, reallocating coordination rights, democratising companies and heavy taxation that would fix the problem is not even mentioned.
Along with stopping the boarding of wealth at source with some “predistribution” rather than “redistribution” . Such as eliminating government bonds (that provide interest income to rentiers), banning stock ownership by pension funds backed by the government, and regulations to constrain and narrow permitted banking activities-all of which remove most of the highest incomes in question at the source.
The HUGE problem is……
Only about 20% of us take an interest in these things maybe a little bit higher because many people smelled a rat after 2008. The other 80% simply don’t care and go to work, go to the pub watch sports and go shopping. Maybe turn up to vote every few years and believe what the media tells them. Try desperately to be seen and be part of the leisure class, suffer from groupthink and join a tribe that massages their confirmation bias.
Once the 20% knows what needs to be done and who needs to be challenged then you know who you have to take on.
Who you have to take on are the 800 US military bases that sees some combination of regulation, reallocating coordination rights, democratising companies and heavy taxation. Such as eliminating government bonds (that provide interest income to rentiers), banning stock ownership by pension funds backed by the government, and regulations to constrain and narrow permitted banking activities as communism.
The leisure class in the US and most Western countries who hide behind the 800 US military bases see all of these changes as Communism, and they will use every means possible to hold onto their class of leisure. They will hand pick who you can vote for. They will decide what names are in the ballot. They will do it by convincing the other 80% who believe the mainstream media that those that propose the changes are socialists or communists or racists using the media they own.
That’s the problem……..
Solutions are great but it real power we need or we won’t get a chance to use them.
(…)
Derek Henry
December 18, 2021 at 00:41
Dr Macca,
What ideas are too left wing for you ? What scares you ?
1. That we think that there is a HUGE difference between industrial capitalism and financial capitalism.The aim of this post industrial finance capitalism is the opposite of industrial capitalism as known to nineteenth-century economists: it seeks wealth primarily through the extraction of economic rent, not industrial capital formation.
2. That bank lending should be to promote industrial capital formation and full employment instead of promoting the extraction of economic rent.
3. That the incentive to invest or innovate should be to improve productivity and create full employment and not to simply create a monopoly perch from which to be able to extract rent from.
4. What world do you want to live in. A world when investors invest in risk taking and when it goes wrong they get bailed out by the state and the profits get privatised and the losses socialised – See 2008 for details and the Enron shit show.
5. What is wrong with changing the way banks work what is so scary and left wing about any of the following
a). Banks can only lend directly to borrowers for capital development purposes (i.e. business credit lines and household loans), and the banks keep those loans on their books until cleared.
b) Banks must operate on a single balance sheet. No hiving things off into ‘off balance sheet’ subsidiaries to try and hide them.
c) Banks cannot accept collateral. Collateral is a fixed charge over an asset as an insurance policy and aligns the incentives of banks with those possessing assets, not ideas. It stops banks being capital developers and turns them into pawn shops. That is the wrong alignment of incentives. We want loan officers with skin in the game. Their success should depend upon the success of the borrower. Banks should line up in insolvency with the other unsecured creditors (and importantly behind the remaining preferential creditors - employees).
d) Depositors are protected 100% at all amounts. A depositor in a commercial bank is holding nothing more than an outsourced central bank account. They are not investors in the bank and should never be treated as such.
e) The job of the bank resolution agency is to ensure the banks are properly capitalised given their loan book and declare them solvent. If they are not, they take the bank over and resolve it with any excess losses absorbed by government. This aligns the incentives of the regulator. If they get the solvency calculation wrong and the capital buffers exhaust, the regulator stands the cost.
f)The Central Bank provides unlimited, unsecured lending to regulated banks at zero interest rates. Collateral serves no purpose since the bank has been declared solvent (and therefore there is no reason for it to be illiquid), and collateralised Central Bank lending just shifts the losses to depositors who are protected 100% anyway.
g) Once you get rid of interbank collateral and funding requirements, you get rid of one of the final excuses for keeping Government Bonds. National Savings annuities for pensions (allowing retiring individuals to receive a secure lifetime income) would get rid of the final one. Transferable instruments that confer government welfare on the owners do not serve the public purpose. Government welfare receipt is a social decision, not a market driven one.
h) As the asset side is now heavily regulated because of 1-7, you want the liability side to be as cheap as possible. Unlimited central bank access ensures liquidity for depositors and allows lending-only banks to arise. It gets rid of the Interbank overnight market and replaces it with central bank overnight accounts. It puts the Central Bank ‘in the bank’ as a major investor - with open access to the commercial bank’s loan book via the work of the solvency regulator.
i) All levies, liquidity ratios, reserve requirements and the like are eliminated. The cost of maintaining the collateral system is eliminated. The result is loans at a low price with the quantity restricted solely by credit quality. As an economy heats up, credit quality declines and loans become restricted - systemically preventing the Ponzi stages of finance that lead to a Minsky Moment.
j) Proscribed banks, forced to rely on credit analysis for profit, help prevent a boom by issuing less credit as project quality declines.You get a natural and steady withdrawal of funding that is far more surgically targeted and responsive to local conditions, than the carpet bombing approach of interest rate adjustments.
Banks are currently too complicated, too large, too impersonal, too intertwined and systemically dangerous. They need to be simpler, smaller, more local and relationship oriented in scope.
What scares you about any of that ? Why do you consider those changes left wing ?
6) Why should the economy have anything other than granny bonds – https://new-wayland.com/blog/the-only-bonds-we-need-are-granny-bonds/
We are seeing that in the current shift away from purchasing government bonds, to purchasing corporate bonds. Before too long the central bank will be bailing out other private sector assets. It’s hardly surprising, then, that some wiley political types want to get in on the act by dreaming up other assets the central bank could ‘QE’ without having to obtain a vote in parliament first.
7) If you are a member of a pension scheme then the savings of the current generation, plus the interest on Gilts and any income from the other assets owed pay the pensions of the current generation of pensioners. They are all, in effect, private taxation schemes that circulate money around the system.
So in essence rather than the assets of a pension scheme being used to purchase Gilts, the assets would be used to purchase an annuity from the government dedicated to an individual. The result is that rather than the private pension receiving Gilt income from the state, to then pass onto the pensioner, the state would cut out the middleman (and their cut) and pay the pensioner directly as an addition to the state pension.
There’s a whole private pension industry out there literally doing absolutely nothing of any real value. They can’t provide a guaranteed income in retirement without STATE backing in the form of Gilts. So what is exactly the point of having them?
8) That any risk taken out with granny bonds will not be bailed out by the state if it fails. Fine take as much risk as you like but apart from granny bonds investors will not be protected. If the investment fails you lose everything instead of expecting to be bailed out. There will be no too big to fail.
9) What world do you want to live in ? A world in which a small group can horde money in tax havens and then use that money by forming an Oligarchy to destroy democracy by replacing the vote with how much money you have. Or a democracy stopping the hoarding at source and stops Oligarchs forming in the first place?
10) introducing a Job Guarantee whose primary role is to replace interest rate targeting as the central mechanism by which the economic cycle is stabilised. In addition, it ends unemployment forever across the nation as a very valuable side effect of the stabilisation function. The spare labour is then granted to local authorities and groupings, and represents the only spare physical capacity there is to do any additional real work in the economy. Anything else requires taxation, not bond issues. Calling something ‘investment’ isn’t enough.
You can always tell when a critic has failed to understand MMT. They will hardly mention the Job Guarantee. Its central role of replacing the current anti-democratic machinations at the central bank will be completely missing. Instead, they will continue to support the current economic stabilisation mechanism – an unemployment buffer for the workers and the central bank propping up the cash flow of the rich. Largely, because the latter includes them.
So what is wrong with any of these 10 points Dr Macca. I fail to see why you would be scared by any of them and fail to see why you call them left wing. Especially when they are designed specifically to promote a world where there is an incentive to invest or innovate via the receipt of financial rewards for risk taking. Refuses to promote economic rent seeking. There’s nothing in these 10 points that stops the incentive to invest or innovate from happening. All the 10 points do is stop the receipt of the financial rewards always ending up with the top end of town.
Or maybe now would be the perfect time to explain what your more pragmatic approach would be ? I would love to see what the word pragmatic means in this context. I hope it doesn’t mean complete surrender to the top end of down or suffer from groupthink. I hope it actually means real change and not simply a fudge. Please tell me what this pragmatic approach of yours will be. Will you be challenging anybody in the FIRE sector ?
Carol Wilcox
December 18, 2021 at 09:33
Derek: “National Savings annuities for pensions (allowing retiring individuals to receive a secure lifetime income)”.
What about adequate non-contributory state pension and ‘granny bonds’ which maintain long-term purchasing power of savings?
Derek Henry
December 18, 2021 at 14:14
Carol,
I have no idea if it work or not. Watching how the Furlough payments were done. Why not Just change the words furlough payment to pension payment ?
Sounds very simple but is it really that easy to do? One things for sure the Furlough payments have forced people to look at economic jargon in the text books from a very different perspective. Should understand now it is never about ” finding the money”
I have no idea wouldn’t know where to start. Why once again why we need a ” What MMT can do for you ” manifesto to show if we can introduce an adequate non-contributory state pension while at full employment because of the JG. How do you do it, what you need to look out for, the terms and conditions to qualify and how it would work etc, etc. There’s a lot of moving parts.
If the government tries to expand the fiscal deficit beyond the full employment limit then nominal spending will outstrip the capacity of the economy to respond by increasing real output and while income will rise it will be all due to price effects (that is, inflation would occur).
I’m not sure, but when you contribute to a pension is it not designed to take our spending power away to allow those who receive a pension to buy their goods and services that helps with the inflation problem. So if you take the contribution part away and we are at full employment because of the JG could we not get a situation of too much demand for too few goods and services that are on offer ?
The many moving parts means that would depend if workers and pensioners spent all of their income or saved most of it. Some of it show up as increased imports and a widening trade deficit along with everything else that could happen. A lot of things could happen that can’t be predicted and only studied afterwards.
Does that mean then that it comes back to PLANNING ? Is it a PRODUCTIVITY story or so much more ? If you just flick the switch from a contribution pension system to an adequate non-contributory state pension can the infrastructure cope and the supply chains and is the country productive enough to support it at full employment. If we have a skills based immigration system how will that work if we are not productive enough and we need more skills.
Would more government deficit spending and private sector spending/ borrowing be needed to fix parts of the economy that can’t cope. That cause bottlenecks and skill shortages. Would you need to do that planning before flicking the switch with a JG or not as the JG has already created full employment. Or could the bottlenecks and skill shortages be fixed on the hoof by becoming more productive ?
Is there enough room in the economy to introduce an adequate non-contributory state pension furlough payment along side a JG and are we productive enough. What levels of inflation would be happy with and is there wage growth and all the rest of it. All the other stuff economists talk about all the time. What happens if even after all the planning inflation gets out of control? Where do the spending cuts happen and get put on a shelf for a rainy day and who absorbs the tax increases in order to make the room?
Would it be like the basic income and that is when the system comes under pressure, would it be the first thing they cut? Until eventually it ends up like all the rest a pittance? Notice how the ” triple lock” was in their sights when the pandemic hit and was one of the first things they were going to cut.
Or is a contribution type pension like granny bonds, far more efficient and superior for all the reasons and so much more above, as I’ve probably only scratched the surface?
Considering it took the Conservatives and New Labour over 30 years to turn the UK economy into a “Skye Bridge” type economy to allow the rentiers to extract economic rent. How many elections would need to be won to change it ?
You would need to ask the MMT economists who fully understand fiscal space isn’t about balancing budgets. What the world would look like with an adequate non-contributory state pension running alongside a JG. As it’s been hard enough trying to explain to voters what a JG would look like. Without the voters getting the completely wrong end of the stick and calling it Marxism or Communism.
Because if it can work the voters will probably be brow beaten by the media to call an adequate non-contributory state pension Marxism and Communism as well. Instead of understanding the monetary system and realising that human beings can have nice things and not just the leisure class.
Then the massive private pension industry that is such a waste of skills and real resources can be used for more productive outcomes. Making it easier to introduce change moving forward that would benefit human beings in the future.
Which isn’t even left wing at all. It is a very Conservative attitude to take. It is simply getting rid of the middlemen and their cut and their extortionate fees. Which is just good business and what any business would try to do to reduce their costs of running their business.
Voters have very short memories, too much social media use that shortens their attention span. When New Labour were in power they complained for over a decade there was no difference between Labour and the Conservatives. There is a fag paper ( Rizla) between them they used to cry. What do they think is going to happen if Starmer wins ? They’ll continue to write each other’s manifestos and raise money from idiots who actually believe they are fighting against each other. Who Keep throwing money at them to keep their Monopoly perch and middleman cut.
While democracy and society burns all around them and trust in government declines every passing day. With millions of pensioners who couldn’t afford to save while working. Who were part of the ever growing class the working poor. Some working 2 or 3 low paid jobs to.pay the bills. Have to decide between heating or food in the winter and end up at food banks in the richest countries in the world.
All on the false belief that a government pension is an “affordability” problem and that HM Treasury has run out of keystrokes. Keystrokes that have been replaced by endless loops of charity porn streaming from every TV set in the country. From Dogs for the blind to homeless children and cancer care. With not one section of society untouched by the charity replacement therapy of the missing keystrokes myth.
Another middleman that needs to be cut. The charity middleman who stands inbetween the issuer of the currency and those who need it. That serves no purpose other than ease the conscious of the parasite class. Who instead of investing in charity porn, should be marching on Parliament demanding that they find the missing keystrokes.
Millions of pensioners without any savings is just the tip of the iceberg and will keep the “pragmatic” approach of food banks as an ever growing scar on the political landscape. A scar that destroys democracy and trust in governments and divides society like a carving knife. That’s more divided and entrenched than ever. When the right scream Marxist and the left scream Fascist and millions suffer.
How quickly food banks are accepted as a normal circumstance and not unusual at all. Are now just part of the rent seeking furniture as if they have been there all along. Very similar to the scene in the film the Beach when the guys got attacked by a shark. We’re moved into a tent outside of the house to be out of sight and out of mind while the rest carried on as normal. Rather than have to deal with guilt and suffering and that’s the paradise of the “pragmatic” approach of neoliberal globalism. How the Oxbridge set deal with it.
Derek Henry
December 20, 2021 at 12:59
*When you contribute to a pension it is designed to take our spending power away to make room in the economy to allow those who receive a pension to buy their goods and services that helps with the inflation problem.*
The contributions work like a tax. To stop competition between workers and the retired over the goods and services on offer and helps to stops both competing and driving prices up. If there are not enough goods and services to go around.
Stopping the contribution part that creates the room in economy will probably end up being a productivity story. If it is possible at all that is.
(…)
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