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Mary wrote:

Money has no intrinsic value. Its value is extrinsic, comparative.

Now don't upset the bigendians (hard money) folks by telling them they are not really different than the littleendians (fiat money) folks... 

Monies – Joining Economic and Legal Perspectivesby David Bholat, Jonathan Grant and Ryland Thomas

Bank Underground

The economist John Kenneth Galbraith once quipped that the answers economists give to the question “what is money?” are usually incoherent. So in this blog we turn to law for some answers. Debate about the nature of money has been renewed by recent financial crises and the rise of digital currencies (Ali et al 2014; Desan 2014; Ryan-Collins et al 2014; Martin 2013). This was the focus of a panel session at the Bank’s recent annual conference on Monetary and Financial Law, which brought together lawyers and economists to develop interdisciplinary perspectives on topics such as money. It prompted us to think more deeply about how law does and does not constitute ‘it.’

Common legal attributes of money

Anything can function as money. And many things have: cattle; cowry shells; even cigarettes. But as Minsky once said, while “everyone can create money, the problem is to get it accepted.”

While in theory anything can be money, the reality is few things are. Monies produced by the Royal Mint and the Bank of England (BoE) are the ultimate means of payment, followed by private sector claims, in order of how immediate they provide for full convertibility into these.

Some economists argue that this hierarchy of money is the result of legal privileges, especially legal tender legislation (Smith 1936; Hayek 1976). However, legal tender legislation in the UK only applies to the settlement of debts. It doesn’t cover spot transactions — our daily buying and selling in the marketplace.

So if we want to explain why state issued tokens and claims, and promises of immediate conversion into them, are monies, legal tender laws seem less important than other legal attributes that make them trusted and give people comfort they can get someone else to accept them.

In the past, when gold and silver were monies, economists often explained this reality by reference to these metals’ physical attributes such as portability, uniformity and durability. Today these physical attributes of metal monies have legal analogues.

Think of a fiver. Three legal attributes make it money.

First, a fiver is portable because it is legally negotiable: it can be transferred to others without each time gaining consent from the BoE (the fiver’s issuer), and, once transferred, it’s free and clear of any claims being brought by those who previously possessed it provided it was taken in good faith (Geva 2011).

Second, fivers are uniform because they are fungible: each can substitute for another. This is because the rights and obligations they confer are the same.

Finally, durability means maintaining fixed nominal value through time. A rough legal equivalent of durability is an option for instant par redemption. State-backed monies such as fivers and promises of immediate conversion into them are monies probably because states retain the power to fix the nominal meaning of their unit of account and can choose to accept only claims denominated in that unit of account in discharge of tax obligations.


While all monies share hues of negotiability, fungibility, and instant par redemption, each type of money also has unique legal features. Ordinarily, these legal differences don’t matter because one type of money is easily convertible into another. Qualitative differences in the legal construction of monies appear, if at all, merely as quantitative differences in their rate of financial return. For example, in ordinary times, although term bank deposits accrue interest and BoE notes do not, they are treated by most people as equivalents. However, during financial crises, qualitative differences reassert themselves and, in the extreme, parity breaks down. In classic bank runs, for example, individuals seek to convert bank balances into cash because the difference between having a claim on a private counterparty that can go bust, versus a public counterparty like central banks that can operate even on negative capital, acquires greater salience.

Consequently legal differences between monies sometimes matter. So we note some below. Here our analysis chimes with research in sociology and behavioural economics showing that money is not singular but plural (Dodd 2014). However, while those studies focus on how money is imbued with different meanings by individuals once in circulation, for example, depending on its source (e.g. whether it’s from wages or inheritance), our point is that monies are plural from the start, in the nature of their legal construction.

Royal Mint coins

Sterling coins are manufactured by the Royal Mint Limited, a public limited company wholly owned by HM Treasury through the Royal Mint Trading Fund. Different denominations of coin are legal tender up to different thresholds. For example, 5p coins are legal tender for any amount not exceeding £5, while 50p coins are legal tender for any amount not exceeding £10. Royal Mint coins are unique among UK monies in that they are not the legal obligations of any counterparty, though they are treated as a liability of central government in the financial accounts of national income statistics.

BoE notes

Legally, notes represent debt obligations of the Bank. Originally they could be redeemed in gold. However, since 1931, the Bank no longer pays out gold against its notes. BoE notes were first issued in the seventeenth century but did not acquire legal tender status in England and Wales until 1833. They are not legal tender in Scotland or Northern Ireland.

BoE reserve accounts

BoE reserve accounts are debt obligations owed by the Bank to commercial banks and other Sterling Monetary Framework (SMF) participants. They are the largest liabilities on the Bank’s balance sheet and have been used by banks for settling their obligations with each other since at least the mid-19th century.

Scottish and Northern Ireland banknotes

Seven banks in Scotland and Northern Ireland issue their own notes which are these banks’ debt obligations. These notes are not legal tender even in Scotland and Northern Ireland. Rather, they circulate by convention, underscoring our thesis about the importance of other legal attributes besides legal tender legislation in conferring ‘money-ness.’ As a result of the Banking Act 2009, these notes are backed in full by a combination of Royal Mint coins, BoE notes and reserve account balances.

Accounts with banks and mutual organisations

Banks and mutual organisations offer current and other types of spendable accounts used for payments. On the one hand, these accounts are unsecured debt obligations of private organisations. On the other hand, many are backed up to certain limits by statutory guarantees. Today the value of transactions involving these accounts greatly exceeds the value of transactions involving legal tender. And growth in these accounts’ balances is mainly driven by additional loans that create equal and opposite accounting entries.

Further research

Economists and lawyers often approach the topic of money differently because they have different philosophies underpinning their professions. Economics is basically a branch of utilitarianism, meaning that the consequences of actions are the basis for judging their rightness or wrongness. Hence many problems in economics are about optimization and involve cost-benefit analysis. By contrast, law is derived from deontology, meaning some actions are intrinsically right or wrong according to normative rules. Hence legal decisions are typically justified by history and notions of justice.

These philosophical differences mean economists and lawyers often think about money differently. For example, many economists think money arose as a transaction cost reducing, utility enhancing device to overcome the absence of a double coincidence of wants that hampers barter, while many lawyers and institutionally minded economists think the origins of money is the state (Goodhart 1998). Economists mostly think of money as a medium of exchange (Kiyotaki and Wright 1989) because this function relates to trade and commerce, while law emphasises money as a means of payment (Proctor 2012): whether one party has discharged their obligation to another. In emphasising the settlement of obligations, law draws attention to money’s role in non-commercial transactions such as taxation and transfers. And while economists treat money mainly as an indicator or intermediate target for influencing real, macroeconomic variables, lawyers typically think about money in the context of individual cases and adhere to the doctrine of nominalism.

Despite these different points of emphasis, this blog has tried to show that understanding money requires joining legal with economic perspectives. For example, while for a long time lawyers saw bank deposits simply as loans, economists much earlier appreciated their wider bearing on inflation and output. However, if economists want to explain why certain claims like bank deposits are money, while others are not, they must look at their legal attributes and socio-legal history. Recent research on money by Bank staff has been informed by both law and economics (McLeay et al. 2014; Bholat 2013). Here are a couple paths on which further interdisciplinary research might advance:

  1. How is the money demand for a claim impacted by changes in its legal constitution, for example, after a major structural break like the conferring of legal tender status on BoE notes or abolition of their gold convertibility?
  2. Besides negotiability, fungibility and instant par redemption, what other legal features make claims suitable to be money?

David Bholat works in the Bank’s Advanced Analytics Division, Jonathan Grant works in the Bank’s Legal Directorate and Ryland Thomas works in the Bank’s Monetary Assessment and Strategy Division.

Bank Underground is a blog for Bank of England staff to share views that challenge – or support – prevailing policy orthodoxies. The views expressed here are those of the authors, and are not necessarily those of the Bank of England, or its policy committees.

If you want to get in touch, please email us at

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[Oct 25, 2018] Should we trust MMT?

Oct 25, 2018 |

Tvc15 , October 23, 2018 at 2:34 pm

I apologize in advance to Lambert for adding this link to his terrific daily water cooler topics, but since Yves and NC were specifically mentioned I thought it would be interesting to share. The video is titled, "Should we trust MMT?" with Joe Bongiovanni. It is 48 minutes long and I only made it about 20 minutes after becoming too annoyed. Yves/NC are mentioned at 18 minutes and 40 seconds in. Joe says he was part of the NC commentariat for years, but was banned due to his thoughts that MMT proponents are misleading and don't "tell the real truth".

Tvc15 , October 23, 2018 at 3:31 pm

Not being an economist or comfortable enough with my understanding of MMT to know if what he was saying had merit. Plus the style and lack of preparation from the interviewer other than wanting her expert to debunk MMT for her right wing followers.

JohnnyGL , October 23, 2018 at 6:45 pm

I'm 30 min in .skip ahead to that point to get to the meat of his discussion.

He keeps repeating that he wants monetary "reform", so that the money system 'works for the people'. But he doesn't say what that change is or why MMT gets it wrong in its understanding of how the system works.

He says "govt doesn't create money by spending". Except, yes, it does. It then chooses to offset that spending later with bond auctions.

He doesn't make a distinction between public and private debt, doesn't distinguish between currency users and issuers. No distinction between stocks and flows. No discussion of capacity constraints, inflation.

He actually fear-mongers about the debt around the 38-39 min mark. Says there's going to be tough times when we get austerity (in addition to environment collapsing).

He talks a lot about how 'the monetary system works', but it's clear to me he doesn't get how the banking system works. I don't think you can understand one without the other very well.

MMT can offer a clear explanation of why:

1) 30 yr treasury bond yields fell rapidly in the 1980s while deficits were exploding.
2) 30 yr treasury bond yields rose in 2000, hitting 7% on the 30 yr at one point, when the government was running surpluses.
3) Japan has a functional currency and economy with massive debts and deficits for many years.

Conventional economics has NO explanation for the above phenomenon.

ChristopherJ , October 23, 2018 at 7:33 pm

Cheers Johnny – he's been here before and took umbrage to the NC crew saying that taxation for revenue is obsolete. Don't make me go there.

Said NC doesn't like criticism and Yves had banned him I'd be banned too if I thought that!!

Got some trolls on Youtube worked up. I'll go and finish them off after I do a little more digging on Joe and his Kettle Pond Institute for Debt Free Money.

He had a go at Bill Mitchell on this post recently:

IMO, Tvc, if you want some relevant stuff, look at how Jimmy Dore (a comedian turned activist) gets his head around MMT – Stephanie Kelton was good and has been linked here and also Chris Hedges

People like JD are very influential and I can see a heightened awareness out there that we are not going to get anywhere now by being polite and civil.

That's how we got here in the first place

Plenue , October 23, 2018 at 8:18 pm

"he's been here before and took umbrage to the NC crew saying that taxation for revenue is obsolete."

It's not just obsolete as in "we don't need to do this anymore". Instead it literally doesn't happen at the federal level.

Yves Smith , October 23, 2018 at 9:36 pm

I don't remember the details, but he was banned for behavior. The problem that so often happens is that the people on losing sides of arguments here (as in not just the moderators but the commentariat does a good job of debunking their claims) is they don't give up and start going into various forms of bad faith argumentation: broken record, straw manning, or just plain getting abusive. Then they try to claim they were banned due to their position, as opposed to how they started carrying on when they couldn't make their case.

ChrisAtRU , October 23, 2018 at 7:19 pm

Joe B. is part of AMI (American Monetary Institute). This installment from NEP should sort you out.

#MMT v #AMI/#PositiveMoney

Yves Smith , October 23, 2018 at 9:43 pm

The AMI people are a real problem, and the worst is that they use enough lingo that sounds MMT-like that they confuse people about MMT. They are also presumptuous as hell. I was part of an Occupy Wall Street group, Alternative Banking. Every week, a group came and kept trying to hijack the discussion to be about Positive Money. They got air time because that's Occupy but everyone else regarded them as an annoyance.

One Sunday, the president of AMI showed up in a suit, uninvited, and expected to be able to take over the group and lecture. The rules were everyone on stack got only 2 or 3 minutes each (I forget how long) and then had to cede the floor. Since everyone else was too polite, I was the one who had to shut him up by blowing up at him and telling him he was totally out of line and had no business abusing the group's rules. That is the only time in my WASPy life I have carried on like that in a public setting. Broke up the meeting, which reconvened only after he left.

ChrisAtRU , October 24, 2018 at 12:22 pm

#Yikes I learned early on to avoid the #PositiveMoney trap, and this anecdote should convince others of the same.

skippy , October 24, 2018 at 12:41 am

All part of the broader sound money camp, not unlike Mr. Volcker's recent NYT piece.

[Oct 09, 2018] The Continuing Dominance of the Dollar by Josepth Joyce

Notable quotes:
"... Financial Times ..."
"... Global Financial Stability ..."
Oct 09, 2018 |

Why does the dollar continue to possess a hegemonic status a decade after the crisis that seemed to signal an end to U.S.-U.K. dominated finance? Gillian Tett of the Financial Times offers several reasons. The first is the global reach of U.S. based banks. U.S. banks are seen as stable, particularly when compared to European banks. Any listing of the largest international banks will be dominated by Chinese banks, and these institutions have expanded their international business . But the Chinese banks will conduct business in dollars when necessary. Tett's second reason is the relative strength of the U.S. economy, which grew at a 4.1% pace in the second quarter. The third reason is the liquidity and credibility of U.S. financial markets, which are superior to those of any rivals.

The U.S. benefits from its financial dominance in several ways. Jeff Sachs of Columbia University points out that the cost of financing government deficits is lower due to the acceptance of U.S. Treasury securities as "riskless assets." U.S. banks and other institutions earn profits on their foreign operations. In addition, the use of our banking network for international transactions provides the U.S. government with a powerful foreign policy tool in the form of sanctions that exclude foreign individuals, firms or governments from this network .

There are risks to the system with this dependence. As U.S. interest rates continue to rise, loans that seemed reasonable before now become harder to finance. The burden of dollar-denominated debt also increases as the dollar appreciates. These developments exacerbate the repercussions of policy mistakes in Argentina and Turkey, but also affect other countries as well.

The IMF in its latest Global Financial Stability (see also here ) identifies another potential destabilizing feature of the current system. The IMF reports that the U.S. dollar balance sheets of non-U.S. banks show a reliance on short-term or wholesale funding. This reliance leaves the banks vulnerable to a liquidity freeze. The IMF is particularly concerned about the use of foreign exchange swaps, as swap markets can be quite volatile. While central banks have stablished their own network of swap lines , these have been criticized .

The status of the dollar as the primary international currency is not welcomed by foreign governments. The Russian government, for example, is seeking to use other currencies for its international commerce. China and Turkey have offered some support, but China is invested in promoting the use of its own currency. In addition, Russia's dependence on its oil exports will keep it tied to the dollar.

But interest in formulating a new international payments system has now spread outside of Russia and China. Germany's Foreign Minister Heiko Maas has called for the establishment of "U.S. independent payment channels" that would allow European firms to continue to deal with Iran despite the U.S. sanctions on that country. Chinese electronic payments systems are being used in Europe and the U.S. The dollar may not be replaced, but it may have to share its role as an international currency with other forms of payment if foreign nations calculate that the benefits of a new system outweigh its cost. Until now that calculation has always favored the dollar, but the reassessment of globalization initiated by the Trump administration may have lead to unexpected consequences.

[Oct 08, 2018] The city of Los Angeles has on its ballot for the November elections a measure to create a city-owned bank.

Oct 08, 2018 |

Grieved , Oct 7, 2018 4:13:53 PM | link

Our commenter psychohistorian and others interested in public banking, and the concept of money as a public utility rather than a private (and profit-gouging) instrument, may want to watch the latest Keiser Report, which has an interview with Ellen Brown.

Brown relates that the city of Los Angeles has on its ballot for the November elections a measure to create a city-owned bank. This was put on the ballot by the city council itself, prompted by a groundswell of support coming from constituents.

The rapid-fire interview doesn't go deeply into the politics behind this citizen initiative, but it seems like a happy story of young millennials looking for an alternative to Wall Street banks, and learning from Brown and others about the strong value of the public bank.

An interesting turn of events. The interview starts in the second half of the show at 14:40:

Episode 1289 Keiser Report

[Oct 02, 2018] Randy Wray Modern Monetary Theory How I Came to MMT and What I Include in MMT naked capitalism

Notable quotes:
"... By L. Randall Wray, Professor of Economics at Bard College. Originally published at New Economic Perspectives ..."
"... Treatise on Money ..."
"... State Theory of Money ..."
"... Money and Credit in Capitalist Economies ..."
"... Understanding Modern Money ..."
"... Modern Money Theory ..."
"... Payback: Debt and the shadow side of wealth ..."
"... Reclaiming the State ..."
"... Austerity: The History of a Dangerous Idea ..."
"... permanent Zirp (zero interest rate policy) is probably a better policy since it reduces the compounding of debt and the tendency for the rentier class to take over more of the economy. ..."
"... that one of the consequences of the protracted super-low interest rate regime of the post crisis era was to create a world of hurt for savers, particularly long-term savers like pension funds, life insurers and retirees. ..."
"... income inequality ..."
"... even after paying interest ..."
"... It seems to me that the US macroeconomic policy has been operating under MMT at least since FDR (see for example Beardsley Ruml from 1945). ..."
"... After learning MMT I've occasionally thought I should get a refund for the two economics degree's I originally received. ..."
"... See: ..."
"... There is no avoiding bad government. ..."
"... "Taxes or other obligations (fees, fines, tribute, tithes) drive the currency." ..."
"... "JG is a critical component of MMT. It anchors the currency and ensures that achieving full employment will enhance both price and financial stability." ..."
Oct 02, 2018 |

Randy Wray: Modern Monetary Theory – How I Came to MMT and What I Include in MMT Posted on October 2, 2018 by Yves Smith By L. Randall Wray, Professor of Economics at Bard College. Originally published at New Economic Perspectives

I was asked to give a short presentation at the MMT conference. What follows is the text version of my remarks, some of which I had to skip over in the interests of time. Many readers might want to skip to the bullet points near the end, which summarize what I include in MMT.

I'd also like to quickly respond to some comments that were made at the very last session of the conference -- having to do with "approachability" of the "original" creators of MMT. Like Bill Mitchell, I am uncomfortable with any discussion of "rockstars" or "heroes". I find this quite embarrassing. As Bill said, we're just doing our job. We are happy (or, more accurately pleasantly surprised) that so many people have found our work interesting and useful. I'm happy (even if uncomfortable) to sign books and to answer questions at such events. I don't mind emailed questions, however please understand that I receive hundreds of emails every day, and the vast majority of the questions I get have been answered hundreds, thousands, even tens of thousands of times by the developers of MMT. A quick reading of my Primer or search of NEP (and Bill's blog and Warren's blogs) will reveal answers to most questions. So please do some homework first. I receive a lot of "questions" that are really just a thinly disguised pretense to argue with MMT -- I don't have much patience with those. Almost every day I also receive a 2000+ word email laying out the writer's original thesis on how the economy works and asking me to defend MMT against that alternative vision. I am not going to engage in a debate via email. If you have an alternative, gather together a small group and work for 25 years to produce scholarly articles, popular blogs, and media attention -- as we have done for MMT -- and then I'll pay attention. That said, here you go: .


As an undergraduate I studied psychology and social sciences -- but no economics, which probably gave me an advantage when I finally did come to economics. I began my economics career in my late 20's studying mostly Institutionalist and Marxist approaches while working for the local government in Sacramento. However, I did carefully read Keynes's General Theory at Sacramento State and one of my professors -- John Henry -- pushed me to go to St. Louis to study with Hyman Minsky, the greatest Post Keynesian economist.

I wrote my dissertation in Bologna under Minsky's direction, focusing on private banking and the rise of what we called "nonbank banks" and "off-balance sheet operations" (now called shadow banking). While in Bologna, I met Otto Steiger -- who had an alternative to the barter story of money that was based on his theory of property. I found it intriguing because it was consistent with some of Keynes's Treatise on Money that I was reading at the time. Also, I had found Knapp's State Theory of Money -- cited in both Steiger and Keynes–so I speculated on money's origins (in spite of Minsky's warning that he didn't want me to write Genesis ) and the role of the state in my dissertation that became a book in 1990 -- Money and Credit in Capitalist Economies -- that helped to develop the Post Keynesian endogenous money approach.

What was lacking in that literature was an adequate treatment of the role of the state–which played a passive role -- supplying reserves as demanded by private bankers -- that is the Post Keynesian accommodationist or Horzontalist approach. There was no discussion of the relation of money to fiscal policy at that time. As I continued to read about the history of money, I became more convinced that we need to put the state at the center. Fortunately I ran into two people that helped me to see how to do it.

First there was Warren Mosler, who I met online in the PKT discussion group; he insisted on viewing money as a tax-driven government monopoly. Second, I met Michael Hudson at a seminar at the Levy Institute, who provided the key to help unlock what Keynes had called his "Babylonian Madness" period -- when he was driven crazy trying to understand early money. Hudson argued that money was an invention of the authorities used for accounting purposes. So over the next decade I worked with a handful of people to put the state into monetary theory.

As we all know, the mainstream wants a small government, with a central bank that follows a rule (initially, a money growth rate but now some version of inflation targeting). The fiscal branch of government is treated like a household that faces a budget constraint. But this conflicts with Institutionalist theory as well as Keynes's own theory. As the great Institutionalist Fagg Foster -- who preceded me at the University of Denver–put it: whatever is technically feasible is financially feasible. How can we square that with the belief that sovereign government is financially constrained? And if private banks can create money endogenously -- without limit -- why is government constrained?

My second book, in 1998, provided a different view of sovereign spending. I also revisited the origins of money. By this time I had discovered the two best articles ever written on the nature of money -- by Mitchell Innes. Like Warren, Innes insisted that the dollar's value is derived from the tax that drives it. And he argued this has always been the case. This was also consistent with what Keynes claimed in the Treatise, where he said that money has been a state money for the past four thousand years, at least. I called this "modern money" with intentional irony -- and titled my 1998 book Understanding Modern Money as an inside joke. It only applies to the past 4000 years.

Surprisingly, this work was more controversial than the earlier endogenous money research. In my view it was a natural extension -- or more correctly, it was the prerequisite to a study of privately created money. You need the state's money before you can have private money. Eventually our work found acceptance outside economics -- especially in law schools, among historians, and with anthropologists.

For the most part, our fellow economists, including the heterodox ones, attacked us as crazy.

I benefited greatly by participating in law school seminars (in Tel Aviv, Cambridge, and Harvard) on the legal history of money -- that is where I met Chris Desan and later Farley Grubb, and eventually Rohan Grey. Those who knew the legal history of money had no problem in adopting MMT view -- unlike economists.

I remember one of the Harvard seminars when a prominent Post Keynesian monetary theorist tried to argue against the taxes drive money view. He said he never thinks about taxes when he accepts money -- he accepts currency because he believes he can fob it off on Buffy Sue. The audience full of legal historians broke out in an explosion of laughter -- yelling "it's the taxes, stupid". All he could do in response was to mumble that he might have to think more about it.

Another prominent Post Keynesian claimed we had two things wrong. First, government debt isn't special -- debt is debt. Second, he argued we don't need double entry book-keeping -- his model has only single entry book-keeping. Years later he agreed that private debt is more dangerous than sovereign debt, and he's finally learned double-entry accounting. But of course whenever you are accounting for money you have to use quadruple entry book-keeping. Maybe in another dozen years he'll figure that out.

As a student I had read a lot of anthropology -- as most Institutionalists do. So I knew that money could not have come out of tribal economies based on barter exchange. As you all know, David Graeber's book insisted that anthropologists have never found any evidence of barter-based markets. Money preceded market exchange.

Studying history also confirmed our story, but you have to carefully read between the lines. Most historians adopt monetarism because the only economics they know is Friedman–who claims that money causes inflation. Almost all of them also adopt a commodity money view -- gold was good money and fiat paper money causes inflation. If you ignore those biases, you can learn a lot about the nature of money from historians.

Farley Grubb -- the foremost authority on Colonial currency -- proved that the American colonists understood perfectly well that taxes drive money. Every Act that authorized the issue of paper money imposed a Redemption Tax. The colonies burned all their tax revenue. Again, history shows that this has always been true. All money must be redeemed -- that is, accepted by its issuer in payment. As Innes said, that is the fundamental nature of credit. It is written right there in the early acts by the American colonies. Even a gold coin is the issuer's IOU, redeemed in payment of taxes. Once you understand that, you understand the nature of money.

So we were winning the academic debates, across a variety of disciplines. But we had a hard time making progress in economics or in policy circles. Bill, Warren, Mat Forstater and I used to meet up every year or so to count the number of economists who understood what we were talking about. It took over decade before we got up to a dozen. I can remember telling Pavlina Tcherneva back around 2005 that I was about ready to give it up.

But in 2007, Warren, Bill and I met to discuss writing an MMT textbook. Bill and I knew the odds were against us -- it would be for a small market, consisting mostly of our former students. Still, we decided to go for it. Here we are -- another dozen years later -- and the textbook is going to be published. MMT is everywhere. It was even featured in a New Yorker crossword puzzle in August. You cannot get more mainstream than that.

We originally titled our textbook Modern Money Theory , but recently decided to just call it Macroeconomics . There's no need to modify that with a subtitle. What we do is Macroeconomics. There is no coherent alternative to MMT.

A couple of years ago Charles Goodhart told me: "You won. Declare victory but be magnanimous about it." After so many years of fighting, both of those are hard to do. We won. Be nice.

Let me finish with 10 bullet points of what I include in MMT:

1. What is money: An IOU denominated in a socially sanctioned money of account. In almost all known cases, it is the authority -- the state -- that chooses the money of account. This comes from Knapp, Innes, Keynes, Geoff Ingham, and Minsky.

2. Taxes or other obligations (fees, fines, tribute, tithes) drive the currency. The ability to impose such obligations is an important aspect of sovereignty; today states alone monopolize this power. This comes from Knapp, Innes, Minsky, and Mosler.

3. Anyone can issue money; the problem is to get it accepted. Anyone can write an IOU denominated in the recognized money of account; but acceptance can be hard to get unless you have the state backing you up. This is Minsky.

4. The word "redemption" is used in two ways -- accepting your own IOUs in payment and promising to convert your IOUs to something else (such as gold, foreign currency, or the state's IOUs).

The first is fundamental and true of all IOUs. All our gold bugs mistakenly focus on the second meaning -- which does not apply to the currencies issued by most modern nations, and indeed does not apply to most of the currencies issued throughout history. This comes from Innes and Knapp, and is reinforced by Hudson's and Grubb's work, as well as by Margaret Atwood's great book: Payback: Debt and the shadow side of wealth .

5. Sovereign debt is different. There is no chance of involuntary default so long as the state only promises to accept its currency in payment. It could voluntarily repudiate its debt, but this is rare and has not been done by any modern sovereign nation.

6. Functional Finance: finance should be "functional" (to achieve the public purpose), not "sound" (to achieve some arbitrary "balance" between spending and revenues). Most importantly, monetary and fiscal policy should be formulated to achieve full employment with price stability. This is credited to Abba Lerner, who was introduced into MMT by Mat Forstater.

In its original formulation it is too simplistic, summarized as two principles: increase government spending (or reduce taxes) and increase the money supply if there is unemployment (do the reverse if there is inflation). The first of these is fiscal policy and the second is monetary policy. A steering wheel metaphor is often invoked, using policy to keep the economy on course. A modern economy is far too complex to steer as if you were driving a car. If unemployment exists it is not enough to say that you can just reduce the interest rate, raise government spending, or reduce taxes. The first might even increase unemployment. The second two could cause unacceptable inflation, increase inequality, or induce financial instability long before they solved the unemployment problem. I agree that government can always afford to spend more. But the spending has to be carefully targeted to achieve the desired result. I'd credit all my Institutionalist influences for that, including Minsky.

7. For that reason, the JG is a critical component of MMT. It anchors the currency and ensures that achieving full employment will enhance both price and financial stability. This comes from Minsky's earliest work on the ELR, from Bill Mitchell's work on bufferstocks and Warren Mosler's work on monopoly price setting.

8. And also for that reason, we need Minsky's analysis of financial instability. Here I don't really mean the financial instability hypothesis. I mean his whole body of work and especially the research line that began with his dissertation written under Schumpeter up through his work on Money Manager Capitalism at the Levy Institute before he died.

9. The government's debt is our financial asset. This follows from the sectoral balances approach of Wynne Godley. We have to get our macro accounting correct. Minsky always used to tell students: go home and do the balances sheets because what you are saying is nonsense. Fortunately, I had learned T-accounts from John Ranlett in Sacramento (who also taught Stephanie Kelton from his own, great, money and banking textbook -- it is all there, including the impact of budget deficits on bank reserves). Godley taught us about stock-flow consistency and he insisted that all mainstream macroeconomics is incoherent.

10. Rejection of the typical view of the central bank as independent and potent. Monetary policy is weak and its impact is at best uncertain -- it might even be mistaking the brake pedal for the gas pedal. The central bank is the government's bank so can never be independent. Its main independence is limited to setting the overnight rate target, and it is probably a mistake to let it do even that. Permanent Zirp (zero interest rate policy) is probably a better policy since it reduces the compounding of debt and the tendency for the rentier class to take over more of the economy. I credit Keynes, Minsky, Hudson, Mosler, Eric Tymoigne, and Scott Fullwiler for much of the work on this.

That is my short list of what MMT ought to include. Some of these traditions have a very long history in economics. Some were long lost until we brought them back into discussion. We've integrated them into a coherent approach to Macro. In my view, none of these can be dropped if you want a macroeconomics that is applicable to the modern economy. There are many other issues that can be (often are) included, most importantly environmental concerns and inequality, gender and race/ethnicity. I have no problem with that.

Hilary Barnes , October 2, 2018 at 3:01 am

Out of my depth: "7. For that reason, the JG is a critical component of MMT." The JG?

BillC , October 2, 2018 at 3:07 am

Job guarantee (especially as distinguished from a basic income guarantee). See here for fairly recent coverage by Lambert.

Epistrophy , October 2, 2018 at 6:16 am

I had exactly the same question. Thank you.

skippy , October 2, 2018 at 7:04 am

A JG is to discontinue NAIRU or structural under-unemployment with attendant monetarist/quasi inflation views. Something MMT has be at pains to point out wrt fighting a nonexistent occurrence due to extended deflationary period.

dcrane , October 2, 2018 at 5:31 am

The paragraph on "double entry book-keeping" is also a bit too inside-baseball. Otherwise I enjoyed the essay.

PlutoniumKun , October 2, 2018 at 6:11 am

Yup, he lost me on quadruple entry book-keeping, thats the first time I ever heard of that concept.

Quanka , October 2, 2018 at 8:02 am

Its double entry accounting counting both sides of the equation. Fed deposits money into bank requires 4 entries, a double entry for the Fed and for the bank. Typical double entry accounting only looks at the books of 1 entity at a time. Quadruple Entry accounting makes the connection between the government monetary policy and private business accounting. I'm not an accountant, I may have butchered that.

todde , October 2, 2018 at 12:15 pm

that's pretty much it

Peter Pan , October 2, 2018 at 1:37 pm

Does Steve Keen's "Minsky" program utilize quadruple-entry bookkeeping?

Todde , October 2, 2018 at 1:47 pm

Double entry

Grebo , October 2, 2018 at 3:12 pm

Yes it does. Double entry for each party to the transaction.

todde , October 2, 2018 at 3:29 pm

you are right – it does give each parties transactions.

horostam , October 2, 2018 at 8:43 am

think about banks and reserves, your money is on the bank's liability side (and your asset), while the reserves are on the bank's asset side (and gov't or fed's liability.)

i think its the reserves that quadruple it, reserves are confusing because when you move $5 from a bank account to buy ice cream its not just one copy of the $5 that moves between checking accounts, there is another $5 that moves "under the hood" so to speak in reserve world

HotFlash , October 2, 2018 at 12:10 pm

Very briefly, double entry bookkeeping keeps track of how money comes in/out, and where it came from/went. Cash is the determining item (although there may be a few removes). Hence, say I buy a $20 dollar manicure from you. I record my purchase as "Debit (increase) expense: manicure $20, credit (decrease) cash, $20". Bonus! If my bookkeeping is correct, my debits and credits are equal and if I add them up (credits are minus and debits are plus) the total is zero – my books "balance". So, double-entry bookkeeping is also a hash-total check on my accounting accuracy. But I digress.

On your books, the entry would be "Debit (increase) cash $20, credit (decrease) sales, $20".

So, your double-entry book plus my double-entry books would be quadruple-entry accounting.

JCC , October 2, 2018 at 9:40 am

#7 was my immediate stopper, too. It drives me nuts when people introduce 2-3-4 letter acronyms with no explanation (I work for the DoD and I'm surrounded by these "code words". I rarely know what people are talking about and when I ask, the people talking rarely know what these TLAs – T hree L etter A cronyms – stand for either!).

Next question regarding #7: What is ELR?

Other than #7, I really appreciate this article. NC teaches and/or clarifies on a daily basis.

Mel , October 2, 2018 at 10:11 am

Employer of Last Resort? (Wikipedia)

Matthew Platte , October 2, 2018 at 11:29 am


JCC , October 2, 2018 at 2:45 pm

Guilty as charged :-)

For non-US readers, DoD is D epartment o f D efense, the undisputed-by-many home of TLAs.

lyman alpha blob , October 2, 2018 at 3:10 pm

Ha! I really love this blog.

somecallmetim , October 2, 2018 at 12:51 pm



Bill C , October 2, 2018 at 3:02 am

Thank you for this post!

This quick, entertaining read is IMHO nothing less than a "Rosetta Stone" that can bring non-specialists to understand MMT: not just how , but why it differs from now-conventional neoliberal economics. I hope it finds a wide readership and that its many references to MMT's antecedents inspire serious study by the unconvinced (and I hope they don't take Wray's invitation to skip the 10 bullet points).

This piece is a fine demonstration of why I've missed Wray as he seemed to withdraw from public discourse for the last few years.

HotFlash , October 2, 2018 at 12:14 pm

No no! He said "Many readers might want to skip to the bullet points near the end, which summarize what I include in MMT."

el_tel , October 2, 2018 at 4:55 am

Thank you! The (broad) analogies with my own experience are there. I had a decidedly "mainstream" macro education at Cambridge (UK); though many of the "old school" professors/college Fellows who, although not MMT people as we'd currently understand (or weren't at *that* stage – Godley lectured a module I took but this was in the early 1990s) were still around, in hindsight the "university syllabus" (i.e. what you needed to regurgitate to pass exams) had already steered towards neoliberalism. I never really understood why I never "got" macro and it was consistently my weakest subject.

It was later, having worked in the City of London, learned accountancy in my actuarial training, and then most crucially starting reading blogs from people who went on to become MMT leading lights, that I realised the problem wasn't ME, it was the subject matter. So I had to painfully unlearn much of what I was taught and begin the difficult process of getting my head around a profoundly different paradigm. I still hesitate to argue the MMT case to friends, since I don't usually have to hand the "quick snappy one liners" that would torpedo their old discredited understanding.

I'm still profoundly grateful for the "old school" Cambridge College Fellows who were obviously being sidelined by the University and who taught me stuff like the Marxist/Lerner critiques, British economic history, political economy of the system etc. Indeed whilst I had "official" tutorials with a finance guy who practically came whenever Black-Scholes etc was being discussed, an old schooler was simultaneously predicting that it would blow the world economy up at some point (and of course he was in the main , correct). I still had to fill in some gaps in my knowledge (anthropology was not a module, though Marxist economics was), with hindsight I appreciate so much more of what the "old schoolers" said on the sly during quiet points in tutorials – Godley being one, although he wasn't ready at that time to release the work he subsequently published and was so revolutionary. Having peers educated elsewhere during my Masters and PhD who knew nothing of the subjects that – whilst certainly not the "key guide" to "proper macro" described in the article – began to horrify me later in my career.

skippy , October 2, 2018 at 5:07 am

Thanks for your efforts Mr Wray, your provide a rich resource to familiarize most and in some cases refute doctrinaire attitudes. Kudos.

BTW completely agree with the perspective against PR marketing of the topic or individuals wrt MMT or PK.

Lambert Strether , October 2, 2018 at 5:23 am

This is really great. Thanks a ton, as Yves would say.

I know I have used to "rock star" metaphor on occasion, so let me explain that to me what is important in excellent (i.e., live) rock and roll is improvisational interplay among the group members -- the dozen or so who understood MMT in the beginning, in this case -- who know the tune, know each other, and yet manage to make the song a little different each time. It's really spectacular to see in action. Nothing to do with spotlights, or celebrity worship, or fandom!

DavidEG , October 2, 2018 at 5:54 am

I'm no MMT expert, but I think this article does a good job of juxtaposing MMT with classic (non-advanced) macroeconomics. I quote:

In the language of Tinbergen (1952), the debate between MMT and mainstream macro can be thought of as a debate over which instrument should be assigned to which target. The consensus assignment is that the interest rate, under the control of an independent central bank, should be assigned to the output gap target, while the fiscal position, under control of the elected budget authorities, should be assigned to the debt sustainability target. [ ] The functional finance assignment is the reverse -- the fiscal balance under the budget authorities is assigned to the output target, while any concerns about debt sustainability are the responsibility of the monetary authority.

What about interest rate fixing? The central bank would remain in charge of that, but in an MMT context this instrument would lose most of its relevance:

[W]hile a simple swapping of instruments and targets is one way to think about functional finance, this does not describe the usual MMT view of how the policy interest rate should be set. What is generally called for, rather, is that the interest rate be permanently kept at a very low level, perhaps zero. In an orthodox policy framework, of course, this would create the risk of runaway inflation; but keep in mind that in the functional framework, the fiscal balance is set to whatever level is consistent with price stability.

It may be a partial reconstruction of MMT, but to me this seems to be a neat way to present MMT to most people. Saying that taxes are there just to remove money from the economy or to provide incentives is a rather extreme statement that is bound to elicit some fierce opposition.

Having said that, I've never seen anyone address what I think are two issues to MMT: how to make sure that the power to create money is not exploited by a political body in order to achieve consensus, and how to assure that the idea of unlimited monetary resources do not lead to misallocation and inefficiencies (the bloated, awash-with-money US military industry would probably be a good example).

larry , October 2, 2018 at 6:14 am

The best comparison of MMT with neoliberal neoclassical economics, in my view, is Bill Mitchell's blog post, "How to Discuss Modern Monetary Theory" ( ). I especially recommend the table near the end as a terrific summary of the differences between the mainstream narrative and MMT.

el_tel , October 2, 2018 at 8:53 am

Thanks! I have enormous respect for Mitchell, given the quantity and quality of his blogging. However, my only nitpick is that a lot of his blog entries are quite long and "not easily digestible". I have long thought that one of those clever people who can do those 3 minute rapid animation vids we see on youtube is needed to "do a Lakoff" and change the metaphors/language. But this post of Mitchell (which I missed, since I don't read all his stuff) is, IMHO, his best at "re-orienting us".

kgw , October 2, 2018 at 11:15 am

I get this "http's server IP address could not be found." I'll try, gasp, googling it

el_tel , October 2, 2018 at 11:24 am

FWIW I mucked around with the link in Firefox (although I typically use Opera, which gave me that same error) and could read it.

Epistrophy , October 2, 2018 at 6:34 am

Saying that taxes are there just to remove money from the economy or to provide incentives is a rather extreme statement that is bound to elicit some fierce opposition.

Yes this is a frightening statement. The power to tax is the power to destroy. If this is a foundation point of the proposal then

Having said that, I've never seen anyone address what I think are two issues to MMT: how to make sure that the power to create money is not exploited by a political body in order to achieve consensus, and how to assure that the idea of unlimited monetary resources do not lead to misallocation and inefficiencies (the bloated, awash-with-money US military industry would probably be a good example).

Bingo. My thoughts exactly. Too much power in the hands of the few. Easy to slide into Orwell's Animal Farm – where some people are more equal than others.

MMT is based upon very good intentions but, in my view, there is a moral rot at the root of the US of A's problems, not sure this can be solved by monetary policy and more centralized control.

And the JG? Once the government starts to permanently guarantee jobs

skippy , October 2, 2018 at 7:12 am

I suggest you delve into what is proposed by the MMT – PK camp wrt a JG because its not centralized in the manner you suggest. It would be more regional and hopefully administrated via social democratic means e.g. the totalitarian aspect is moot.

I think its incumbent on commenters to do at least a cursory examination before heading off on some deductive rationalizations, which might have undertones of some book they read e.g. environmental bias.

Epistrophy , October 2, 2018 at 7:38 am

Skippy, I read the article, plus the links, including those links of the comments. I will admit that I am a little more right of center in my views than many on the website.

The idea is interesting, but the administration of such a system would require rewriting the US Constitution, or an Amendment to it if one thinks the process through, would it not? I think of the Amendment required to create the Federal Reserve System when I say this.

skippy , October 2, 2018 at 7:45 am

I think WWII is instructive here.

Clive , October 2, 2018 at 7:58 am

One thing I really don't like at all -- and I've crossed swords with many over this -- is that we do tend to take (not just in the US, this is prevalent in far too many places) things like the constitution, or cultural norms, or traditions or other variants of "that's the way we've always done this" and elevate them to a level of sacrosanctity.

Not for one moment am I suggesting that we should ever rush into tweaking such devices lightly nor without a great deal of analysis and introspective consultations.

Constitutions get amended all the time. The Republic of Ireland changed its to renounce a territorial claim on Northern Ireland. The U.K. created a right for Scotland to secede from the Union. There's even a country in Europe voting whether to formally change its name right now. Britain "gave up" its empire territories (not, I would add speedily, without a lot of prodding, but still, we got there in the end). All of which were, at one time or another, "unthinkable". Even the US, perhaps the most inherently resistant to change country when it thinks it's being "forced" to do so, begrudgingly acknowledged Cuba.

If something is necessary, it should be done.

vlade , October 2, 2018 at 8:06 am

Human laws (any and all, for simplicity I include culture, customs etc.. here) are not laws of nature.

They change over time to survive. The easy way, or the hard way.

Or they don't survive at all, that's an option too.

witters , October 2, 2018 at 9:09 am

"Human laws (any and all, for simplicity I include culture, customs etc.. here) are not laws of nature."

Wave Function Collapse?

voteforno6 , October 2, 2018 at 8:14 am

Why would a jobs guarantee require a constitutional amendment? The federal government creates jobs all the time, with certain defined benefits. This would merely expand upon that, to potentially include anyone who wants a job.

Epistrophy , October 2, 2018 at 8:26 am

I was thinking of implementing the whole concept of MMT, of which the JG is but one part, with this statement. Perhaps I did not make that clear.

voteforno6 , October 2, 2018 at 8:36 am

There are a couple different aspects of this that people are getting mixed together, I think. The core of MMT is not a proposal for government to implement. Rather, it is simply a description of how sovereign currencies actually operate, as opposed by mainstream economics, which has failed in this regard. In other words, we don't need any new laws to implement MMT – we need a paradigm shift.

The Jobs Guarantee is a policy proposal that flows from this different paradigm.

skippy , October 2, 2018 at 3:16 pm

It has been stated many times that it is to inform policy wrt to potential and not some booming voice from above dictating from some ridged ideology.

Persoanly as a capitalist I can't phantom why anyone would want structural under – unemployment. Seems like driving around with the hand brake on and then wondering why performance is restricted or parts wear out early.

todde , October 2, 2018 at 4:37 pm


I want 12 people lined up at the door to take your job, and then you will know where the power lies

Carla , October 2, 2018 at 11:18 am

Re-writing the U.S. Constitution is something people think about and talk about all the time, FYI.

todde , October 2, 2018 at 1:08 pm

the Amendment required to create the Federal Reserve System

What Amendment was that?

And since the Constitution gives Congress the power to coin money I am unaware of any reason an amendment would be necessary.

Epistrophy , October 2, 2018 at 3:43 pm

Thinking of the Federal Reserve Act being enabled by the Federal Income Tax of the 16th Amendment.

Using Federal taxes to fund the JG; I do not think that this aspect of it (and others) would survive a Constitutional challenge. Therefore ultimately an Amendment might be needed.

Then again I may be wrong. Technically Obamacare should have been implemented by an Amendment were strict Constitutional law applied.

Rights to health care and jobs are not enumerated in either the Constitution or Bill of Rights, as far as I am aware.

todde , October 2, 2018 at 4:05 pm

16th Amendment had nothing to do with the Federal Reserve.

And I think you are confusing 'you must buy health insurance or face a tax", with "You have a right to have healthcare".

If the government forced you to work, you may have a case.

There are 3 things the feds can spend federal funds on, pay debt, provide for the common defense, and the general welfare clause.

The General Welfare clause has been interpreted very widely in regards to Government spending.

New Deal, Social Security, Medicare/aid all survived court challenges, or if they lost, they lost on regulatory issues, and not 'spending' issues

Epistrophy , October 2, 2018 at 7:28 am

Not opposed to some of the principles of MMT, just don't understand, in this modern age where effectively all currency is electronic digits in a banking computer system, the issue of a currency must be tied to taxes. In years past, where currency was printed and in one's pocket, or stuffed under a mattress, or couriered by stagecoach, then yes – taxes would be needed. But today can we not just print (electronically) the cash needed for government operations each year based upon a fixed percentage of private sector GDP? Why therefore do we need government debt? Why do we need an income tax?

skippy , October 2, 2018 at 7:37 am

A. GDP is non distributional.

B. Had taxation not been promoted as theft in some camps Volcker would have not had to jack IR to such a upper bound during the Vietnam war.

C. Government Debt allocated to socially productive activities is a long term asset with distributional income vectors.

D. Ask the Greeks.

Epistrophy , October 2, 2018 at 7:48 am

Skippy, I have lived and worked in countries without income tax (but instead indirect tax) and where government operating revenue was based upon a percentage of projected national revenue. I have been involved in the administration of such budgets.

I am in favor of government spending, or perhaps more accurately termed investing, public money on long-term, economically beneficial projects. But this is not happening. The reality is that government priorities can easily be hijacked by political interests, as we currently witness.

larry , October 2, 2018 at 7:58 am

While I agree that political highjacking is possible and must be dealt with, this is not strictly speaking part of an economic theory, which is what MMT is. While MMT authors may take political positions, the theory itself is politically neutral.

Income taxes, tithes, or any other kind of driver is what drives the monetary circuit. Consider it from first principles. You have just set up a new government with a new currency where this government is the monopoly issuer. No one else has any money yet. So, the government must be the first spender. However, how is this nascent government going to motivate anyone to use this new currency? Via taxation, or like means, that can only be met by using the national currency, whatever form that currency may take, marks on a stick, paper, an entry in a ledger, or the like.

Epistrophy , October 2, 2018 at 8:34 am

Thank you for this explanation. I understand that, for example, this is why the Federal Reserve Act of 1913, I believe, created the Federal Reserve and Federal Income Tax at the same time.

But the US economy functioned adequately, survived a civil war, numerous banking crises, experienced industrialization, national railways, etc without a central bank or federal income tax from the 1790's to 1913.

To me, the US's state of perpetual war is enabled by Federal Income Tax. Without it the MIC would collapse, I am certain.

John k , October 2, 2018 at 10:31 am

Functioned adequately
During the 150 yr hard money period we had recessions/depressions that we're both far more frequent (every three years) and on avg far deeper than what we have had since fdr copied the brits and took us off the gold standard. Great deprecession was neither the longest or deepest.
Two reasons
Banks used to fail frequently, a run on one bank typically leading to runs on other banks, spreading across regions like prairie fires if your bank failed you lost all your money. Consequences were serious.
During GR so many banks failed in the Midwest, leading to farm foreclosures, the region was near armed insurrection in 1932. Fiat meant that the fed can supply unlimited liquidity. Since then banks have failed but immediately taken over by another. Critically, no depositor has lost a penny, even those with far more exposed than the deposit insurance limit. No runs on us banks since 1933.
Second, we now have auto stabilizers, spending continues during downturns because gov has no spending limit. Note previously in an emergency gov borrowed. 10 mil from J.P. Morgan.

Brian , October 2, 2018 at 11:30 am

But at what cost? no depositor loses money, yet huge amounts are required to be printed, thus devaluing the "currency". So is the answer inflation that must by necessity become hyperinflation?
I don't understand why it is important to protect a bank vs. making it perform its function without risking collapse. This is magical thinking as we have found very few banks in this world not ready and willing to pillage their clients, be it nations or just the little folk.
Why would anyone trust a government to do the right thing by its population? When has that ever worked out in favor of the people?
I can not understand the trust being demanded by this concept. It wants trust for the users, but in no way can it expect trust or virtue from the issuer of the "currency"

also, I can't help but think MMT is for growth at all costs. Hasn't the growth shown that it is pernicious in itself? Destroy the planet for the purpose of stabilizing "currency".

Our federal reserve gave banks trillions of dollars, and then demanded they keep much of it with the Fed and are paid interest not to use it. It inflated the "currency" in circulation yet again and now it is becoming clear a great percentage of people in our country can no longer eat, no longer purchase medications, a home, a business

If being on a hard money system as we were causes recessions and depressions, would we find that it was a natural function to cut off the speculators at their knees?

How does MMT promote and retain value for the actual working and producing people that have no recourse with their government? I would like to read about what is left out of this monumental equation.

TroyMcClure , October 2, 2018 at 12:10 pm

Money is not a commodity and does not "lose value" the more of it there is.

todde , October 2, 2018 at 12:57 pm

we used to protect the banks depositors and the government put the the bank in receivership.

That went away in the 21st century for some reason.

Now we protect the bank and put the Government in receivership (Greece).

todde , October 2, 2018 at 12:08 pm

Some points:

US had a federal income tax during the civil war and for a decade or so after.

I have always assumed that mass conscription and the Dreadnought arms race led to the implementation of the modern taxing/monetary system. (gov't needed both warfare and welfare)

Taxes, just as debt, create an artificial demand for currency as one must pay back their taxes in {currency}, and one must pay back debt in {currency}. It doesn't have to be an income tax, and I think a sales tax would be a better driver of demand than an income tax.

The US had land sales that helped fund government expenditures in the 1800s.

HotFlash , October 2, 2018 at 12:32 pm

Not all taxes are income taxes. Back in the day (20's/30's/40's),my grandfather could pay off the (county) property taxes on his farm by plowing snow for the county in the winter -- and he was damned careful to make sure that the county commissioners' driveways were plowed out as early as possible after a storm.

In the 30's/40's the property tax laws were changed to be payable only in dollars.

So Grandpa had to make cash crops. Things changed and money became necessary.

Benjamin Wolf , October 2, 2018 at 7:44 am

But today can we not just print (electronically) the cash needed for government operations each year based upon a fixed percentage of private sector GDP?

The élites could, but it would be totally undemocratic and the economics profession's track record of forecasting growth is no better than letting a cat choose a number written on an index card.

Why therefore do we need government debt?

There is no government debt. It's just a record of interest payments Congress has agreed to make because the wealthy wanted another welfare program.

Why do we need an income tax?

The only logically consistent purpose is because people have too much income.

voteforno6 , October 2, 2018 at 8:19 am

I think the point they're driving at, is that by requiring the payment of taxes in a particular currency, a government creates demand for that currency. There are other uses for federal taxes, not the least of which is to keep inflation in check.

Government debt is not needed, at least not at the federal level. My understanding of it is that it's a relic from the days of the gold standard. It's also very useful to some rather large financial institutions, so eliminating it would be politically difficult.

WobblyTelomeres , October 2, 2018 at 9:23 am

Wray has said in interviews that the debt (and associated treasury bonds), while not strictly necessary in a fiat currency, is of use in that it provides a safe base for investment, for pensioners and retirees, etc.

Sure, it could be eliminated by (a) trillion dollar platinum coins deposited at the Federal Reserve followed by (b) slowly paying off the existing debt when the bonds mature or (c) simply decreeing that the Fed must go to a terminal and type in 21500000000000 as the US Gov account balance (hope I got the number of zeroes correct!).

It could be argued that the US doesn't strictly need taxes to drive currency demand as long as our status as the world reserve currency is maintained (see oft-discussed petrodollar, Libya, etc). If that status is imperiled, say by an push by a coalition of nations to establish a different currency as the "world reserve currency") taxes would be needed to drive currency demand.

I think most of this is covered in one way or another here:

HotFlash , October 2, 2018 at 12:39 pm

Government debt is not actually a 'real thing'. It is a residue of double-entry bookkeeping, as is net income (income minus expenses, that's a credit in the double-entry system). It could as well be called 'retained earnings (also a 'book' credit in the double-entry system). If everybody had to take bookkeeping in high school there would be far few knickers in knots!

Todde , October 2, 2018 at 3:10 pm

Its real if you pay an interest rate on it

Grebo , October 2, 2018 at 3:48 pm

There are two kinds of government 'debt': the accumulated deficit which is the money in circulation not a real debt, and outstanding bonds which is real in the sense that it must be repaid with interest.

However, the government can choose the interest rate and pay it (or buy back the bonds at any time) with newly minted money at no cost to itself, cf. QE.

Neither kind warrant bunched panties.

todde , October 2, 2018 at 4:39 pm

no panties bunched.

horostam , October 2, 2018 at 8:51 am

seems to me that the guaranteed jobs would be stigmatized, and make it harder for people to get private sector jobs. "once youre in the JG industry, its hard to get out" etc.

how much of a guarantee is the job guarantee supposed to be? ie. at what point can you get fired from a guaranteed job?

Epistrophy , October 2, 2018 at 9:31 am

Yes, my mind wandered into the same territory. While I agree that something needs to be done, it also has the potential to strike at the heart of a lean, merit-based system by introducing another layer of bureaucracy. In principle, I am not against the idea, but as they say, "God (or the Devil – take your pick) is in the details ".

The Rev Kev , October 2, 2018 at 9:48 am

Is there any point in working for a jobs guarantee when the only sort of jobs that would probably be guaranteed would be MacJobs and Amazon workers?

Newton Finn , October 2, 2018 at 11:23 am

If you haven't already read it, "Reclaiming the State" by Mitchell and Fazi (Pluto Press 2017) provides a detailed and cogent analysis of how neoliberalism came into ascendency, and how the principles of MMT can be used to pave the way to a more humane and sustainable economic system. A new political agenda for the left, drawing in a different way upon the nationalism that has energized the right, is laid out for those progressives who understand the necessity of broadening their appeal. And the jobs guarantee that MMT proposes has NOTHING to do with MacJobs and Amazon workers. It has to do with meeting essential human and environmental needs which are not profitable to meet in today's private sector.

HotFlash , October 2, 2018 at 12:51 pm

Job guarantee, or govt as employer of last resort -- now there is a social challenge/opportunity if there ever was one.

Well managed, it would guarantee a living wage to anyone who wants to work, thereby setting a floor on minimum wages and benefits that private employers would have to meet or exceed. These minima would also redound to the benefit of self-employed persons by setting standards re income and care (health, vacations, days off, etc) *and* putting money in the pockets of potential customers.

Poorly managed it could create the 'digging holes, filling them in' programs of the Irish Potato Famine ore worse (hard to imagine, but still ). It has often been remarked that the potato blight was endemic across Europe, it was only a famine in Ireland -- through policy choices.

So, MMT aside (as being descriptive, rather than prescriptive), we are down to who controls policy. And that is *really* scary.

Todde , October 2, 2018 at 3:11 pm

Government job guarantees is an idea as old as the pyramids.

Frankly so is mmt

Mel , October 2, 2018 at 11:34 am

In terms of power, the government has the power to shoot your house to splinters, or blow it up, with or without you in it. We say they're not supposed to, but they have the ability, and it has been done.
The question of how to hold your government to the things it's supposed to do applies to issues beyond money. We'd best deal with government power as an issue in itself. I should buckle down and get Mitchell's next-to-newest book Reclaiming the State .

HotFlash , October 2, 2018 at 12:56 pm

Ding ding ding!

Grebo , October 2, 2018 at 3:23 pm

Bill Mitchell was not too impressed with the INET paper: Part 1 .
There's three parts! Mitchell rarely has the time to be brief.

Tinky , October 2, 2018 at 6:02 am

I don't claim to fully understand MMT yet, but I find Wray's use of the derogatory term "gold bugs" to be both disappointing and revealing. To lump those, some of whom are quite sophisticated, who believe that currencies should be backed by something of tangible value (and no, "the military" misses the point), or those who hold physical gold as an insurance policy against political incompetence, and the inexorable degradation of fiat currencies, in with those who promote or hold gold in the hopes of hitting some type of lottery, is disingenuous at best.

Wukchumni , October 2, 2018 at 7:06 am

OMT seemingly has no reason to exist being old school, but for what it's worth, the almighty dollar has lost over 95% of it's value when measured against something that matters, since the divorce in 1971.

I found this passage funny, as in flipping the dates around to 1791, is when George Washington set an exchange rate of 1000-1 for old debauched Continental Currency, in exchange for newly issued specie. (there was no Federal currency issued until 1861)

So yeah, they burned all of their tax revenue, because the money wasn't worth jack.

Farley Grubb -- the foremost authority on Colonial currency -- proved that the American colonists understood perfectly well that taxes drive money. Every Act that authorized the issue of paper money imposed a Redemption Tax. The colonies burned all their tax revenue.

skippy , October 2, 2018 at 7:30 am

Gold bug is akin to money crank e.g. money = morals. That's not to mention all the evidence to date does not support the monetarist view nor how one gets the value into the inanimate object or how one can make it moral.

Benjamin Wolf , October 2, 2018 at 8:01 am

Gold doesn't historically perform as a hedge but as a speculative trade. Those who think it can protect them from political events typically don't realize that a gold standard means public control of the gold industry, thereby cutting any separation from the political process off at the knees.

When a government declares that $20 is equal in value to one ounce of gold, it also declares an ounce of gold is equal to $20 dollars. It is therefore fixing, through a political decision subject to political changes, the price of the commodity.

Tinky , October 2, 2018 at 9:44 am

Nonsense. When fiat currencies invariably degrade, and especially at a fast rate, gold has proven to be a relative store of value for millennia . All one need do is to look at Venezuela, Argentina, Turkey, etc., to see that ancient dynamic in action today.

You, and others who have replied to my comment, are using the classical gold standard as a straw man, as well. Neither I, nor many other gold "bugs" propose such a simple solution to the obviously failed current economy, which is increasingly based on mountains of debt that can never be repaid.

WobblyTelomeres , October 2, 2018 at 9:48 am

gold has proven to be a relative store of value for millennia.

As long as one is mindful that gold is just another commodity, subject to the same speculative distortions as any other commodity (see Hunt brothers and silver).

Tinky , October 2, 2018 at 9:54 am

But that is obviously false, given that no other commodity has remotely performed with such stability over such a long period of time.

It is true that over short periods distortions can appear, and the *true* value of gold has been suppressed in recent years through the use of fraudulent paper derivatives. But again, I'm not arguing for the return of a classical gold standard.

Wukchumni , October 2, 2018 at 10:13 am

The only way the gold standard returns, is if it's forced on the world on account of massive fraud in terms of fiat money, but that'll never happen.

WobblyTelomeres , October 2, 2018 at 10:56 am


I'm curious as to what you consider the "*true* value of gold". Could you elaborate?

I'm dense/obtuse and thus not an economist!

Tinky , October 2, 2018 at 11:18 am

Don't worry, I'm likely to be at least equally dense!

I didn't mean to suggest that there is some formula from which a *true* value of precious metals might be derived. I simply meant that gold has clearly been the object of price suppression in recent years through the use of paper derivatives (i.e. future contracts). The reason for such suppression, aside from short-term profits to be made, is that gold has historically acted as a barometer relating to political and economic stability, and those in power have a particular interest in suppressing such warning signals when the system becomes unstable.

So, while the Central Banks created previously unimaginable mountains of debt, it was important not to alarm the commoners.

The suppression schemes have become less effective of late, and will ultimately fail when the impending crisis unfolds in earnest.

Wukchumni , October 2, 2018 at 10:00 am

As long as one is mindful that gold is just another commodity, subject to the same speculative distortions as any other commodity

It sounds good in theory, but history says otherwise.

The value remained more or less the same for well over 500 years as far as an English Pound was concerned, the weight and value of a Sovereign hardly varied, and the exact weight and fineness of one struck today or any time since 1817, is the same, no variance whatsoever.

Thus there was no speculative distortions in terms of value, the only variance being the value of the Pound (= 1 Sovereign) itself.

Benjamin Wolf , October 2, 2018 at 12:23 pm

When fiat currencies invariably degrade, and especially at a fast rate, gold has proven to be a relative store of value for millennia.

Currencies do not degrade. Political systems degrade.

Bridget , October 2, 2018 at 8:25 am

" who believe that currencies should be backed by something of tangible value"

As I understand it, MMT also requires that currency be backed by something of tangible value: a well managed and productive economy. It doesn't matter in the least if your debt is denominated in your own currency if you have the economy of Zimbabwe.

Tinky , October 2, 2018 at 9:48 am

Sounds reasonable in theory, but that was supposed to be the case with the current economic system, as well, and we can all see where that has led.

I'm not arguing that there isn't a theoretically better way to create and use "modern" money, but rather doubt that those empowered to create it out of thin air will ever do so without abusing such power.

Bridget , October 2, 2018 at 10:10 am

Oh, I agree with you. In no universe that I am aware of would the temptation to create money beyond the productive capacity of the economy to back it up be resisted. I think Zimbabwe is a pretty good example of where the theory goes in practice.

TroyMcClure , October 2, 2018 at 12:20 pm

That's exactly wrong. Zimbabwe had a production collapse. Same amount of money to buy a much smaller amount of goods. The gov responded not by increasing goods, but increasing money supply.

Bridget , October 2, 2018 at 1:30 pm

Maybe because the economy did not have the productive capacity to increase goods? It takes more than a magic wand and wishful thinking.

voteforno6 , October 2, 2018 at 8:29 am

Mark Blyth has a good discussion of the gold standard in his book Austerity: The History of a Dangerous Idea . He makes the point that, in imposing the adjustments necessary to keep the balance of payments flowing, the measures imposed by a government would be so politically toxic, that no elected official in his or her right mind would implement them, and expect to remain in office. In short, you can have either democracy, or a gold standard, but you can't have both.

Also, MMT does recognize that there are real world constraints on a currency, and that is represented by employment, not some artificially-imposed commodity such as gold (or bitcoin, or seashells, etc). The Jobs Guarantee flows out of this.

Tinky , October 2, 2018 at 9:50 am

As mentioned above, you, among others who have replied to my original comment, are using the classical gold standard as a straw manl. Neither I, nor many other gold "bugs", propose such a simple solution for the failed current economic system, which is increasingly based on mountains of debt that can never be repaid.

WobblyTelomeres , October 2, 2018 at 11:35 am

increasingly based on mountains of debt that can never be repaid.

Huh? I listed two ways they could be repaid above. In the US, the national debt is denominated in dollars, of which we have an infinite supply (fiat). In addition, the Federal Reserve could buy all the existing debt by [defer to quad-entry accounting stuff from Wray's primer] and then figuratively burn it. Sure, the rest of the world would be pissed and inflation *may* run amok, but "can never" is just flat out wrong.

Tinky , October 2, 2018 at 1:59 pm

Of course it can be extinguished through hyperinflation. I didn't think that it would be necessary to point that out. No "may" about it, though, as if the U.S. prints tens of trillions of dollars to extinguish the debt, hyperinflation will be assured.

todde , October 2, 2018 at 2:14 pm

not if it would be done over time, as the debt comes due.

We could also tax the excess dollars from the system with a large capital gains tax rate.

todde , October 2, 2018 at 3:04 pm

so I don't believe there will be a hyper-inflation of goods, but in asset prices. That is why I would raise the capital gains rate.

The failure of MMT is when the hyper-inflation occurs in goods and services.

Taxing a middle class person while his cost of living is rising will be a tough political act to do.

WobblyTelomeres , October 2, 2018 at 2:19 pm

I didn't think that it would be necessary to point that out.

Sorry, but I'm an old programmer; logic rules the roost. When one's software is expected to execute billions of times a day without fail for years (and this post is very likely routed through a device running an instance of something I've written). Always means every time, no exceptions; never means not ever, no matter what.

You said never.

Tinky , October 2, 2018 at 3:30 pm

Yes I did. I was simply being lazy, as I typically do add "except via hyperflation", when discussing debts that can only be repaid in that manner.

That "solution" is obviously no solution at all, as it would lead to chaos.

Interpret it any way that you wish.

todde , October 2, 2018 at 11:37 am

So what is the new solution proposed by 'gold bugs'?

Tinky , October 2, 2018 at 2:06 pm

I'm sure that there is no one solution proposed, though an alternative to the current system which seems plausible would be a currency backed by a basket of commodities, including gold.

todde , October 2, 2018 at 2:26 pm

and when commodity prices fluctuate you will still have government printing and eliminating money to maintain the price.

I would say, if that was the argument, stick to gold as it is one of the more stable commodities.

AlexHache , October 2, 2018 at 11:43 am

Can I ask what your solution would be? I don't think you've mentioned it.

HotFlash , October 2, 2018 at 1:08 pm

Hi Tinky, much late but still. Gold will have value as long as people believe it has value. But what will they trade it for? The bottom line is your life.

I don't have any gold, too expensive, and it really has no use. But I remember Dimitri Orlov's advice : I am long in needles, pins, thread, nails and screws, drill bits, saws, files, knives, seeds, manual tools of many sorts, mechanical skills and beer recipes. Plus I can sing.

Bridget , October 2, 2018 at 1:31 pm

Don't forget a nice supply of 30 year old single malt scotch!

Tinky , October 2, 2018 at 2:04 pm

The vast majority of people who hold physical gold are well aware of the value of having skills and supplies, etc., in case of a serious meltdown. But it's not a zero-sum game, as you suggest. Gold will inexorably rise sharply in value when today's fraudulent markets crash, and there will be plenty of opportunities for those who own it to trade it for other assets.

Furthermore, as previously mentioned, gold's utility is already on full display, to those who are paying attention, and not looking myopically through a USD lens.

Wukchumni , October 2, 2018 at 2:19 pm

Why not the GOILD standard?, one mineral moves everything, while the other just sits around gathering dust, after being extracted.

David Swan , October 2, 2018 at 2:28 pm

"Mountains of debt that can never be repaid" is a propaganda statement with no reference to any economic fact. Why do you feel that this "debt" needs to be "repaid"? It is simply an accounting artifact. The "debt" is all of the dollars that have been spent *into* the economy without having been taxed back *out*. The word "debt" activates your feels, but has no intrinsic meaning in this context. Please step back from your indoctrinated emotional reaction and understand that the so-called national "debt" is nothing more than money that has been created via public spending, and "repaying" it would be an act of destruction.

WobblyTelomeres , October 2, 2018 at 3:27 pm


I keep telling (boring, annoying, infuriating) people that, in the simplest terms, the national debt is the money supply and they won't grasp that simple declaration. When I said it to my Freedom Caucus congress critter (we were seated next to each other on an exit aisle) his head started spinning, reminding me of Linda Blair in The Exorcist.

Tinky , October 2, 2018 at 3:44 pm

The debt may not have to be repaid, but the interest does have to be serviced. Good luck with that in the long run.

WobblyTelomeres , October 2, 2018 at 4:18 pm

As I said to my congress critter, if the debt bother's y'all so much, why not just pay it off, dust off your hands, and be done with it?

Personally, if I were President for a day, I'd have the mint stamp out 40 or so trillion dollar platinum coins just to fill the top right drawer of the Resolute desk. Would give me warm fuzzy feelings all day long.

p.s. I also told him that the man with nothing cares not about inflation. He didn't like that either.

MisterMr , October 2, 2018 at 8:46 am

"those, some of whom are quite sophisticated, who believe that currencies should be backed by something of tangible value (and no, "the military" misses the point), or those who hold physical gold as an insurance policy against political incompetence, and the inexorable degradation of fiat currencies"

I suspect that Wray exactly means that these people are the goldbugs, not the ones who speculate on gold.

The whole point that currencies should be backed by something of tangible value IMO is wrong, and I think the MMTers agree with me on this.

Tinky , October 2, 2018 at 9:56 am

If so, then he should clarify his position, as again, lumping the billions – literally – of people who consider gold to be economically important, together as one, is disingenuous.

skippy , October 2, 2018 at 3:55 pm

I think people that consider gold to be a risk hedge understand its anthro, per se an early example of its use was a fleck of golds equal weight to a few grains of wheat e.g. the gold did not store value, but was a marker – token of the wheat's value – labour inputs and utility. Not to mention its early use wrt religious iconography or vis-à-vis the former as a status symbol. Hence many of the proponents of a gold standard are really arguing for immutable labour tokens, problem here is scalability wrt high worth individuals and resulting distribution distortions, unless one forwards trickle down sorts of theory's.

Not to mention in times of nascent socioeconomic storms many that forward the idea of gold safety are the ones selling it. I think as such the entire thing is more a social psychology question than one of factual natural history e.g. the need to feel safe i.e. like commercials about "peace of mind". I think a reasonably stable society would provide more "peace of mind" than some notion that an inanimate object could lend too – in an atomistic individualistic paradigm.

WobblyTelomeres , October 2, 2018 at 4:26 pm

I once had an co-worker that was a devout Christian. When he realized I wasn't religious, he asked me, incredulously, how I was able to get out of bed in the morning. Meaning, he couldn't face a world without meaning.

I think a lot of people feel that same way about money. They fight over it, lie for it, steal it, kill for it, go to war over it, and most importantly, slave for it. Therefore, it must have intrinsic value. I think gold bugs are in this camp.

Fried , October 2, 2018 at 6:06 am

Talking about Warren's blog ( ), everytime I try to go there, Cloudflare asks me to prove that I am human. Anyone know what's up with that? It's the only website I've ever seen do that.

Tinky , October 2, 2018 at 6:13 am

No such prompt for me (using Mac desktop computer, OS 10.11.6 and Safari browser.

Fried , October 2, 2018 at 7:35 am

Thanks. It seems to be blocking my IP address, no idea why. Not sure why I have to be human to look at a website.

Epistrophy , October 2, 2018 at 8:46 am

Try running your IP address through a blacklist checker maybe it's been flagged

Fried , October 2, 2018 at 10:03 am

Hm, I can't find anything that would explain it. Maybe the website just generally blocks Austrians. ;-)

el_tel , October 2, 2018 at 10:10 am

That's a good suggestion. Unfortunately, as I sometimes find, you can pass ALL the major test-sites but something (a minor, less-used site using out-of-date info?) can give you grief. NC site managers once (kindly) took the time to explain to me why I might have problems that they had no ability to address at their end. I had to muck around with a link given earlier to Bill Mitchell's blog before my browser would load it.
I think there can be quirks that are beyond our control (unfortunately) – for instance I think a whole block of IP addresses (including mine) used by my ISP have been flagged *somewhere* – no doubt due to another customer doing stuff that the checker(s) don't like. (The issue I mentioned above was more likely due to a strict security protocol in my browser, however.)

kgw , October 2, 2018 at 11:57 am

I ended up physically typing in the url to Bill Mitchell's blog: that worked.

el_tel , October 2, 2018 at 12:43 pm

yeah think that's what I did

larry , October 2, 2018 at 6:45 am

Monetary policy in terms of interest rates is not just weak, it also tends to treat all targets the same. Fiscal policy can be targetted to where it is felt it can do the most good.

William Beyer , October 2, 2018 at 7:00 am

Christine Desan's book, "Making Money," exhaustively documents the history of money as a creature of the state. Recall as well that creating money and regulating its value are among the enumerated POWERS granted to our government by we, the people. Money, indeed, is power.

Grumpy Engineer , October 2, 2018 at 8:26 am

Hmmm Randy Wray states that " permanent Zirp (zero interest rate policy) is probably a better policy since it reduces the compounding of debt and the tendency for the rentier class to take over more of the economy. "

But just last week, Yves stated that " that one of the consequences of the protracted super-low interest rate regime of the post crisis era was to create a world of hurt for savers, particularly long-term savers like pension funds, life insurers and retirees. " [ ]

So are interest rates today too high, or too low? We're getting mixed messages here.

IMO, interest rates are too low . Beyond the harmful effect to savers, it also drives income inequality . How? When interest rates are less than inflation, it is trivial to borrow money, buy some assets, wait for the assets to appreciate, sell the assets, repay the debt, and still have profit left over even after paying interest . Well, it's trivial if you're already rich and have a line of credit that is both large and low-interest. If you're poor with a bad FICO score, you don't get to play the asset appreciation game at all.

I can't think of another reason inequality skyrocketed so badly during the Obama years: . Other than interest rates, his policies weren't all that different from Clinton or Bush.

Tinky , October 2, 2018 at 10:38 am

Not to mention that interest rates are designed to reflect risk . Artificially suppressed rates mask risk, and inevitably lead to gross malinvestment.

todde , October 2, 2018 at 12:31 pm

The rates between riskier and less risky borrowers will still be reflected in the different rates given to each.

The low rates encourage greater risk taking to increase the reward(a higher rate of return). This is what leads to the gross malinvestment.

Case in point: the low rates led to more investments into the stock market, where the returns are unlimited. This is what led to the income inequality of Obama's term, as mentioned above.

todde , October 2, 2018 at 3:07 pm

if government creates money to lend to borrowers it should be at a zero interest rate.

The loans would be based on public policy decisions, and not business decisions.

HotFlash , October 2, 2018 at 1:36 pm

I cannot speak for Yves, nor or Randy, but IMO, interest rates are too low for people who depend on interest for their living -- as an old person, I have seen my expected income drop to about zilch when I had expected 7 to 10% on my savings. Haha! So yeah, too low for us who saved for 'retirement'.

Too high for people financing on credit, since a decent mortgage on a modestly-priced house will cost you almost the same as the house . And that doesn't even begin to look at unsecured consumer credit (ie, credit card debt), which is used in the US and other barbaric countries for medical expenses, not to mention student debt. The banks can create the principal with their keystrokes, but they don't create the interest. Where do you suppose that comes from? Hint: nowhere, as in foreclosures and bankruptcies.

Adam1 , October 2, 2018 at 3:12 pm

Wray's statement reflects his preferences from an operational policy perspective. Sovereign government debt cares no risk and therefore should not pay interest. The income earned from that interest is basically a subsidy and all income when spent caries a risk of inflation induced excess demand. Therefore who unnecessarily add the risk to the economy and potential risk needing to reduce other policy objectives to accommodate unnecessary interest income subsidies to mostly rich people?

Yves comment reflects the reality of prior decades of economic history. Even if Wray's policy perspective is optimal, there are decades of people with pensions and retirement savings designed around the assumption of income from risk-free government debt. It's this legacy that Yves is commenting on and is a real problem that current policy makers are just ignoring.

As for your comments on how low cost credit can be abused, I believe you'll find most MMT practitioners would recommend far more regulation on the extension of credit for non-productive purposes.

michael hudson , October 2, 2018 at 8:38 am

I just wrote a note to Randy:
The origin of money is not merely for accounting, but specifically for accounting for DEBT -- debt owed to the palatial economy and temples.
I make that clear in my Springer dictionary of money that will come out later this year: Origins of Money and Interest: Palatial Credit, not Barter

horostam , October 2, 2018 at 8:57 am

The Babylonian Madness is contagious thanks prof hudson

gramsci , October 2, 2018 at 9:22 am

Can somebody help me out here? It seems to me that the US macroeconomic policy has been operating under MMT at least since FDR (see for example Beardsley Ruml from 1945).

Since then, insofar as I understand MMT, fiat has been printed and distributed to flow primarily through the MIC and certain other periodically favored sectors (e.g. the Interstate Highway System). Then, rather than destroying this fiat through taxation, the sectoral balances have been kept deliberately out of balance: Taxes on unearned income have been almost eliminated with an eye to not destroying fiat, but to sequestering as much as possible in the private hands of the 1%. This accumulating fiat cannot be productively invested because that would cause overproduction, inflation, and reduce the debt burden by which the 1% retains power over the 99%. So the new royalists, as FDR would have styled them, keep their hoard as a war chest against "socialists".

I get all this, more or less, and I appreciate that it is well and good and important that MMTers insistently point out that the emperor has no clothes. This is a necessary first step in educating the 99%.

But I don't see MMT types discussing the fact that US (and NATO) macroeconomic policy already has a Job Guarantee: if you don't want to work alongside undocumented immigrants on a roof or in a slaughterhouse or suffer the humiliation of US welfare, such as it is, you can always get a job with the army, or the TSA, or the police, or as a prison guard, or if you have some education, with a health unsurance company or pushing drone buttons. You only have to be willing to follow orders to kill–or at least help to kill–strangers.

(Okay, perhaps I overstate. If you're a medical doctor or an "educator" with university debt you don't have to actively kill. You can decline scant Medicaid payments and open a concierge practice, or you can teach to the test in order that nobody learns anything moral.)

It is difficult to get a man to understand something, when his salary depends on his not understanding it. Wouldn't it be clarified matters if MMTers acknowledged that we already have a JG?

Wukchumni , October 2, 2018 at 12:50 pm

We have been operating on MMT since the end of WW2, with 2 exceptions in 1968 when Silver Certificate banknotes no longer were redeemable for silver, and in 1971 when foreign central banks (not individuals!) weren't allowed to exchange FRN's for gold @ $35 an ounce anymore.

It's been full on fiat accompli since then and to an outsider looks absurd in that money is entirely a faith-based agenda, but it's worked for the majority of all of lives, so nobody squawks.

It's an economic "the emperor has no clothes" gig.

HotFlash , October 2, 2018 at 1:54 pm

It seems to me that the US macroeconomic policy has been operating under MMT at least since FDR (see for example Beardsley Ruml from 1945).

Yup, you are correct, IMO. And about the jobs guarantee, too. The point of MMT is not that we have to adopt, believe in, or implement it, but that *this is how things work* and we need to get a %&*^* handle on it *STAT* or they will ride it and us to the graveyard. The conservatives and neo-cons are already on to this, long-time.

I believe the chant is:

We can have anything we want that is available in our (sovereign) currency and for which there are resources

What we get depends on what we want and how well we convince/coerce our 'leaders' to make it so.

David Swan , October 2, 2018 at 2:43 pm

JG is geared toward community involvement to create an open-ended collection of potential work assignments, not top-down provision of a limited number of job slots determined by bureaucrats on a 1% leash.

Wukchumni , October 2, 2018 at 9:31 am

About every 80 years, there has been a great turning in terms of money in these United States

Might as well start with 1793 and the first Federal coins, followed in 1861 by the first Federal paper money, and then the abandonment of the gold standard (a misnomer, as it was one of many money standards @ era, most of them fiat) in 1933.

We're a little past our use-by date for the next incarnation of manna, or is it already here in the guise of the great giveaway orchestrated since 2008 to a selected few?

Adam1 , October 2, 2018 at 9:40 am

After learning MMT I've occasionally thought I should get a refund for the two economics degree's I originally received. One of the primary mainstream teachings that I now readily see as false is the concept of money being a vale over a barter economy. It's lazy, self-serving analysis. It doesn't even pass a basic logical analysis let alone archeological history. Even in a very primitive economy it would be virtually impossible for barter to be the main form of transaction. The strawberry farmer can't barter with the apple farmer. His strawberries will be rotten before the apples are ripe. He could give the apple farmer strawberries in June on the promise of receiving apples in October, but that's not barter that's credit. The apple farmer could default of his own free will or by happenstance (he dies, his apple harvest is destroyed by an act of god, etc ). How does the iron miner get his horse shoed if the blacksmith needs iron before he can make the horse show? Credit has to have always been a key component of any economy and therefore barter could never have been the original core.

HotFlash , October 2, 2018 at 2:00 pm

After learning MMT I've occasionally thought I should get a refund for the two economics degree's I originally received.

Agreed. Richard Wolff notes that in most Impressive Universities there are two schools, one for Economics (theory) and another for Business (practice). Heh. I say, go for the refund, you was robbed.

Wukchumni , October 2, 2018 at 10:11 am

Take Indians for instance

All the Rupee* has done over time is go down in value against other currencies, and up in the spot price measured in Rupees even as gold is trending down now, and that whole stupid demonetization of bank notes gig, anybody on the outside of the fiat curtain looking in, had to be laughing, and ownership there is no laughing matter, as it's almost a state financial religion, never seen anything like it.

* A silver coin larger than a U.S. half dollar pre-post WW2, now worth a princely 1.4 cents U.S.

Chauncey Gardiner , October 2, 2018 at 12:34 pm

Not an economist, but I appreciate both the applicability of MMT and the fierce, but often subtle resistance its proponents have encountered academically, institutionally and politically. However, I have questioned to what extent MMT is uniquely applicable to a nation with either a current account surplus or that controls access to a global reserve currency.

How does a nation that is sovereign in its own currency, say Argentina for example (there are many such examples), lose 60 percent of its value in global foreign exchange markets in a very short time period?

Is this due primarily to private sector debts denominated in a foreign currency (and if so, what sectors of the Argentine economy undertook those debts, for what purposes, and to whom are they owed?), foreign exchange market manipulation by external third parties, the effective imposition of sanctions by those who control the global reserve currency and international payments system, or some combination of those or other factors?

Mel , October 2, 2018 at 12:53 pm

Michael Hudson described some of it earlier this year:

Rodger Malcolm Mitchell , October 2, 2018 at 3:48 pm

All hyperinflations are caused by shortages, usually shortages of food. See:

There is no avoiding bad government.

PKMKII , October 2, 2018 at 1:57 pm

MMT makes more sense than orthodox neoliberal accounts of currency and sovereign spending to me, as it does a better job of acknowledging reality. MMT recognizes that currency is an artifice and that imagined limitations on it are just that, and real resources are the things which are limited. Neoliberal economics acts as if all sorts of byzantine factors mean currency must be limited, but we can think of resources, and the growth machine they feed, as being infinite.

Rodger Malcolm Mitchell , October 2, 2018 at 3:41 pm

"Taxes or other obligations (fees, fines, tribute, tithes) drive the currency."

Specifically, what does "drive" mean? Does it mean:
1. When taxes are reduced, the value of money falls?
2. If taxes were zero, the value of money would be zero?
3. Cryptocurrencies, which are not supported by taxes, have no value?

"JG is a critical component of MMT. It anchors the currency and ensures that achieving full employment will enhance both price and financial stability."

Specifically, what do "anchors" and "critical component" mean? Do they mean:
1. Since JG does not exist, the U.S. dollar is unanchored and MMT does not exist?
2. Providing college graduates with ditch-digging jobs enhances price and financial stability?
3. Forcing people to work is both morally and economically superior to giving them money and benefits?

Grebo , October 2, 2018 at 4:20 pm

"Drive" means "creates initial demand for":
1. No, not for an established currency.
2. See 1.
3. Crypto is worth what you can buy with it.

"Anchors" means it acts against inflation and deflation. "Critical component" means the economy works better if it has it.
1. Yes and no.
2. Yes, if no-one else will hire them.
3. No element of force is implied.

[Sep 27, 2018] Even those nations desirous of undoing dollar hegemony have said it cannot be done overnight as the overall system is both too complex and too fragile for hasty adjustments to be made stably. Moreover, for better or worse, the Outlaw US Empire's an integral component of the global economy, which motivates those changing the system to arrive at a Soft Landing, not a Hard Crash.

Sep 27, 2018 |

Sunny Runny Burger , Sep 26, 2018 4:06:24 PM | link

Karlof1 I could be wrong of course but one example of why none of that would matter is when the US dollar for all practical purposes winks out of existence and that could happen right now as we speak. Why would that happen you may ask? It would happen whenever someone "beyond personal wealth" like the usual finance suspects decides it is the way for them to make enormous amounts of profit out of the resulting worldwide instability before any of their competitors beat them to it. The longer they wait the more likely someone else will jump the gun and surprise them.

I don't think the US has two years worth of "blood" left in it before that happens.

In a sense nothing will be left when each and every dollar becomes at least 20 trillion times less valuable. If the response to that happening is the same as the early 20ieth century response (Germany) then nothing will be left at all considering the difference in technology and differences in circumstance (everybody already have the weapons ready). If the response is the late 20ieth century response (USSR) then maybe something will be left but the USSR was both lucky and relatively solvent in comparison to the current US. The starting point for the US is several magnitudes worse in both examples. The world can't afford to carry the US at cost any more than the US can't right now and like the US haven't been able to for decades, the required wealth doesn't exist.

karlof1 , Sep 26, 2018 5:13:27 PM | link

Sunny Runny Burger @24--

The nascent USA had its national capital sacked and presidential residence burnt during what's known as the War of 1812, yet it continued to exist politically. Same during Civil War. During the Revolutionary War, the USA had a national government and 13 separate state governments, all of which continued to function as the war raged. There've been at least two Coups--1963 and 2000--but the USA continued its political existence. Even the Germany destroyed by WW2 still existed politically. Destroying political entities is very--extremely--difficult, which is why it seldom occurs. Rome's central authority ceased in the mid 6th century but its provinces continued as did the Eastern portion of the Roman Empire. Russia's governmental system was drastically altered during and after Russia's Civil War, but Russia continued to exists as a political entity. The USSR was an imperial governing edifice built atop numerous national political entities. It did vanish, but the nations comprising it didn't; indeed, new nations were born as a result.

As for the dollar and its international position, even those nations desirous of undoing dollar hegemony have said it cannot be done overnight as the overall system is both too complex and too fragile for hasty adjustments to be made stably . Moreover, for better or worse, the Outlaw US Empire's an integral component of the global economy, which motivates those changing the system to arrive at a Soft Landing, not a Hard Crash.

Catastrophism belongs in the realm of Geology, not Geopolitics, although the former will certainly affect the latter. Geopolitics can certainly enable an ecological crisis such as the Overshoot we're now entering, but that's several magnitudes less than what rates as a geological catastrophe--and not all such catastrophes are global.

[Sep 21, 2018] The Dollar Shortage China's Bond Selling Are About To Corner the Fed Zero Hedge Zero Hedge

Sep 21, 2018 |

The Dollar Shortage & China's Bond Selling Are About To Corner the Fed

by Palisade Research Fri, 09/21/2018 - 19:22 8 SHARES

Via Adem Tumerkan @

- This is a repost of the recent Palisade Weekly Letter –

Earlier this week – news went by relatively unnoticed by the ' mainstream ' financial media (CNCB and such) that Beijing's started selling their U.S. debt holdings.

Putting it another way – they're dumping U.S. bonds. . .

"China's ownership of U.S. bonds, bills and notes slipped to $1.17 trillion, the lowest level since January and down from $1.18 trillion in June."

Remember – dumping U.S. debt is China's nuclear option (which I wrote about back in April – click here to read if you missed it ).

And although they're starting to sell U.S. bonds – expect it to be at a slow and steady pace. They don't want to risk hurting themselves over this.

I believe China may be selling just enough to get the attention of Trump and the Treasury. A soft warning for them not to take things too far with tariffs and trade.

Yet already just as news hit the wire that China was selling bonds a few days ago – U.S. yields spiked above 3%. . .

Don't forget that China's the U.S.'s largest foreign creditor. And this is an asset for them.

And although them selling is worrisome – the real problems started months ago. . .

Over the last few months, my macro research and articles are all finally coming together. This thesis we had is finally taking shape in the real world.

I wrote in a detailed piece a few months back that foreigners just aren't lending to the U.S. as much anymore ( you can read that here ).

I called this the 'silent problem'. . .

Long story short: the U.S. is running huge deficits. They haven't been this big since the Great Financial Recession of 08.

And it shouldn't come as a surprise to many.

Because of Trump's tax cuts, there's less government revenue coming in. And that means the increased military spending and other Federal spending has to be paid for on someone else's tab.

The U.S. does 'bond auctions' all the time where banks and foreigners buy U.S. debt – giving the Treasury cash to spend now.

But like I highlighted in the 'silent problem' article (seriously, read it if you haven't) – foreigners are buying less U.S. debt recently. . .

This is a serious problem because if the Treasury wants to spend more while collecting less taxes, they need to borrow heavily.

This trend's continued since 2016 and it's getting worse. And with the mounting liabilities (like pensions and social security and medicare), they'll need to borrow trillions more in the coming years.

So, in summary – the U.S. has less interested foreign creditors at a time when they need them more than ever.

But wait, it gets worse. . .

The Federal Reserve's currently tightening – they're raising rates and selling bonds via Quantitative Tightening (QT – fancy word for sucking money out of system).

This is the second big problem – and I wrote about in 'Anatomy of a Crisis' ( read here ). And even earlier than that here .

So, while the Fed does this tightening, they're creating a global dollar shortage. . .

As I wrote. . . "This is going to cause an evaporation of dollar liquidity – making the markets extremely fragile. Putting it simply – the soaring U.S. deficit requires an even greater amount dollars from foreigners to fund the U.S. Treasury . But if the Fed is shrinking their balance sheet , that means the bonds they're selling to banks are sucking dollars out of the economy (the reverse of Quantitative Easing which was injecting dollars into the economy). This is creating a shortage of U.S. dollars – the world's reserve currency – therefore affecting every global economy."

The Fed's tightening is sucking money – the U.S. dollar – out of the global economy and banks. And they're doing this at a time when Foreigners need even more liquidity so that they can buy U.S. debt.

How is the Treasury supposed to get funding if there's less dollars out there available? And how can they entice investors if Foreigners don't have enough liquidity to fund U.S. debt?

These Emerging Markets must use their dollar reserves to prop up their own currencies and economies today. They can't be worrying about funding U.S. pensions and other bloated spending when their economies are crumbling.

These two themes I've written about extensively – the decline of foreign investors and the Fed's tightening – have gotten us to this point today.

And the U.S. is extremely fragile because of both problems. . .

Here's the worst part – China probably knows this . That's why they're selling just enough U.S. bonds to spook markets.

But if the trade war and soon-to-be a currency war continues, no doubt China will sell more of their debt – sending yields soaring.

I just got done last week detailing how U.S. debt servicing costs (interest payments) are already becoming very unsustainable ( click here if you missed it ).

At this point they're literally borrowing money just to pay back old debts – that's known as a 'ponzi scheme'.

This is why I believe the Fed will eventually cut rates back to 0% – and then into negative territory. And instead of sucking money out of the economy via QT, they're going to start printing trillions more.

How else will the Treasury be able to get the funding they need?

I'll continue to keep you up to date with what's going on and how it all fits together.

But I think the two big problems I wrote about above are now converging into a new massive problem. And I don't see any way out of it unless the Fed monetizes the U.S. Treasury and outstanding debts. And that will cause massive moves in the markets.

I'm sure Trump will eventually tweet , "Oh Yeah? Foreigners don't want to buy the U.S. debt? Blasphemy! Who needs you all when we have a printing press!"

Or something like that. . .

TimeTraveller , 1 hour ago

I'm really starting to get sick of these crap reports from Palisade Research. Again they are totally wrong on so many levels.

1. China is selling Treasuries, because they are pre-empting a debt crisis in their own country and need Dollar financing for their overleveraged companies and their banking sector. Also, China is lending money to every 3rd world country that needs infrustructure for it's Belt and Road Initiative. Building ports, bridges and railways across Asia and Africa, costs money.

2. Selling Treasuries will weaken the Dollar, so making the RMB stronger. China does NOT want the RMB stronger because it erodes their exporters margins and competetiveness. Why would they want to hurt themselves just to punish their biggest customer?

To even suggest China is "using the Nuclear option" of dumping Treasuries just shows your total ignorance of the real world.

Palisade are clueless

ConanTheContrarian1 , 1 hour ago

OTOH, the crisis in Emerging Markets and the effect of capital flight on China are just two of the MANY things not mentioned in this article. There has been tension building into financial warfare between China and the US ever since they pegged the yuan low to the dollar in 1987. The US is doing things under the table to China, China to the US, and they're both quite capable of paying Adam Tumerkan (and others) to write hit pieces against the other side. Think deeply before choosing a side.

[Sep 15, 2018] Has that system dynamic changed/evolved seriously since the Roman era? We have usury. We have inheritance. We have banking. The concept of private property evolved along with the mythical moral fig leaf of rule-of-law. We call it the Western form of "civilization".

Sep 15, 2018 |

psychohistorian , Sep 15, 2018 7:51:52 PM | link

@ Lochearn who is correcting my genealogical representation of empire

Yes, you are more correct than I. That said, does it go back even further to the founding of monotheistic religions? We are referring to social control by an elite in my mind more than the Jewish bankers part of your genealogy. I admit to the bankers part but see that bankers group as the encourage/control entity for the other monotheistic religions.

Has that system dynamic changed/evolved seriously since the Roman era? We have usury. We have inheritance. We have banking. The concept of private property evolved along with the mythical moral fig leaf of rule-of-law. We call it the Western form of "civilization".

Jen , Sep 15, 2018 8:01:37 PM | link

Psycho Historian: I have been reading a Great Courses book on the history of the Achaemenid rmpire that ruled Persia and one interesting tidbit from my reading is that temples and their priests made loans to property (though turned did not accept deposits). So religious institutions got into the banking business early.

karlof1 , Sep 15, 2018 8:13:22 PM | link

Jen @27--

In his talks about his upcoming book, Hudson has said that besides the Palace the Temples were the first sources of credit. But their relation to society then vastly differs from what evolved as both Palace and Temple become corrupted by greed.

jrkrideau , Sep 15, 2018 9:03:58 PM | link

@ 27 Jen

So religious institutions got into the banking business early.

Achaemenids? I think this was rather late. IIRC temples in Ur, Sumer and Babylon were in the business long before the Achaemenid period.

However Ur, Sumer and Babylon also seem to have had a general debt amnesty about every 7 years. There was a sound political or economic rationale for this. Something about the idea that one was not supposed to grind the faces of the poor into the gravel, nor destroy the fabric of society.

The temples were the only organizations that had the administrative ability to do this. Temple, at least in Mesopotamia is a bit of a misnomer. As I understand it, the "temple" was the home of the god, the royal palace and the seat of the civil service all rolled into one.

You might find David Graeber's book Debt : The First 5,000 Years interesting. He discusses why the temples were in the money lending business. It's a rather fun read and comes in hard cover and completely free pdf.

did not accept deposits

I never thought of it, but yes of course. Given their functions they would not take deposits. They were loaning from state resources and did not need deposits. They would not have even understood the concept.

I am not sure if this applies during the Achaemenid period but it seems likely.

[Aug 13, 2018] The Annals of Roacheforque Back That A$$et Up ...

Aug 13, 2018 |

Sunday, August 12, 2018 Back That A$$et Up ... From the first sentence of Michael Sproul's There's No Such Thing as Fiat Money (2007) :

I make the claim that fiat money does not exist, and that the money that is commonly called fiat money is actually backed by the assets of its issuer.
Who would argue against the premise that modern currencies are backed by the issuer's assets? The questions that remain are: How broad a definition of "assets" is being considered? And does "asset backing" justifiably negate the meaning of "fiat", or is this mere semantics?

In any event, I would counter argue that the meaning of "fiat" is possibly in need of clarification. And such clarification would then allow for the sensible conclusion that fiat money does indeed exist. Sproul's premise is a good launch pad for clarifying just what it is that backs the US Dollar.

Many have said that the US military "backs" the dollar. And indeed, the US Deep State and its Military Industrial Corporatist alliance represents a huge investment in strategic worldwide military deployment. That investment is an asset, and it does in part back the dollar. There are other factors, that are considered in the foreign exchange marketplace, and there are varying opinions as to which factors bear such weight upon the prime factor : relative changes in purchasing power.

As we have discussed before, usage is a considerable factor in determining a currency's relative purchasing power, which in turn supports further usage, in a circular fashion. In times past, there were set fundamentals that established relative fiat currency exchange value: the country's stability, its industrial base, trade practices and metrics, population demographics and economic condition, debt to GDP, and so on.

As our real world has progressed into a world of derivative statistic and valuation, through the rise of financialization, those fundamental factors have evolved to include other factors that are brought to bear upon a modern digital currency's backing.

Does the depth of a currency in global derivative positions act as a form of backing? This is a factor which did not exist prior to the existence of derivatives. Does that depth not guarantee further usage, and that further usage not create greater depth? Does the currency function successfully as a systemic weapon against other currency issuers? Again, relatively recent dollar era phenomena.

But there is an incredibly powerful, hugely overlooked factor which begins only around 2008, which backs the US dollar. I will tell you now that it is the US Government's control over its people which gives the US dollar the largest share of "asset backing" of any other factor under consideration - in the FX market and otherwise.

When the US Government publicly bailed out the global banking system and made the American people the guarantor of that bailout, an incredible precedent was set. It proved to the families that the issuer of the US Dollar could obligate its tax base to an unrepayable debt, and that tax base would neither understand, nor care enough about the consequences of that precedent ... to stand up and fight against the fraud and thievery that keeps the 99% in perpetual bondage, and the 1% in a risk free position to do as they please.

The issuer has proven to generational wealth that it can divert the attention of the tax base from the world's most egregious robbery, and do it again every so often, including to other middle classes who hold wealth, as it moves from country to country. And they will do so in equally powerful police states, combined with well developed welfare states, as the fiat wealth concept manages the debt slaves of any culture, keeping them pacified under the doctrine of "debt as wealth".

You will watch in amazement as China eventually "becomes" the USA in this regard. To the North, there is one proud people, who thrive on the adversity which shapes their strong cultural identity - who will be a thorn in the dollar's side - but they will be dealt with, as opportunity allows.

This modern state of affairs is an incredible asset which the global corporatist banking cartel (the BIS led global central banking system) has endowed upon the US Dollar - and it's rival issuers are part and parcel to that system. Until China, India and Russia's central banks (along with their strategic but smaller allied CBs) achieve a true Coup d'etat (either publicly - or more likely privately) and begin to act independently from BIS mandate, the world's middle classes will never have any enduring prosperity - only the fleeting type that comes with targeted booms, busts and the fraud and bailouts they enable.

Much more importantly ... that Coup will NEVER HAPPEN as long as the American people agree to the dollar contract they are so deeply sworn to. Americans have been taught to accept the double standard they now live by. They can default on debt and lose everything they own, but their lenders can never default - they will be bailed out by whatever wealth remains. There is no other society on earth who have been so culturally conditioned to accept slavery and socialism as the generation of Americans whose OBEDIENCE backs the dollar today. That compliance, coupled with contempt for the wealth of their fellow man, and the social justice herd mentality, makes the family's smile with exceeding confidence ... that this dollar empire can milk much more middle class wealth across the globe as it spreads its "debt as wealth" religion even further into systemic entrenchment.

And this Trump fellow. He and Wilbur are doing well to earn the trust of generational wealth.

An unexpected wildcard can always be drawn, including an international war. But the Roacheforque's will profit from war as well - nonetheless, and just the same. Generational wealth aways profits from the spread of global corporatism, as they are both the authors and benefactors of it.

This we learn ... from the flower of understanding.

Roacheforque at Email This BlogThis! Share to Twitter Share to Facebook Share to Pinterest

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[Aug 03, 2018] The "accounting view" of money: money as equity

Aug 03, 2018 |

Marco Saba , August 2, 2018 at 6:11 pm

It seems that bad debts can be composed with fake liabilities, here:
The "accounting view" of money: money as equity (Part I)
The "accounting view" of money: money as equity (Part II)
The "accounting view" of money: money as equity (Part III)

[Jul 28, 2018] Putin The US Is Making A Big Mistake By Weaponizing The Dollar Zero Hedge

Jul 28, 2018 |

After the liquidation of its US Treasury holdings, surging gold reserves, and switching to a non-SWIFT payment system , Russian President Putin attempted to quell general concerns noting that "Russia isn't abandoning the dollar."

In a press conference this morning, the Russian president said his country doesn't plan to abandon holding reserves in U.S. dollars though he said that the risk of sanctions is prompting Russia to diversify its foreign currency assets.

"Russia isn't abandoning the dollar," Putin said in answer to a question about the sharp decline in its holdings of U.S. Treasuries in April and May.

"We need to minimize risks, we see what's happening with sanctions."

"As for our American partners and the restrictions they impose involving the dollar," he added,

"I think that is a major strategic mistake because they're undermining confidence in the dollar as a reserve currency."

Putin did however caution that the US is making a big mistake if it hopes to use the dollar as a political weapon:

" Regarding our American partners placing limitations, including those on dollar transactions, I believe is a big strategic mistake . By doing so, they are undermining the trust in the dollar as a reserve currency"

In this vein, Putin added that many countries are discussing the creation of new reserve currencies, noting that China's yuan is a potential reserve currency, but concluded:

"We will continue to use the US dollar unless the United States prevents us from doing so."

The Russian president also emphasized the need for other currencies in global trade and the emergence of new reserve currencies like the ruble.

Just last night we laid out the four major moves that Russia seems to be taking to de-dollarize so we suspect this comment by Putin is lipstick on that pig so that the rest of the world doesn't front-run him.

Additionally, President Putin said he's ready to hold a new summit with U.S. counterpart Donald Trump in either Moscow or Washington, praising him for sticking to his election promises to improve ties with Russia.

"One of President Trump's big pluses is that he strives to fulfill the promises he made to voters, to the American people," Putin told a press conference at the BRICS summit in Johannesburg.

"As a rule, after the elections some leaders tend to forget what they promised the people but not Trump."

Putin, who said he expects to meet Trump on the sidelines of the G-20

strannick -> BaBaBouy Fri, 07/27/2018 - 10:11 Permalink

Putin: "Russia isnt abandoning the dollar"

Russia's just selling all its US Treauries and then using the cash to buy gold.

"The first to sell is a rat. The last to sell is a fool"

beemasters -> strannick Fri, 07/27/2018 - 10:19 Permalink

"Regarding our American partners placing limitations, including those on dollar transactions, I believe is a big strategic mistake. "

It's been going on for a long time (with other weaker nations) and he is just voicing it now?

Brazen Heist II -> beemasters Fri, 07/27/2018 - 10:23 Permalink

The Anglo Zionist empire not only weaponizes the USD, but also "democracy" and "human rights".

The golden days of the 1990s where Uncle Scam could enjoy unrivalled power are gone. Like all greedy full spectrum empires, abusing unipolar power with wild abandon and arrogance is now starting to hurt.

Sandbox the Zionist infil traitors and take down the tentacles of the Deep State, and let America join the global polity of great nations in a new paradigm of peaceful coexistence, rather than following the directives of that small, paranoid tribe bent on full spectrum dominance.

One thing that makes me optimistic is that more people are becoming aware and are questioning the apparatus and narratives of the old world order. It was alot different 10 years ago, when I felt like I was a very small minority with a multipolar view, drowned out in a sea of denial.

Klassenfeind -> Brazen Heist II Fri, 07/27/2018 - 10:53 Permalink

As always, Putin is spot on!

Trump and his ZH crybabies whine on about how "unfairly the rest of the world has been treating the US" but they 'conveniently' forget that most of today's problems (wars, financial instability, fiat currency) originate from the US Reserve Currency Status and the Breton Woods system which the US has been using UNFAIRLY to it's advantage for Many DECADES in order to finance wars and manipulate the price of commodities.

But that's too difficult to grasp for most Trumptards... They're too busy screaming "sieg heil" for the Orange Jew!

Brazen Heist II -> Klassenfeind Fri, 07/27/2018 - 10:58 Permalink

Charles de Gaulle called that the exorbitant privilege

Bokkenrijder -> Brazen Heist II Fri, 07/27/2018 - 11:00 Permalink

These ZH Trump fanboys are the biggest idiots.

Really, you couldn't make this shit up;

*) They complain about foreign wars and the MIC, yet vote for someone who promised to INCREASE the Pentagon's already enormous budget

*) The complain about "the Jews," "Israhell," and "the ZOG," and yet they vote for someone who is in bed with Israel and Netanyahu and has a Jewish-American lawyer who fucks him over

*) They complain about the "banksters," and yet they vote for someone who makes a Deep State Goldmanite (Mnuchin) his Treasure Secretary

*) They complain about The Deep State and The Swamp, and they vote for someone who hires Pompeo, Haspel and Bolton

*) They complain about the massive amounts of debt and the fiat currency system, and yet they vote for someone who calls himself "The King of Debt" and calls for a massive increase in military spending

I guess now the ZH Trumptards only have one 'weapon' left: downvotes!

Brazen Heist II -> Bokkenrijder Fri, 07/27/2018 - 11:11 Permalink

I'm not your classic fanboy of Trump, but he has to work with those cretins somehow, and not turn into a degenerate pedophile in the process. He was the lesser of two evils presented in the 2 party duopoly, sadly, that's what modern 'democracy' has become; a Hobson's choice.

So far, he's doing alright, given the circumstances, and everything stacked against him.

Klassenfeind -> Brazen Heist II Fri, 07/27/2018 - 11:13 Permalink

"He was the lesser of two evils presented in the 2 party duopoly,..."

I completely agree with that assessment, but what I fail to understand is how the supposedly "highly educated readers of ZH," can be so fucking stupid to blindly believe all the Trump bullshit.

Being the lesser of two evils is still not being very good I'm afraid, and being the lesser of two evils means that he still kinda sucks.

That is what we're witnessing every day: a stupid narcissistic idiot who can barely play 0,5D chess, let alone 4D chess...

Brazen Heist II -> Klassenfeind Fri, 07/27/2018 - 11:26 Permalink

The system that churns out leadership in America is fundamentally flawed and corrupted to the bone, yet once in a blue moon, an "insider outsider" as I like to call them, like Jackson, Kennedy and Trump, slips through. And that's when decades happen in a few years.

Money_for_Nothing -> Klassenfeind Fri, 07/27/2018 - 11:47 Permalink

Who blindly believes bs? Trump is provably the most honest politician since the invention of recording devices. Just having an uncontested birth certification and school records is a big head start. Who do you think would make your paycheck (subsidy?) go higher than President Trump. Trump is threatening a lot of people's sinecures and subsidies. Who wants to guarantee more NPR wannabee hacks a good paycheck?

Giant Meteor -> Klassenfeind Fri, 07/27/2018 - 12:05 Permalink

What a lot of folks seeem to overlook is that the lesser of two evils is still, wait for it, ... evil. This is a highly subjective measurement of course, the beauty of all that evil being in the minds eye, of the beholder ..

HardAssets -> Klassenfeind Fri, 07/27/2018 - 13:12 Permalink

'Stupid' ?, no I highly doubt that.

What do we have ? IMO the jury is still out on that one. I had hoped that President Trump would talk straight to the American people. Particularly in regards to the true state of the overall economy. But those of us who have tried to inform friends & family on these subjects have run up against that solid wall of denial. Most people don't want to hear the truth. They fight against it with everything they've got. Between the Deep State attacking Trump to maintain their privileges & power, and a dumbed down population aggressively in denial - the president has a Herculean challenge.

Scipio Africanuz -> Klassenfeind Fri, 07/27/2018 - 13:49 Permalink

Fine, we are Trump fan boyz and Putin fan boyz, and we'll believe whatever we choose to believe, for our own reasons, and we don't owe anyone a stinkin explanation why!

You can open your eyes, and see why we support, fight for, defend, and will keep fighting for Trump! He's the Hope that we can Change the vampirous system that's defenestrated everyone playing by the rules!

He's a narcissistic idiot who can barely play multidimensional chess? You don't say! Anyhow, even if he were, and he isn't, he's OUR narcissistic idiot who beat the living daylights, out of the prissy, elitist, wicked, and thieving a**holes arrayed against him!

So how come your folks couldn't win against a narcissistic idiot? Because your folks are the narcissistic idiots, who can't come to terms with the reality that Hope of True Change is here, and embodied in Trumpus Maximus Magnus!!

You don't like that he's a Maximux Magnus? Fine, you can suck my pinkie!...

Consuelo -> Brazen Heist II Fri, 07/27/2018 - 11:27 Permalink


There is a clear battle going on and at 70+ years of age, I give President Trump a huge helping of credit just to deal with it all, without going insane in the process. One thing though... He had better corral the dirty-dealers around him, along with the hag and those involved from the previous administration, or it will eventually overwhelm him. Guaranteed.

Brazen Heist II -> Consuelo Fri, 07/27/2018 - 11:32 Permalink

Indeed, its a battle for the soul of America. The pedophiles, degenerates, Zionists, imperialists must not win. A purge is needed and coming. I hope he survives like Jackson, and doesn't go the way of Kennedy. In any case, he has a big following, but I fear a civil war type scenario is coming no matter what happens. The vitriol and partizanship is at toxic levels.

HardAssets -> Brazen Heist II Fri, 07/27/2018 - 13:24 Permalink

It's obvious that the NWO crowd weaponizes populations. Obummer wanted his internal force 'as well funded & equipped as the military '. And, theyve been working hard with their propaganda machine to overturn the American people's 2nd Amendment.

This is likely one of the most delicate & dangerous times in American history.

Vendetta -> Bokkenrijder Fri, 07/27/2018 - 12:32 Permalink

So let's see ... Hillary in conjunction with obama demonized Iran and Russia (Crimea... have you forgotten?) for years prior to trump ... overthrew Libya and stirred the pot in Syria via proxies ... and Bernie Sanders was against these wars AND against unfettered globalization ... all part and parcel of the neoconservative PNAC doctrine .... but trump trying to implement peace and diplomacy with Russia and North Korea is 'bad' ... but since at the same time he increases the budget for the MIC and he is 'bad' for doing so and he is pissing off our so-called 'trade partners' as manufacturing has essentially left the US ... so he is to pick a fight with the MIC internally to the nation on top of everything else including pissing of the globalist cretins in our so called intelligence (where are those WMDs) ... okie dokie ...

[Jul 14, 2018] Beyond Money

Notable quotes:
"... Kevin Shipp, former Central Intelligence Agency (CIA) officer, intelligence and counter terrorism expert, held several high-level positions in the CIA. His assignments included protective agent for the Director of the CIA, counterintelligence investigator searching for moles inside the CIA, overseas counter terrorism operations officer, internal security investigator, assistant team leader for the antiterrorism tactical assault team, chief of training for the CIA federal police force and polygraph examiner. Mr. Shipp was the senior program manager for the Department of State, Diplomatic Security, Anti-Terrorism Assistance global police training program. He is the recipient of two CIA Meritorious Unit Citations, three Exceptional Performance Awards and a Medallion for high risk overseas operations. Website/book: ..."
Jul 14, 2018 |

Fake News, Fake Money, How to Tell the Difference Posted on February 21, 2018 | Leave a comment Why is it so hard these days to tell fact from fiction? Who can be trusted to tell us what's really going on? Can the New York Times and Washington Post still be believed? And what about money? Can we still trust the dollar, the euro, the pound sterling? What supports national currencies, anyway? Is this Bitcoin thing real or fake money, and should I buy some?

Here's a compelling presentation by Andreas Antonopoulos, that addresses all of these questions. Antonopoulos is a technologist and entrepreneur and probably the most knowledgeable and insightful expert on bitcoin, blockchain technology and the profound changes that lie just ahead.


Here's the YouTube link:

Now take a deep dive into the political realities of our time by watching this presentation by CIA officer Kevin Shipp, in which he exposes the Shadow Government and the Deep State. If you question his credibility here is a brief bio from Information Clearing House:

Kevin Shipp, former Central Intelligence Agency (CIA) officer, intelligence and counter terrorism expert, held several high-level positions in the CIA. His assignments included protective agent for the Director of the CIA, counterintelligence investigator searching for moles inside the CIA, overseas counter terrorism operations officer, internal security investigator, assistant team leader for the antiterrorism tactical assault team, chief of training for the CIA federal police force and polygraph examiner. Mr. Shipp was the senior program manager for the Department of State, Diplomatic Security, Anti-Terrorism Assistance global police training program. He is the recipient of two CIA Meritorious Unit Citations, three Exceptional Performance Awards and a Medallion for high risk overseas operations. Website/book:

Here's the YouTube link:

[Jul 04, 2018] Dollar Hegemony

Jul 04, 2018 |
Dollar Hegemony

Henry C K Liu

(Originally published as [US Dollar Hegemony has to go] in AToL on April 11. 2002)

There is an economics-textbook myth that foreign-exchange rates are determined by supply and demand based on market fundamentals. Economics tends to dismiss socio-political factors that shape market fundamentals that affect supply and demand.

The current international finance architecture is based on the US dollar as the dominant reserve currency, which now accounts for 68 percent of global currency reserves, up from 51 percent a decade ago. Yet in 2000, the US share of global exports (US$781.1 billon out of a world total of $6.2 trillion) was only 12.3 percent and its share of global imports ($1.257 trillion out of a world total of $6.65 trillion) was 18.9 percent. World merchandise exports per capita amounted to $1,094 in 2000, while 30 percent of the world's population lived on less than $1 a day, about one-third of per capita export value.

Ever since 1971, when US president Richard Nixon took the dollar off the gold standard (at $35 per ounce) that had been agreed to at the Bretton Woods Conference at the end of World War II, the dollar has been a global monetary instrument that the United States, and only the United States, can produce by fiat. The dollar, now a fiat currency, is at a 16-year trade-weighted high despite record US current-account deficits and the status of the US as the leading debtor nation. The US national debt as of April 4 was $6.021 trillion against a gross domestic product (GDP) of $9 trillion.

World trade is now a game in which the US produces dollars and the rest of the world produces things that dollars can buy. The world's interlinked economies no longer trade to capture a comparative advantage; they compete in exports to capture needed dollars to service dollar-denominated foreign debts and to accumulate dollar reserves to sustain the exchange value of their domestic currencies. To prevent speculative and manipulative attacks on their currencies, the world's central banks must acquire and hold dollar reserves in corresponding amounts to their currencies in circulation. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold. This creates a built-in support for a strong dollar that in turn forces the world's central banks to acquire and hold more dollar reserves, making it stronger. This phenomenon is known as dollar hegemony, which is created by the geopolitically constructed peculiarity that critical commodities, most notably oil, are denominated in dollars. Everyone accepts dollars because dollars can buy oil. The recycling of petro-dollars is the price the US has extracted from oil-producing countries for US tolerance of the oil-exporting cartel since 1973.

By definition, dollar reserves must be invested in US assets, creating a capital-accounts surplus for the US economy. Even after a year of sharp correction, US stock valuation is still at a 25-year high and trading at a 56 percent premium compared with emerging markets.

The Quantity Theory of Money is clearly at work. US assets are not growing at a pace on par with the growth of the quantity of dollars. US companies still respresent 56 percent of global market capitalization despite recent retrenchment in which entire sectors suffered some 80 percent a fall in value. The cumulative return of the Dow Jones Industrial Average (DJIA) from 1990 through 2001 was 281 percent, while the Morgan Stanley Capital International (MSCI) developed-country index posted a return of only 12.4 percent even without counting Japan. The MSCI emerging-market index posted a mere 7.7 percent return. The US capital-account surplus in turn finances the US trade deficit. Moreover, any asset, regardless of location, that is denominated in dollars is a US asset in essence. When oil is denominated in dollars through US state action and the dollar is a fiat currency, the US essentially owns the world's oil for free. And the more the US prints greenbacks, the higher the price of US assets will rise. Thus a strong-dollar policy gives the US a double win.

Historically, the processes of globalization has always been the result of state action, as opposed to the mere surrender of state sovereignty to market forces. Currency monopoly of course is the most fundamental trade restraint by one single government. Adam Smith published Wealth of Nations in 1776, the year of US independence. By the time the constitution was framed 11 years later, the US founding fathers were deeply influenced by Smith's ideas, which constituted a reasoned abhorrence of trade monopoly and government policy in restricting trade. What Smith abhorred most was a policy known as mercantilism, which was practiced by all the major powers of the time. It is necessary to bear in mind that Smith's notion of the limitation of government action was exclusively related to mercantilist issues of trade restraint. Smith never advocated government tolerance of trade restraint, whether by big business monopolies or by other governments.

A central aim of mercantilism was to ensure that a nation's exports remained higher in value than its imports, the surplus in that era being paid only in specie money (gold-backed as opposed to fiat money). This trade surplus in gold permitted the surplus country, such as England, to invest in more factories to manufacture more for export, thus bringing home more gold. The importing regions, such as the American colonies, not only found the gold reserves backing their currency depleted, causing free-fall devaluation (not unlike that faced today by many emerging-economy currencies), but also wanting in surplus capital for building factories to produce for export. So despite plentiful iron ore in America, only pig iron was exported to England in return for English finished iron goods.

In 1795, when the Americans began finally to wake up to their disadvantaged trade relationship and began to raise European (mostly French and Dutch) capital to start a manufacturing industry, England decreed the Iron Act, forbidding the manufacture of iron goods in America, which caused great dissatisfaction among the prospering colonials. Smith favored an opposite government policy toward promoting domestic economic production and free foreign trade, a policy that came to be known as "laissez faire" (because the English, having nothing to do with such heretical ideas, refuse to give it an English name). Laissez faire, notwithstanding its literal meaning of "leave alone", meant nothing of the sort. It meant an activist government policy to counteract mercantilism. Neo-liberal free-market economists are just bad historians, among their other defective characteristics, when they propagandize "laissez faire" as no government interference in trade affairs.

A strong-dollar policy is in the US national interest because it keeps US inflation low through low-cost imports and it makes US assets expensive for foreign investors. This arrangement, which Federal Reserve Board chairman Alan Greenspan proudly calls US financial hegemony in congressional testimony, has kept the US economy booming in the face of recurrent financial crises in the rest of the world. It has distorted globalization into a "race to the bottom" process of exploiting the lowest labor costs and the highest environmental abuse worldwide to produce items and produce for export to US markets in a quest for the almighty dollar, which has not been backed by gold since 1971, nor by economic fundamentals for more than a decade. The adverse effect of this type of globalization on the developing economies are obvious. It robs them of the meager fruits of their exports and keeps their domestic economies starved for capital, as all surplus dollars must be reinvested in US treasuries to prevent the collapse of their own domestic currencies.

The adverse effect of this type of globalization on the US economy is also becoming clear. In order to act as consumer of last resort for the whole world, the US economy has been pushed into a debt bubble that thrives on conspicuous consumption and fraudulent accounting. The unsustainable and irrational rise of US equity prices, unsupported by revenue or profit, had merely been a devaluation of the dollar. Ironically, the current fall in US equity prices reflects a trend to an even stronger dollar, as it can buy more deflated shares.

The world economy, through technological progress and non-regulated markets, has entered a stage of overcapacity in which the management of aggregate demand is the obvious solution. Yet we have a situation in which the people producing the goods cannot afford to buy them and the people receiving the profit from goods production cannot consume more of these goods. The size of the US market, large as it is, is insufficient to absorb the continuous growth of the world's new productive power. For the world economy to grow, the whole population of the world needs to be allowed to participate with its fair share of consumption. Yet economic and monetary policy makers continue to view full employment and rising fair wages as the direct cause of inflation, which is deemed a threat to sound money.

The Keynesian starting point is that full employment is the basis of good economics. It is through full employment at fair wages that all other economic inefficiencies can best be handled, through an accommodating monetary policy. Say's Law (supply creates its own demand) turns this principle upside down with its bias toward supply/production. Monetarists in support of Say's Law thus develop a phobia against inflation, claiming unemployment to be a necessary tool for fighting inflation and that in the long run, sound money produces the highest possible employment level. They call that level a "natural" rate of unemployment, the technical term being NAIRU (non-accelerating inflation rate of unemployment).

It is hard to see how sound money can ever lead to full employment when unemployment is necessary to maintain sound money. Within limits and within reason, unemployment hurts people and inflation hurts money. And if money exists to serve people, then the choice becomes obvious. Without global full employment, the theory of comparative advantage in world trade is merely Say's Law internationalized.

No single economy can profit for long at the expense of the rest of an interdependent world. There is an urgent need to restructure the global finance architecture to return to exchange rates based on purchasing-power parity, and to reorient the world trading system toward true comparative advantage based on global full employment with rising wages and living standards. The key starting point is to focus on the hegemony of the dollar.

To save the world from the path of impending disaster, we must:

# promote an awareness among policy makers globally that excessive dependence on exports merely to service dollar debt is self-destructive to any economy;

# promote a new global finance architecture away from a dollar hegemony that forces the world to export not only goods but also dollar earnings from trade to the US;

# promote the application of the State Theory of Money (which asserts that the value of money is ultimately backed by a government's authority to levy taxes) to provide needed domestic credit for sound economic development and to free developing economies from the tyranny of dependence on foreign capital;

# restructure international economic relations toward aggregate demand management away from the current overemphasis on predatory supply expansion through redundant competition; and restructure world trade toward true comparative advantage in the context of global full employment and global wage and environmental standards.

This is easier done than imagained. The starting point is for the major exporting nations each to unilaterally require that all its exports be payable only in its currency, so that the global finance architecture will turn into a multi-currency regime overnight. There would be no need for reserve currencies and exchange rates would reflect market fundamentals of world trade.

As for aggregate demand management, Asia leads the world in both overcapacity and underconsumption. It is high time for Asia to realize the potential of its market power. If the people of Asia are to be compensated fairly for their labor, the global economy will see its fastest growth ever.

[Jun 10, 2018] The Battle for Money Has Begun naked capitalism

Notable quotes:
"... If Money=Debt, the battle over money can only be won by individuals wisely choosing whom they become indebted too. As the wise Michael Hudson points out, "Debts that can't be paid, won't be paid." ..."
"... Money is the creation of the elite to control the rest of the masses. It screws the rest of the masses by constraining what they can get their hands on while the elite can get their hands on anything they want. ..."
"... IMO the point of the article was to hint that objections (or refusal to engage with) MMT is largely political in nature. ..."
"... Skippy said it above: these are likely bad faith actors who disguise their classism and political desires with talk of "positive money" and the like. Debate clubs won't win this one. ..."
"... As I understand it, MMT is simply a more honest way of explaining the current reality, the problem being that the 1% would like to keep that a secret so that money is only created for the things that they can profit from, like war. ..."
"... MMT necessarily requires the exorbitant privilege of having the US dollar accounting for 60% of world trade & financial transactions with the US economy representing only 20% of world GDP. ..."
"... The Entrepreneurial State ..."
"... money and credit are used almost entirely for speculation, usury, and rent extraction ..."
"... In a normal economy, government spending is financed by taxes and borrowing, meaning that no new spending power has been created, as IS the case with new bank loans. ..."
"... You can fool part of the people all of the time, and all of the people part of the time. ..."
"... handing all credit creation to the central banks is not only technically impossible in a modern economy, it's a dangerous folly ..."
"... Wealth, Virtual Wealth and Debt, 2nd edition. ..."
"... The Order of Time ..."
"... "The debts are owed to government banks. A government can do what the U.S. can't do. The government can forgive debts, at least those that are owed to itself, without creating a political backlash. If a viable corporation has run up too much debt, the government can forgive it. This is better than letting the debt close down a factory or force it be sold to a predatory asset management firm as occurs in the United States. That is the advantage of having public credit and why credit should be public. That's how it was in Babylonia. Rulers were able to cancel debts all the time in the 3rd millennium and 2nd millennium BC, because most debts were owed to the palace or the temples. Rulers were cancelling debts owed to themselves. ..."
"... China can cancel business debt owed to itself. It can proclaim a clean slate. It can minimize debt service to whatever it chooses. But imagine if Chase Manhattan and Goldman Sachs are let in. It would be much harder for the government to raise real estate taxes leading to defaults on the banks. It could save the occupants by making new loans to those who default – based on lower land prices. ..."
"... Well, you can imagine the international furor that would erupt. Trump would threaten to atom bomb Peking and Shanghai to save his constituency. His constituency and that of the Democrats are the same: Wall Street and the One Percent. So China may lose its ability to write down debts if it lets in foreign banks." ..."
"... that this is a Chicago School / Friedmanesque monetary policy is made clear by Positive Money ..."
"... It seems there are greater similarities between China and the US than may be visible at first glance. China builds real estate for a shrinking population, invests for an over-indebted client (the US, which even insists on a drastic reduction of the bilateral trade deficit) and finances all this with money it does not have ..."
Jun 10, 2018 |

Disturbed Voter , June 8, 2018 at 6:30 am

Perhaps the cost of the 2008/2009 bailout was too high? And I don't mean quantitively. It seems modern man has no sense of the qualitative.

Odysseus , June 8, 2018 at 5:22 pm

The same money that went into TARP would have bought a whole lot of nonperforming mortgages. You wouldn't have needed a large bailout if the money actually made it's way to main street.

PlutoniumKun , June 8, 2018 at 6:32 am

Slightly off-topic, but if its true that this is a right wing proposal using naïve left/Green supporters to give a progressive fig leaf, it wouldn't be the first time this has happened. You can see the same phenomenon with Brexit, where many supposed left wingers have often bought unthinkingly into many right/libertarian memes about 'freedom' from the EU. The core reason they could do this is the effective abandonment by the left of arguments about money and capital to the conservative and libertarian right from the 1980's onward.

One of the many reasons I love NC so much is that it has tried to fill the gap left by so much of the mainstream left and much of the Greens in analysing economics issues in forensic technical detail. Articles like this are absolutely invaluable in building up a proper intellectual program in understanding the central importance of macroeconomics in building a fairer society.

Watt4Bob , June 8, 2018 at 8:08 am

God, country, apple pie, balanced budget, freedom, democracy, pay-as-you-go, ingredients in the hash of right/libertarian memes, all supposedly 'common sense' but actually nonsense, spread thick, intended to distract us while our ruling class steals everything not tied down.

I think the left saw its audience washed away by a tidal wave of this clever, well-funded nonsense, so they stopped arguing about money and capital because they found it embarrassing to be caught talking to themselves.

Of course back in the 1970s, much of the working-class had was doing well enough that they thought the argument about money had been settled, and in their favor. Little did they know that their 'betters' were planning on clawing-back every penny of wealth that they'd managed to accumulate in the post-war years.

So here we are, the working class that was formerly convinced that anyone could live well if they just worked hard, are finding that you can tug on your boot-straps with all your might, and get no where.

Morty , June 9, 2018 at 12:18 pm

I think you're right in that the wrong narrative is now dominant.

I don't think this was done intentionally – I think the people pulling the strings don't know for sure what will happen, either.

The 'common sense' you mention is the best explanation most people have available. They look at macroeconomics through the lens of their own household budget. Of course a balanced budget responsible application of money makes sense Most people don't have a money printer in their basement.

Norb , June 8, 2018 at 7:27 am

The battle is for the soul of humanity. A leadership that is working toward reducing inequality and injustice in the world will adopt policies reflecting a more positive outlook on the human condition. Those implementing austerity revile the masses of humanity, wether stated or not. The masses are to be controlled, not enlightened or cared for.

The West has gained supremacy in the world by using the strategy of Divide and Conquer. This thought process is so engrained in the psyche, that it heavily influences every form of problem solving by using outright war and financial oppression as primary tools to achieve these ends.

There would need to be a fundamental shift in thinking from Western leadership in order to bring about a change that would focus on wellbeing over profit, which does not seem forthcoming.

If Money=Debt, the battle over money can only be won by individuals wisely choosing whom they become indebted too. As the wise Michael Hudson points out, "Debts that can't be paid, won't be paid."

The main problem I see is the definition of what "Winning" would be. The definition determines the policy.

Summer , June 8, 2018 at 1:54 pm

"There would need to be a fundamental shift in thinking from Western leadership in order to bring about a change that would focus on wellbeing over profit, which does not seem forthcoming."

Akin to a religious conversion.

DHG , June 8, 2018 at 3:47 pm

Money is the creation of the elite to control the rest of the masses. It screws the rest of the masses by constraining what they can get their hands on while the elite can get their hands on anything they want. The tipping point will be when there are sufficient numbers who understand money isnt necessary to live and have nice things, it actually exists to deprive them of such.

Paul L. , June 8, 2018 at 7:58 pm

What is your alternative?

Watt4Bob , June 8, 2018 at 7:34 am

We've been fighting this same 'war' for a very long time.

Everybody now just has to make up their mind. Is money money or isn't money money. Everybody who earns it and spends it every day in order to live knows that money is money, anybody who votes it to be gathered in as taxes knows money is not money. That is what makes everybody go crazy. -Gertrude Stein – All About Money

As far as I can tell, about 1% of us believe that money is not money, and the rest of us believe that money is money.

Most of us believe that money is money because as Gertrude Stein said: Everybody who earns it and spends it every day in order to live knows that money is money

So here's the problem: the 1% of the people, the ones who believe that money is not money, are in charge of everything.

It's not natural that so few people should be in charge of so much, and that they should be in charge of 'everything' is truly crazy. (Please excuse the slight digression)

The people who are in charge of everything believe that it's right, proper, indeed 'natural' that they be in charge of everything because they believe that no one could do as good a job of being in charge of everything because they think they are smarter than everybody else.

The reason that the 1% of people believe they are smarter than everybody else is rooted largely in what they believe is their self-evident, superior understanding of money; that is to say, the understanding that money is not money.

The trouble is, the difference between the 1%'s understanding of money, and the common man's understanding of money is not evidence of the 1%'s superior intellect, so much as of their lack of a moral compass and their ability to rationalize the depraved indifference they show to their fellow man.

Read more;

Watt4Bob FDL June 2014

perpetualWAR , June 8, 2018 at 10:32 am

I don't believe money is money. Pretty certain I am in the 99%. "Money" or currency says right on the face that it is a debt instrument.

Samuel Conner , June 8, 2018 at 7:54 am

Maybe this thought is callous, but perhaps it would be useful to have a real-world demonstration that this is a bad idea. How systemically important is the Swiss economy? US abandoned its monetarist "quantity of reserves" experiment after a relatively short time. Again, it sounds callous, but perhaps a year or two of distress in a small test environment

(that is starting from a pretty good place and has a good social safety net


would be helpful to the world at large in terms of deprecating a bad idea. Perhaps MMT will be the last approach standing?

Could it be that Wolf's "we need experiments" rhetoric is actually opposed to "positive money", but he recognizes that the idea won't go away until it is badly spanked? Even if not, maybe there is something to the idea that experimentation could be used to distinguish bad ideas from less bad (the good ideas won't be tested, I reckon, until all the various flavors of "bad" have been tried and rejected).

TroyMcClure , June 8, 2018 at 8:11 am

IMO the point of the article was to hint that objections (or refusal to engage with) MMT is largely political in nature. See Marriner Eccles and his observation regarding the political enemies of full employment.

Skippy said it above: these are likely bad faith actors who disguise their classism and political desires with talk of "positive money" and the like. Debate clubs won't win this one.

If the Swiss go through with it and it inevitably fails there will always be an excuse. They didn't do positive money "hard enough" or whatever.

liam , June 8, 2018 at 10:22 am

What I'd like to know is if the Swiss go through with it and it fails, is there anything other than central bank independence that needs to be changed? Fundamentally it's still fiat, operating within a democracy. Does it not come down to who decides how much and for what purpose?

Maybe I'm missing something, but it strikes me as the elites getting their revenge in first. There go my people and all that. Maybe I am missing it.

Watt4Bob , June 8, 2018 at 8:18 am

the good ideas won't be tested, I reckon, until all the various flavors of "bad" have been tried and rejected.

So, you don't think current conditions are convincing enough?

As for me, I'm more than convinced, that left to themselves, our elites have an endless bag of bad ideas, and every one of them results in their further enrichment at our expense.

Samuel Conner , June 8, 2018 at 9:57 am

I'm convinced; have been persuaded that MMT is the right way to think about "money" since shortly after I encountered it almost a decade ago.

As I understand it, this is a referendum. If the people don't like the outcome, they presumably would have power to reverse it. Throw the bastards out and replace with new bastards who will try something different.

Watt4Bob , June 8, 2018 at 1:19 pm

As I understand it, MMT is simply a more honest way of explaining the current reality, the problem being that the 1% would like to keep that a secret so that money is only created for the things that they can profit from, like war.

So the issue is that since enough money can be created for the needs of the rest of us, why is that not happening?

It would appear to me that almost any efforts by the 1% to create a 'new' plan is in reality, an effort to make sure that the 99% never reap any advantage even if we were to unanimously come to understand the MMT is really the most realistic perspective.

It's almost as if the 1% has decided to change the rules because the rest of us are starting to understand that there is no technical reason we can't finance a more equitable economy.

MyLessThanPrimeBeef , June 8, 2018 at 2:03 pm

It's good to explain the current reality more honestly.

Even more honestly would be to explain that reality, which is a man-made system, doesn't have to be that way, unlike scientific explanations, for example, one for how gravity works. That particular physics explanation comes with the understanding that we can't change how gravity works.

The word 'theory' in the sense most people with more than 10 years of education associate with it is that

1. You will fail to advance to the next grade, or the next class if you don't understand it.
2. If you don't understand it, you are under pressure to show you agree with the theory, lest you fail the exam.
3. The reality described by the theory is unalterable, which is often the case with natural science theories, but not really the case with social/economic/political theories, unless they deal with human nature, which is hard to change.

If I say there is a theory to explain that on Mars, you drive on the right side of the road on odd-numbered days, and on the left side on even-numbered days, you would say, I appreciate the clear explanation of your wonderful theory, but I don't like it, I don't like how that system is designed. And I want to change it!!!!!!!!!!!!

bruce wilder , June 8, 2018 at 7:03 pm

Yesterday, I watched one of many Mark Blyth videos on YouTube where he was talking about why people hold on to stupid economic ideas. He offered a variety of interesting hypotheses, most of which were not necessarily mutually exclusive.

Even a theory that fails basic tests of correspondence with reality -- neoclassical economics being the prime example -- may prove to be a reliable means of coordinating behavior on a huge scale. That we indoctrinate people in colleges and business schools in neoclassical economics has been the foundation for neoliberal politics; even if the theory is largely rubbish by any scientific standard, the rhetorical engine is easy to operate once you have a few basic concepts down. And, immunity to evidence or critical reason may actually be politically advantageous.

Econ 101 is taught as a dogma. The student is under pressure to learn the answers for the exam, as you say. All the rhetorical tropes -- not just deficit hysteria, but regulatory burdens, tax incentives, "free markets" (you see many actual markets? no, I didn't think so) and on and on -- are as easy to recite mindlessly as it is to ride a bicycle.

We have an ideology that prevents thinking or even seeing, collectively.

Paul L. , June 8, 2018 at 8:34 pm

Well, your wish has been answered – about 160 years ago. Lincoln's issuance of Greenback's allowed the Union Army to exist. No borrowing, no MMT debt incurred.

Alejandro , June 9, 2018 at 1:06 pm

Why were they accepted as payment?

Yves Smith Post author , June 9, 2018 at 9:43 pm

"MMT debt" is a non-sequitur..

MMT experts point out regularly that the Federal government spends out of nothing. Issuing bonds is a political holdover from the Gold Standard era, but separately, those bonds do have some use because a lot of investors like holding a risk free asset.

The government spends by the Fed debiting the Treasury's account. That's it.

We don't go around worrying about issuing bonds to pay for the next bombing run in the Middle East. The US has all sort of official off budget activity as well as unofficial (why do you think the DoD is not able to account for $21 trillion of spending over time? No one points out this $21 trillion mystery is proof the USG actually runs on MMT principles).

Older & Wiser , June 9, 2018 at 10:58 pm

MMT necessarily requires the exorbitant privilege of having the US dollar accounting for 60% of world trade & financial transactions with the US economy representing only 20% of world GDP.

Such impunity is changing as we speak so for that reason only (there are others) MMT should soon find itself non-viable.

Yves Smith Post author , June 10, 2018 at 1:08 am

That is not correct. Any government that issues its own currency is a sovereign currency issuer and operates on MMT principles. Canada, Japan, England, Australia, New Zealand .the constraint on their ability to run deficits is inflation. They will never go bankrupt in their own currencies. They can create too much inflation.

Adam1 , June 8, 2018 at 8:17 am

I have the same reaction to Positive Money ideas as I do to someone who talks about "parallel currencies". They don't understand money, banking and central banking.

While I agree whole heartedly with Clive that establishing the mini-bot currency is subject to the law of un-intended consequences and would no doubtedly have a bumpy start and might not even survive; but it's just another currency. Yes it would likely be subject to a discount versus the Euro, but so what. From a banking perspective there is nothing magical about state money or central bank money. These are the dominate means of clearing and settling payments today, but that's because it's currently cheaper, easier and less risky. But banking predates central banks by at least one or two hundred years (if not more). Thinking that if you put an iron fist on the usage of state/central bank money is going to stop banking only shows you don't understand banking. Most economies already have dual currencies – state money and bank money – but nobody thinks of them that way because they trade one for one. But locking the banking system out of using state money to clear and settle payments created by lending only forces the banking system to find a new means of acquiring liabilities (I'd suspect they get called something other than "deposits" of course) and clearing and settling payments. It wouldn't happen overnight but it most certainly would happen – there's too much "money" to be made.

Paul L. , June 8, 2018 at 8:36 pm

"Most economies already have dual currencies – state money and bank money" Give me the ratio please. Other than feeding the parking meter or doing your laundry what else do you use state money for?

Alejando , June 9, 2018 at 1:10 pm

Paying taxes. Unpaid parking tickets are debts, no borrowing involved.

voteforno6 , June 8, 2018 at 8:40 am

It's not exactly the gold standard, but it would have the same impact, I think. You have to give them credit, though – they keep finding new ways to dress up this very old idea.

OpenThePodBayDoorsHAL , June 8, 2018 at 7:16 pm

Hard to get to a new answer if you don't even start with the right question.
Wolf asserts his obvious and unquestionable truth: "Money is debt".


J. P. Morgan didn't think so. When he was asked:

"But the basis of banking is credit, is it not?" , Morgan replied:
"Not always. That is an evidence of banking, but it is not the money itself. Money is gold, and nothing else" .

Ah yes, the shiny rare metal that served mankind as money for millennia.
I have a gold coin in my hand. I can exchange it for goods and services. But I can't for the life of me figure out whose debt it is.

And no less than The Maestro (Alan Greenspan) opined the following last month:

"The gold standard was operating at its peak in the late 19th and early 20th centuries, a period of extraordinary global prosperity, characterised by firming productivity growth and very little inflation.

But today, there is a widespread view that the 19th century gold standard didn't work. I think that's like wearing the wrong size shoes and saying the shoes are uncomfortable! It wasn't the gold standard that failed; it was politics. World War I disabled the fixed exchange rate parities and no country wanted to be exposed to the humiliation of having a lesser exchange rate against the US dollar than it enjoyed in 1913.

Britain, for example, chose to return to the gold standard in 1925 at the same exchange rate it had in 1913 relative to the US dollar (US$4.86 per pound sterling). That was a monumental error by Winston Churchill, then Chancellor of the Exchequer. It induced a severe deflation for Britain in the late 1920s, and the Bank of England had to default in 1931. It wasn't the gold standard that wasn't functioning; it was these pre-war parities that didn't work.

Today, going back on to the gold standard would be perceived as an act of desperation. But if the gold standard were in place today we would not have reached the situation in which we now find ourselves. We would never have reached this position of extreme indebtedness were we on the gold standard, because the gold standard is a way of ensuring that fiscal policy never gets out of line."

So let's start with a simpler definition of money: "Money stores labor so it can be transported across space and time" .

I grew some wheat, and want to store my wheat-labor so I can use it later, or spend it somewhere that is nowhere near my wheat pile.

But this points out why money that took no labor to produce cannot reliably store labor. Our system materializes money from thin air. Which is precisely the point of gold: it takes alot of labor to produce, so it has reliably stored labor for centuries. In A.D. 250 if I wanted a good-quality men's costume (toga, sash, sandals) the cost was one ounce of gold. Today one ounce of gold is +/-$1300, probably enough for a pretty good suit and pair of shoes. That fact is incredible: every other currency, money, government, and country have come and gone in the interim but gold reliably stored labor across the ages.

Cue the haters: "But gold money allows deadly deflation!!!". Yes, that scourge, when people benefit from rising productivity (lower costs of goods and services) in what used to be termed "Progress". Instead we're supposed to love being on a debt treadmill where everything costs more every year, on purpose .

Free your mind.

OpenThePodBayDoorsHAL , June 8, 2018 at 7:21 pm

Just to be clear, I'm not arguing that credit should somehow be abolished. Credit is critical, and hence so is banking. But separating money and credit would mean that every banking crisis (extending too much credit) is not automatically also a monetary crisis, affecting everyone, including people who had nothing to do with extending or accepting too much debt.

Paul L. , June 8, 2018 at 8:39 pm

Yes, you are correct. No one in the monetary reform movement wants to abolish credit – an agreement between two entities – but to have that "credit" backed by the US government as real money – what a racket!

skippy , June 9, 2018 at 3:02 am

Sigh no such thingy as "real" money, same issue with using terms like "natural" as a quantifier.

This also applies to say pods above statement about "freeing the mind", especially when referencing or other AET affiliates.

The Rev Kev , June 8, 2018 at 8:48 pm

Of course it should be noted that if you dig up a gold coin from two thousand years ago or even older, it still has value just for its metal content alone. It still holds value. This is never true of fiat currencies. In fact, it had never occurred to me before, but when you think about it – the history of money over the past century has been to get actual gold, gold coins, gold certificates, silver coins, etc. out of the hands of the average people and to give them pieces of paper and now plastic as substitutes. Even the coins in circulation today are only cheap remnants of coins of earlier eras that held value in itself. I would call that a remarkable achievement.

skippy , June 9, 2018 at 3:13 am

Uh .

I think you should avail yourself wrt the history of gold and how humans viewed it over time, then again you could look at say South America from an anthro observation and the social changes that occurred between Jade and Gold eras.

As far as value goes that is determined at the moment of price taking which can get blurry over time and space.

Gold was used as religious iconography for a reason imo.

Just from the stand point that gold was in one anthropological observation – a flec of gold to equal weight of wheat means the gold got its "value" from the wheat and had nothing to do with some concept of gold having intrinsic value.

The Rev Kev , June 9, 2018 at 10:51 pm

Not particularly in love with gold nor am I a gold bug. My own particular prejudice is that any money system needs an anchor that will set some sort of boundaries to its growth. Something that will not blow through the physical laws of natural growth and will acknowledge that resources can and will be exhausted by limitless credit and growth. Personally I don't care if it is gold or Electrum or Latinum or even Tribbles so long as it is something.

skippy , June 9, 2018 at 11:56 pm

Yet MMT clearly states that growth is restricted to resources full stop. So I don't understand your issues with anchor points, its right there in black and white.

Look I think there is a huge difference between informal credit [Greaber] and formal credit [institutional] and the risk factors that they present. This is also complicated by not all economies are the same e.g. steady state. In facilitating up lift [social cohesion with benefits of currant knowlage] vs putting some arbitrary limit on credit because it suits the perspective of those already with claims on wealth.

skippy , June 10, 2018 at 12:43 am

In addition I would proffer that MMT is not supply side dependent, just the opposite. Economics would be much more regional in reference to resources and how that relates to its populations needs, especially considering the democratic governance of those finite resources without making money the linchpin to how distribution is afforded.

Older & Wiser , June 8, 2018 at 9:03 pm

How dare you submit such irreverent goldbuggery ?
Your line of thought is not politically correct Sir.
Something for nothing is easier to sell and to live by, don´t you know ? as long as it lasts.
Problem is ( as HAL would say ? ) the 50 years are almost through, so it just can´t last much longer no matter how much we pussyfoot around reality.

Plenue , June 10, 2018 at 1:04 am

It has nothing to do with being 'politically incorrect'. It has to do with goldbuggery being completely ignorant of actual history and facts. It ascribes to gold attributes which it never truly had even in the West, much less globally.

Some examples from objective reality:

When the Conquistadors arrived in the 'New World', they discovered an entire continent filled with easily accessible gold and silver, and yet neither was treated by the natives as money. They were shiny trinkets. Money was cocoa beans and pieces of linen.

When the Vikings reached the Eastern Mediterranean, the Byzantines had a hard time getting them to accept gold as payment. Before that, the only 'precious' metal they had any interest in was silver.

Going eastward, in feudal Japan currency was based on rice, not precious metals. Gold and silver were used as representative tokens of large values of rice. The source of value wasn't felt to be the metal, it was what the metal represented.

If civilization were to end today, the most well off survivors aren't going to be the ones who stockpiled gold. It's going to be the ones who stockpiled food and water (and/or the weapons to protect/seize such stockpiles). Gold has exactly zero inherent value. It's a luxury item at best, in the same way fine art is. No one in the post-apocalyptic wasteland is going to be impressed by your lumps of heavy, soft metal.

There's plenty of information available from historians, archaeologists, and anthropologists (but emphatically not from mainstream economists) on the history of money. If you want to 'free your mind', you'd best start with one of these fields. Not some libertarian cesspit, where the 'intellectuals' are even more delusional than mainstream neoclassicals.

skippy , June 10, 2018 at 1:39 am


Pespi , June 9, 2018 at 3:19 am

That all sounds very neat but is not true. Money is not a labor token, it is not a token of anything but an act of accounting.

templar99 , June 8, 2018 at 9:12 am

' Everybody needs money, that's why they call it money ' David Mamet ' Heist '

The Rev Kev , June 8, 2018 at 9:52 am

I'll probably get slammed here for this but to tell you the truth, I see no justification for the shape and character of the present money system in use around the world. In fact, I absolutely refuse to believe that There Is No Alternative. The present system is one that has evolved over the centuries and for the greater part was designed by those with wealth to either solidify or expand their wealth.
Yesterday, in a comment, I made the point that for an economic and financial system to work it has to be sustainable. Call that General Order Number One. But a survey of the present system shows a system that by its very nature is seeking to transfer the bulk majority of wealth to about 1% of the population while pushing about 90% of the population into a neo-feudal poverty. This is nothing short of self-destructive and is certainly not sustainable.
We tend to think of money as something permanent but the different currencies in existence today make up only a fraction of the currencies that have ever existed. All the rest have gone extinct. I am given to understand that when the US Federal Reserve meets, it is in a room whose walls are adorned with examples of these extinct currencies. In fact, I even own a few German Reichsmarks from the hyperinflation era of the early 1920s for an occaisional bit of perspective.
OK, maybe the Swiss referendum is being used, misused and abused but it is a sign of an arising discontent. It certainly surprises me that it was the Swiss as when I visited that country, they were the most conservative people that I have ever met as far as money was concerned. In any case, perhaps it is time that we all sat down and designed a money system from the ground up. Throw away the rule book and just take a pragmatic approach. Forget theories and justifications, just look for stuff that works.

JEHR , June 8, 2018 at 11:44 am

There is no need to "experiment" with other systems of money use: we just need to regulate the system we have but, unfortunately at present, we are in the midst of de-regulating everything–finance, environmental protections, healthcare, education, etc., and getting rid of other groups such as unions. The undermining of many (public) institutions is well on its way and I do not see it ending well. I think the rich have won this round just as they planned in the 1970's.

MyLessThanPrimeBeef , June 8, 2018 at 12:14 pm

We have to consider, think or experiment with other systems. The comment below by Anarcissie is a good start.

Anarcissie , June 8, 2018 at 11:53 am

I imagine you would want to start from value (a mental state of persons) and labor, things persons do to achieve stuff which they value. It would be convenient to have tokens which represented social agreement about value, valued stuff, and labor. The social agreement could be brought about by cooperative voluntary institutions ('credit unions') which would oversee and guarantee the issuance of tokens (debts) by members (persons). We already do this on a modest scale by writing checks, so it's not unheard-of.

If you want a system which doesn't just feed the elites, you have to create one which doesn't rely on institutions dominated by or entirely controlled by the elites, such as the government, the major corporations, large banks, and so on. You want something egalitarian, democratic, and cooperative. It's not impossible.

bruce wilder , June 8, 2018 at 6:46 pm

Indeed it is possible and has been done in the recent past.

A key insight behind credit unions, mutual insurance and savings and loans back in the day was that these institutions were loaning people their own money savings and should be run without assigning hotshot managers the dubious incentive of a profit-motive or talking up "innovation".

One of the things I object to in Richard Murphy's rhetoric and that of more careless MMT'ers is that they implicitly concede the premise that Money is usefully thought of as a quantitative thing, a pile of tokena circulating at some velocity. Financial intermediaries (and yes, Richard, they are intermediaries) do create "money" in the form of credit by matching ledger entries. For a savings and loan, which gives a mortgage to a depositor or just a checking account to a saver, this can be a key idea supporting mutual assistance in cooperative finance.

But, if you insist that the bank is "creating" a quantity of money that is then set loose to drive up house prices or some similar narrative scenario, I do not see that your storytelling is doing anyone any good.

Credit from institutions of cooperative finance -- shorn as they must be of the incentive toward usury and rent extraction -- is actually a very useful application of money, enabling people to take reasonable risks over their lifetimes. For example, to enable a young couple to form a household and buy a house and gradually build up equity in home ownership against later days. This is sensible and prosaic, a standard use of money to insure by letting a bank or similar institution help individuals or small businesses to transform the maturities of their assets and prospects, while certifying their credit. If your understanding of money does not encompass such prosaic ideas as leverage and portfolios or their application to improving the general welfare, then the "left" is up a creek without a paddle.

Paul L. , June 8, 2018 at 8:44 pm

"Financial intermediaries (and yes, Richard, they are intermediaries) do create "money" in the form of credit by matching ledger entries. "
That is NOT what is meant by the term,"intermediaries" here. The common belief is that banks merely take in a depositor's money and, as an intermediary, lend that money out. An intermediary, by definition, does not create anything. That is the accepted meaning of the term when discussing banking. You are free to use your own definition but it will lead to confusion.

bruce wilder , June 9, 2018 at 12:47 am

What is the accepted meaning of the term, "intermediary", when discussing banking?

I am unclear what definition you are referencing.

Yves Smith Post author , June 9, 2018 at 10:08 pm

You are incorrect as to how banking works, and you have also jalbroken moderation, which is grounds for banning, as is clearly stated in our Site Policies, which you did not bother to read.

Per your comments on banking, you are also engaging in agnotology, another violation of site Policies.

Banks do not intermediate. They do not lend out of existing savings. Their loans create new deposits. Not only has MMT demonstrated, and this has been confirmed empirically, but the Bank of England has endorsed this explanation as correct.

You are presenting the loanable funds fallacy, a pet idea of monetarists. It was first debunked by Keynes and later by Kaldor.

Your idea of "accepted meaning" is further confirmation you are way out of your depth here and are a textbook case of Dunning Kruger syndrome.

Anthony K Wikrent , June 8, 2018 at 9:59 am

The matter of who or what controls money is actually secondary to the matter of what money is used for. Positive Money correctly identifies the fact that under our present arrangements in the USA, UK, and most of the West, money and credit are used almost entirely for speculation, usury, and rent extraction (though they do not, so far as I know, use the terms). If "the people" somehow were able to gain control of money and credit, and money and credit continued to be used almost entirely for speculation, usury, and rent extraction, society and the people would see no net advance economically.

That's the simple overview. Allow me to lay out a couple scenarios to show why just solving the problem of who controls money and credit does not really address our most urgent problems.

For the first scenario, assume that it is right wing populists who have triumphed in the fight to seize control of money and credit. Recall that in the first and second iterations of the bank bailout proposals in USA, Congress was deluged by overwhelming public opposition to the bailout. But in the second iteration, the Democrats mostly folded, while on the Republican side, the closer you got to the Tea Party extreme, the stauncher the opposition to the bailout you found. So, under right-wing populist control, we would probably see prosecutions and imprisonment of banksters, which would likely have the intended effect of lessening rent extraction. But we would probably also see that right-wing populists are not much concerned about speculation and usury, so those would continue relatively unscathed.

More importantly, we could expect right-wing populist control to result in severe cutbacks to both government and private funding of scientific research, most especially on climate change. We would be hurried forward on our course toward climate disaster, not turned away from it.

For the second scenario, let us assume it is a left-wing populist surge that achieves control over money and credit. In this scenario, speculation and usury would be suppressed as well as rent extraction. On science, there would no doubt be a surge in funding for climate research. But I would greatly fear what left-wing populists might do to funding of space exploration and hard sciences such as the large Hadron collider at CERN. And what would happen to funding for military research programs like DARPA?

Can you imagine the implications of cutting those kinds of science programs? Try to think of doing without all the spinoffs from the NASA Apollo moon landing program and the original ARPAnet, which includes much of the capability of the miniaturized electronics in the computer, servers, modems, and routers you are now using.

The point is, that without restoring an understanding of republican (NOT capital R "R"epublican Party) statecraft, its focus on promoting the general welfare, and the understanding that promoting the general welfare ALWAYS involves identifying and promoting the leading edges of science and technology, any success in seizing control of money and credit away from bankers (whether private or central) does not necessarily result in victory. For an extended discussion of science and republicanism, see my The Higgs boson and the purpose of a republic .

MyLessThanPrimeBeef , June 8, 2018 at 10:17 am

There will always be right-wingers, left-wingers, progressives, imperialists, etc.

One or more of them will seize control.

It would seem, then, the first thing to do, is to work on human nature, and not discovering new devices for them (or us, ourselves), because we can not guarantee no harm to Nature will come from colliding high energy particles.

Lord Koos , June 8, 2018 at 2:17 pm

I don't really see the left as being anti-science, it seems to me that it's the right that wants to deny scientific findings such as climate change, etc. There are exceptions of course, such as new-age/anti-vaxers, chem-trail theorists, etc but they are a small minority, and I find it hard to envision a scenario where a leftist government would cut science funding. As it is now, many if not most scientific and technical advances have originated from what was originally military funding, including the internet we are using at this moment.

This is a model that needs to change IMHO, there is no reason that cutting-edge science has to be tied to the military, science could just as easily be funded for its own sake, without the pentagon getting the money first and then having the tech trickle down to the rest of us.

MyLessThanPrimeBeef , June 8, 2018 at 3:43 pm

I am trying to come up with some examples where technological advances were not induced or misused by warriors and/or libido, from the dawn of humanity till now.

Stone tools – misused for war.

Bronze/iron tools – the same.

The wheel – war chariots.

Writing – to lord over the illiterate

The steam engine – how the west was won with buffaloes going extinct.

Gun powder – war, and above.

The internet – surveillance and libido.

The smart phone – above.

Aspirin – that's all good .maybe the example I am looking for except I'm allergic to it.

Anthony K Wikrent , June 8, 2018 at 6:28 pm

The technology of smart phones originated almost entirely with DARPA -- see Mariana Mazzucato's The Entrepreneurial State

bruce wilder , June 8, 2018 at 6:28 pm

money and credit are used almost entirely for speculation, usury, and rent extraction

Certainly on the leading edge, that is what money and credit are used for, but "entirely"??? In the main, money remains the great lever of coordination in an economy of vastly distributed decision-making.

The forces of predation and fraud are seriously out-of-control and they use money for anti-social ends, protected by neoliberal ideology and the cluelessness of what passes for the political left. Like any normal bank robber, the banksters want the system of money to continue to work and it does continue to work, in the main, even as they play Jenga with the towering structures of finance.

Anthony K Wikrent , June 8, 2018 at 6:36 pm

Well, I did qualify it with "almost" : ). Still, in the late 1990s I found that there was around $60 (sixty dollars) of trading in financial markets (including futures and forex) for every one dollar of GDP. That compares to 1.5 to 1 in 1960. The ratio probably dropped in the aftermath of the 2007-2008 crashes, but I's be surprised if it has not surpassed 60 to 1 by now. Have mercy on me: I haven't looked at a BIS report for a few years now.

Paul L. , June 8, 2018 at 8:47 pm

Your first scenario is already in existence today, my friend. As far as the second scenario – what exactly is it that you have against democracy?

Ignacio , June 8, 2018 at 10:09 am

It is just intuitive that giving central bankers the monopoly for money creation is not a good idea

Paul L. , June 8, 2018 at 8:49 pm

So your solution is to keep it in the hands of the elite?! Please note that the "central bank" under the Vollgeld initiative is completely redefined, not a central bank at all but a government institution controlled by a democratic process.

Martin , June 9, 2018 at 12:38 am

Many banks around the world started out as state-owned and have been privatised.
I admit it is simplistic, but having a state-run not-for-profit bank being this "government institution controlled by a democratic process" has a lot of merit to me.
It would have lending guidelines to aid investment in productive endeavours, limit the risk, and have no part in the insane fringe financial transactions that brought about the GFC, and who know how many other things that have gone under the radar.
This brings all currency creation into a single place, so it needs transparency and a (proper) democratic governance.
There would probably be fewer jobs I admit, but many of these would be the top levels enjoying fat bonuses based on winning zero-sum games.
And as a final comment – should GDP include the transactions within the financial sector at all? Given the zEro-sum games involved, and the creation of losers as part of that, does it actually "produce" anything at aLL?

Yves Smith Post author , June 9, 2018 at 2:00 am

I hate to be a nay-sayer, but the reason there were once many state banks in the US and there is now only one is that they became cesspools of corruption. And having arm-wrestled with CalPERS for over four years, which is more transparent than a lot of places, good luck with getting transparency and good governance.

Jamie Walton , June 9, 2018 at 7:39 am

Good point Yves. My research revealed the same re. previous state banks.

Yves Smith Post author , June 9, 2018 at 8:24 am

Mind you, that does not mean they might not be worth trying, but the assumption that they can just be set up and will work just fine "because democracy" needs to be taken with a fistful of salt. There needs to be a ton of careful thought re governance and lots of checks (an inspector general with teeth at a minimum, we can see from CalPERS that boards are very easily captured).

Jamie Walton , June 9, 2018 at 9:52 am

Agreed. Could a public banking option run through the U.S. Post Office be a better approach (they have branches and staff everywhere already)?

Watt4Bob , June 9, 2018 at 3:56 pm

Bank of North Dakota has a fascinating history, being founded during the Progressive Era, when ND had a governor who was a member of the Nonpartisan League, a populist political party, and intended to save North Dakota's farmers and laborers from the predations of the big banks in Minneapolis and Chicago.

It remains the only state-owned bank in the country.

The populist
Nonpartisan League
remains the most successful third party in history, and had remarkable impact on politics in North Dakota and Minnesota. It merged with the Democratic Party in the 50s.

Yves Smith Post author , June 9, 2018 at 9:47 pm

Ahem, I acknowledged that. What you miss is that pretty much every other state had a state bank and they were shuttered because they became embarrassingly corrupt. The fact that past "state bank" experiments almost universally failed makes me leery of the naive view that they'll be hunky dory. They could be but the sort of cavalier attitude that they'll be inherently virtuous is the road to abuse and misconduct.

skippy , June 9, 2018 at 11:30 pm

And what did ND do as far WRT usury in being a CC tool.

Wukchumni , June 8, 2018 at 10:11 am

I was talking with my wife about DeBeers and the man-made diamonds they're selling @ 1/10th of the price of the genuine article

what if some neo-alchemist did the same thing with gold?

It would in an instant, render all of it worth $130 an ounce, on it's way to $13 an ounce.

And more importantly, take away the only real alternative to digitally produced ducats.

SubjectivObject , June 9, 2018 at 1:11 pm

you need need natural allotropes

Jim Haygood , June 8, 2018 at 10:30 am

" Money is debt. It is only created by government spending and bank lending. " -- Richard Murphy

We've jumped through the looking glass. The former money, gold, is NOT debt. Debt-based money is ersatz, a ghastly fraud on humanity.

In a normal economy, government spending is financed by taxes and borrowing, meaning that no new spending power has been created, as IS the case with new bank loans.

Daniel Nevins' book Economics for Independent Thinkers discusses how modern economists got misled into believing the money supply governs everything, whereas earlier 19th century economists understood that bank lending is what drives expansions.

Poor Murphy, starting out with a wonky premise, only succeeds in careering into a briar patch and wrecking his bike. He should post his pratfall on YouTube.

False Solace , June 8, 2018 at 11:57 am

Fiat money can also be created without debt. That's the whole point of MMT, but it makes Haygood's head explode so he never acknowledges it (without muttering about hyperinflation, which never actually happens outside of disasters on the scale of a major war).

When the federal government spends money into existence -- which can be on the basis of a democratic agenda, in countries that have actual democracies -- there's no need for a corresponding issuance of government debt. Hence, spending power is indeed created. If the government does create debt, the bond is an asset on the ledger of whoever buys it, and the government spends the interest into existence. Which creates additional spending power for the private sector. The government can choose to, or not, collect a portion of this as taxes, which extinguishes the money. If the government collected as taxes everything it ever spent there would be no money in circulation.

> In a normal economy, government spending is financed by taxes and borrowing, meaning that no new spending power has been created, as IS the case with new bank loans.

Er, new bank loans also represent borrowing that has to be paid back. The spending power that gets created is extinguished by paying back the bank loan.

MyLessThanPrimeBeef , June 8, 2018 at 12:07 pm

the federal government spends money into existence


That's a choice made by the designers of the current system.

But not the only choice.

The people, for example, can be empowered (or perhaps inherit that power, on the basis of the Constitution amendment clause* that any power not given explicitly to the federal government is reserved for the people), to spend money into existence.

*The Tenth Amendment declares, "The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people."

Susan the other , June 8, 2018 at 11:59 am

So do you gold bugs want to dispense with double entry bookkeeping or keep it and adapt it to gold (would that entail both counterfeit money and counterfeit debt?) – gold as both credit and debt, or just what exactly? With the gold side weighing down the ledger it's gonna get wobbly. Maybe have to start a war to fix it? The fog of positive money. Really, JH, you've been the best voice against war. How do you reconcile all the social imbalance that would follow with "positive" money?

Wukchumni , June 8, 2018 at 12:03 pm

Nobody's going to willingly go back to a gold standard, it would have to come about because money via digital deceit has failed in entirety.

Jim Haygood , June 8, 2018 at 12:23 pm

Fiat money is war finance, made permanent. Even during the gold standard, governments would suspend gold convertibility during wars. Lincoln's greenbacks and the UK's suspension during WW I are noteworthy examples.

So the gold standard won't stop governments declaring national security exceptions -- they've always done so. But permanent war finance is what sustains the value-subtraction US military empire, a gross social imbalance that already plagues us by starving the US economy of investment.

Double entry bookkeeping doesn't require that every asset have an offsetting liability. A balance sheet with no liabilities is all equity on the right-hand side. It's what a bank would look like if it sold off its loan portfolio and paid off its depositors -- cash on the left side, equity on the right. If the bank then bought some gold, it would be exchanging one asset (cash) for another (gold), with no effect on the liability/equity side.

Wukchumni , June 8, 2018 at 12:30 pm

It is worth noting that the Federal government struck well over 10 million ounces of gold in coin form for use in circulation from 1861 to 1865

And the CSA?

Not one grain worth

Anthony K Wikrent , June 8, 2018 at 6:40 pm

I've gathered and read much on the greenbacks, but don't recall that very interesting data about minted gold. Any sources you might recommend?

Wukchumni , June 9, 2018 at 4:40 pm

Just look up the mintage figures, here's $20 gold coins that contain just under 1 troy oz of pure gold in content, from 1861 to 1865. You can follow links to other denominations.

There were over 8 million ounces alone in $20 gold coins struck during the Civil War, by the Union.

Wukchumni , June 8, 2018 at 12:42 pm


We were never on a pure gold standard, nowhere close actually.

The most common money in the land until the Federal Reserve came along, FRN's not being backed by gold?

Why, that would've been National Banknotes, which was the currency of the land from 1863 to 1935. There were over 10,000 different banks in the country that all issued their own currency with the same design, but with different names of banking institutions, etc.

MyLessThanPrimeBeef , June 8, 2018 at 1:40 pm

Specifically, in this case:

Assets = Equity (+ zero liabilities)

The accounting identity is still good.

Susan the other , June 9, 2018 at 10:06 am

Very hard to argue with you, but I'm tripping over this: "If the bank then bought some gold, it would be exchanging one asset (cash) for another (gold) with no effect o the liability equity side." Because in my mind cash isn't an asset – it's just money – a medium of exchange and a unit of account. Where we get all messed up is when the unit of account starts to slip (due to mismanagement) and people start to demand that money become a store of value. When the value is society itself. And blablablah.

JTFaraday , June 9, 2018 at 12:52 pm

Sure, the value is society itself, I agree with this. But OTOH, it is for example much better to be a woman, black person, fill in the blank, even "working class" person with a lot of money than not in a sexist, racist, etc society.

I can't necessarily compel the forces of sexism, racism, old farts who don't agree with me, etc through the "political process," thereby bringing my will to bear on society. But I can move things with my dollars, This is how money gets its magic power. If people played nice with each other, we wouldn't need money.

Older & Wiser , June 8, 2018 at 1:03 pm

What about paper bugs Susan ?
Has paper buggery helped any ever ?
Why do fiat currencies always self-implode (in average) every 50 years ?
" You can fool part of the people all of the time, and all of the people part of the time. .."

OpenThePodBayDoorsHAL , June 8, 2018 at 7:42 pm

8 white men control > 50% of the world's wealth. Let's just keep going in that direction, to where it's down to one white guy, and with debt-based money everyone else owes him all the "money" in the world. Then we can just strangle him in the bathtub and usher in an era of peace and prosperity.

Older & Wiser , June 8, 2018 at 6:40 pm

Richard Murphy says that " handing all credit creation to the central banks is not only technically impossible in a modern economy, it's a dangerous folly "

What is QE then, Sir ?
Our "modern" economies don´t have business cycles any more, just distorting credit cycles.
There are no "markets" as such today, nor prices only interventions.
Even interest rates (the price of supposed "money" remember ?) are not priced by markets any more .

OpenThePodBayDoorsHAL , June 8, 2018 at 7:47 pm

Ask any economist or banker what they think about fixing the price of goods and services and see how they answer.

Watch their heads explode when you then ask if it's a clever idea to fix the most important price in the global economy.

Yves Smith Post author , June 9, 2018 at 9:53 pm

Help me. Gold is not money. And it does not have and never had immutable value. Even in the days of the gold standard, countries regularly devalued their currencies in gold terms. It was the money that was used for commerce, not the gold. When the US government devalued the $ in gold terms by 5%, bread at the store didn't cost more the next day, which is what your "gold is money" amounts to. It's not correct and you need to drop it.

Synoia , June 9, 2018 at 10:49 pm

I visited a gold mine for a tour onec. At the end of the tour was the gold refinery, and on the floor two ingots of gold.

They made the offer, "if you could life one with one hand, you could keep it."

I tried.

And discobered that the ingit, was

a) Pyramidal in shape so ones fingers slid off it
b) F .. heavy. 140 lb.

When you see gold "bars" being tossed around in the movies, it's complete bs. Arnold at his best coud not toss them around.

So we went an had a beer instead. Wiser, but not sadder.

Plenue , June 10, 2018 at 1:13 am

"The former money, gold, is NOT debt. Debt-based money is ersatz, a ghastly fraud on humanity."

You've been on NC for years. You have to know by now that this literally, objectively, isn't true. It just simply isn't. History and anthropology do not at all support your version of events. People like Hudson and Graeber have extensively documented where money came from. Debt and credit came first, then money as a token to measure them. We have warehouses full of the freaking Sumerian transactions tablets that show it! Money is debt, always has been.

Actually, I say you have to know this by now, but given how conspicuously absent you seem to be in the comments of Michael Hudson articles about the history of debt hosted here, maybe you just aren't reading them. Or you are and don't like what they say and how it clashes with your pre-established worldview, so you just ignore them. Though even if the latter, it's still telling how you don't even attempt to refute them. Perhaps because you can't.

steven , June 8, 2018 at 10:52 am

It's not about money; its about creating and distributing wealth. That a trivial thing like a double-entry bookkeeping operation should stand in the way of creating the wealth the world and its people need to survive is, of course, insane. But it is also insane to expect different results from turning over control of the process of money creation to a wholly owned subsidiary of governments like those of the United States and Great Britain, bent as they are on global hegemony ("full spectrum dominance") – at ANY cost.

Whether or not China and other developing nations realize it, genuine wealth creation – not money as debt creation ('finance capitalism') – is THE source of national power. It is more than a little amusing to watch the neoconservatives fret about the rise of China after having joined with their neoliberal brothers in off-shoring US and Western wealth creation potential (in what they must have thought was an oh so clever attack on Western living standards by forcing 'their' people to compete with the world's most desperate workers in a global race to the bottom so their 1% patrons would have an excuse to create more money as debt).

So long as the West remains focused on 'the price of everything and the value of nothing' (like the human potential of their own people, for example), the developing world is soon likely to have a monopoly that will put OPEC and its Middle Eastern dictators to shame. In summary this is about FAR more than just about how a few 'post-industrial' democracies create their money. The definitive work on this topic remains Soddy's Wealth, Virtual Wealth and Debt, 2nd edition.

Paul L. , June 8, 2018 at 8:57 pm

Soddy doesn't object to democratizing the money supply and turning over its creation the democratically elected government.

skippy , June 9, 2018 at 6:18 am

Soddys drama is making money a physical object when its a contract with time and space qualities,

blennylips , June 9, 2018 at 7:28 am

Just as a few days ago Carlos Rovelli, author of " The Order of Time ", has useful insights of the political significance of LSD, he has advice for this too in the same book:

The entire evolution of science would suggest that the best grammar for thinking about the world is that of change, not of permanence. Not of being, but of becoming.
We can think of the world as made up of things. Of substances. Of entities. Of something that is. Or we can think of it as made up of events. Of happenings. Of processes. Of something that occurs. Something that does not last, and that undergoes continual transformation, that is not permanent in time. The destruction of the notion of time in fundamental physics is the crumbling of the first of these two perspectives, not of the second. It is the realization of the ubiquity of impermanence, not of stasis in a motionless time.

In other (his) words:

"The world is made up of networks of kisses, not of stones."

Not bad for a physicist!

blennylips , June 9, 2018 at 8:02 am

As long as I am feting physicists, this just came over the transom from Sabine Hossenfelder of fame. She's written a book, " Lost in Math " and was informed that a video trailer is customary in this situation. As the first comment there says:

"Hey, that is a GREAT statement! (And it applies to SO MUCH in life, not just physics!)

djrichard , June 8, 2018 at 10:54 am

We've all been focusing on the demand side of the Fed Reserve's liquidity pump: be it for sound business needs. Or not (pirates).

But what happens when demand for that pump disappears because everyone is over-extended? Because this is where Bernanke and Japan and the ECB have done "whatever it takes" to keep that pump from going in reverse. Because in an empire created on naked shorts (currency creation today is essentially a naked shorting process), the last thing you want is that pump to go in reverse. That's not just creative destruction. That's house-on-fire destruction.

So Bernanke et. al. have figured out how to keep that pump from going in reverse. Simply prop up asset prices, e.g. by reducing the asset float in treasuries, MBSs, etc. And it worked. Yay! Right? If you're an asset holder, you're aces. If you're not an asset holder, well you're not doing so well. In particular, if you're in that part of the economy which depends on the velocity of money. Because velocity is at a stand still. As another blogger I used to follow would say, price sans volume is not the right price. So from my perspective, Bernanke (and Japan) had to destroy their economies by replacing them with zombie economies to rescue certain players. Not just players, but playahs – the pirates that pushed us to this end-game. So the pirates are rescued. And the average joe inherits the after effects. But hey, those with 401Ks got rescued too, so it's not all bad. And since the 401Kers are competitive, they generally found safe harbor in the job market too. Yay for them.

If we were not on a debt-based monetary pump, we would not end up with a zombie economy. One which the Fed Reserve can't figure out how to solve except for creating even more demand at the debt pump, even more over extension to mask the issue only to fall back within the same trap again. From what I can tell, we are truly in a doom loop and at present I don't see any creativity in getting us out of this doom loop.

So the vollgeld initiative would ostensibly be a way to extricate an economy from that doom loop. I suspect the Swiss don't really need it as much as other nations. But why get in the way of that type of creativity?

And I would just add that supplanting the federal reserve note with a Lincoln greenback type of approach would work just as well. Even better since it gives the monetary powers to the fiscal side of the Fed Gov.

I posted a version of this last night in the previous thread. But suspect nobody is going to go to that thread anymore. So apologies for a repeat of sort. Not trying to spam.

Wukchumni , June 8, 2018 at 11:06 am

The idea of a real estate pumped perpetual notion machine, combined with essentially an interest free savings plan for the proles, persuaded them to come through and help rise all boats, and who could have figured on vacation rentals helping out housing bubble deux, the sequel.

Looking @ the real estate listings here in a vacation rental hotspot is indicative, in that there are only a few $250k-$300k homes for sale now, whereas there used to be a dozen, always.

Now, on the other hand, we're swimming in $500k to $1m homes that don't make the rental cut.

That says a lot.

Jim Haygood , June 8, 2018 at 12:36 pm

You probably read the Bernank's naive confession yesterday that fiscal stimulus "is going to hit the economy in a big way this year and next year, and then in 2020 Wile E. Coyote is going to go off the cliff."

Three hundred shocked staffers in the Eccles Building cocked their heads to the side and gasped, "He said WHAT?" So I wrote this song Technodammerung for rogue banker Ben:

He was just a Harvard hand
Workin' the QE he planned to try
The years went by

Every night when the sun goes down
Just another lonely quant in town
And rates out runnin' 'round

It's another tequila sunset
Fed's old scam still looks the same
Another frame

Wukchumni , June 8, 2018 at 12:46 pm

{imagines Bernanke working tables @ South Of The Border, and typical waiter spiel going something along these lines }

"Bienvenidos amigos, me llamo Benito, may I start you with an endless supply of chips?"

Alejandro , June 9, 2018 at 1:54 pm

Pardners in chime
proseytizing in real time
Preaching, if you can touch a dime
Why wont paper rhyme
But in their zeal and haste
And self-righteous aversion to waste
Recruit disciples in bling bling
Preaching money is a thing thing
While finger wagging the bloat
Preaching fix the rate, dont let it float
But beyond the noise
Preaching with poise
Its all about them
Their stuff, jewels and gem

Thornton Parker , June 8, 2018 at 10:58 am

Might the actions of a bank be restrained more easily by requiring all payments and stock issuances to the executives and directors be put directly into escrow accounts to be metered out in small amounts if the bank stays healthy over time? If the bank suffers major losses, the escrow accounts would be the first source of funds to make up for them. No Federal Deposit Insurance or other government payments would be made to the bank until the escrow accounts have been reduced to zero.

John , June 8, 2018 at 11:45 am

Randall Wray could be made Sec Treasury, Stephanie Melton Fed Chairman and if the plutocrats still run the rest of the political show that sets priorities, we would still be screwed. The full employment guaranteed jobs could just as easily be strip mining coal from national parks and forests as installing a national solar grid. It could be done with forced low paid labor camps that maximize rent for the plutocrats. MMT seems morally neutral on how the money is spent. For a good portion of the plutocrats, helping the poor is morally suspect .if they consider it at all. That is the larger problem than acceptance of MMT.

economicator , June 8, 2018 at 1:19 pm

Right on.

I didn't see any comment here going in depth with ideas on the binding money creation decisions with socially useful goals (saving TBTF I dont consider such a goal, except for emergency purposes), by what type of process and stakeholders – to avoid driving us toward becoming a 3rd world oligarchy.

The rest is just mechanics – but the most important thing is what is the social control and social purpose of money creation. I am sure we could do just fine even with the present system (of course since it is a MMT system), if there were some limits on speculation with asset prices, less military spending, more democratic control of enterprises, including banks, severe constraints on the FIRE sector, etc, etc.

In the end the problem of managing money well is a political problem. And not much is changing there for the better, despite a growing awareness that "we have a problem" as a society. Where are the politicians that will connect the dots and take on the responsibility to fix the travesty that we have?

More questions than answers, I know. But what we need a change in politics – then banking will follow.

Pespi , June 9, 2018 at 3:34 am

This is a common fallacy, that MMT is bad because it isn't about communal barter tokens or some other thing. MMT exists to empirically describe how money works in the existing economy today. You can be any sort of ideology and embrace it, anyone can use it, just like anyone can use science, it's not inherently biased toward any ideology unlike neoclassical economics and its baked in neoliberalism. That doesn't make it bad, that just shows that it is what it purports to be, an empirical description of money in our existing economy.

You want a brand new type of currency in a whole new economy, well, start organizing your revolutionary army, because that's what that will take.

bruce wilder , June 8, 2018 at 12:42 pm

The Battle for Money -- that much, it seems to me, is true. Neoliberalism is going down, brought down by its own (unfortunate in my view) success and hubris, and one consequence, on-going, is the urgent political need to re-invent the institutions of money.

The institutional systems of monetary/payment/finance systems are always under a lot of strategic pressure: they tend to develop and evolve quickly and they do not usually last all that long -- maybe, the span of three or four human generations -- except in the collective memory of their artifacts and debris.

There's a natural human wish that it could all be made safely automatic -- taken out of corruptible hands and fixed with some technical governor. Whether you are a fan of democracy or loyal to oligarchy really doesn't take anyone very far toward devising or understanding a workable system of money.

As I said in a comment on the earlier Richard Murphy post, money is a language in which we write (hopefully) "true" fictions to paper over uncertainty. Much of what passes for a theory of money is just meta-fiction, akin to literary criticism of a particular genre or era. That is certainly true of Quantity Theory (1.0 re: gold and 2.0 Friedman). It is true of related fables, like Krugman's favorite, loanable funds.

When Murphy rejects the quantity theory of money and then turns around and talks about the need to create "enough" money, I pretty much write him off. When he embraces the Truth of MMT, I know he is hopeless.

Wukchumni , June 8, 2018 at 1:44 pm

Ideally in a battle of money

a squadron of F-35's would be pitted against a fleet of Zumwalt Class destroyers

Summer , June 8, 2018 at 2:13 pm

It's been discussed on NC before, but despite all the theories and figures, it's really a battle of values. I'm not pushing religion, just saying it has all the makings of a holy war.
(come to think of it, isn't religion a big part of the history of monetary theory?)

Mercury , June 8, 2018 at 3:46 pm

China has yet to fall under the thumb of private banks the way the west has. State still holds the reins of regulation tight and the government bank maintains a robust public sector. Michael Hudson just came back from China and has this to say:

"The debts are owed to government banks. A government can do what the U.S. can't do. The government can forgive debts, at least those that are owed to itself, without creating a political backlash. If a viable corporation has run up too much debt, the government can forgive it. This is better than letting the debt close down a factory or force it be sold to a predatory asset management firm as occurs in the United States. That is the advantage of having public credit and why credit should be public. That's how it was in Babylonia. Rulers were able to cancel debts all the time in the 3rd millennium and 2nd millennium BC, because most debts were owed to the palace or the temples. Rulers were cancelling debts owed to themselves.

China can cancel business debt owed to itself. It can proclaim a clean slate. It can minimize debt service to whatever it chooses. But imagine if Chase Manhattan and Goldman Sachs are let in. It would be much harder for the government to raise real estate taxes leading to defaults on the banks. It could save the occupants by making new loans to those who default – based on lower land prices.

Well, you can imagine the international furor that would erupt. Trump would threaten to atom bomb Peking and Shanghai to save his constituency. His constituency and that of the Democrats are the same: Wall Street and the One Percent. So China may lose its ability to write down debts if it lets in foreign banks."

There are advantages to restoring financial management to the nation-state, as former Deputy Secretary of the Treasury Frank Newman has pointed out in books and lectures. The private banks have exhausted QE to the tune of $30 trillion, none of which was invested in the industrial economy. Why blame the Swiss for wanting to be like China?

Grebo , June 8, 2018 at 5:23 pm

that this is a Chicago School / Friedmanesque monetary policy is made clear by Positive Money

The Chicago Plan of the 1930s and the unrelated Friedman suggestion of 1948 were both predicated on the false fractional reserve theory of banking. Given that individual banks create credit unrestrained by reserves those plans would not have had the desired result.

Positive Money knows this, though they do sometimes carelessly use the term 'fractional reserve banking'. They think their plan is different and, to the extent that it would actually prevent banks creating credit, it is.

It is silly to suggest that Positive Money is some Neoliberal front. Neutering the banks is the last thing Neoliberals want, and when they want something they don't bother with democratic methods like public pressure groups, they use think-tanks and lobbying.

Murphy's main complaint is about handing the 'quantity' decision to the Bank. I don't think Positive Money is wedded to that idea, it is just an attempt to defuse the 'profligate politicians' argument.

Watt4Bob , June 8, 2018 at 5:29 pm

I'm sort of disappointed in this thread.

Being that NC is the place I discovered MMT, and it's been explained and debated so for so long here, I would have expected NC readers to more broadly understand that what we have currently would work for everyone if only our masters would allow it.

IOW, it is not necessary to reinvent our system so much as insist that it be used to finance material benefits for all, as opposed to endless war, political repression and bail-outs for our criminal finance sector.

How can it be that we can we finance $trillions for war at the drop of a hat, but cannot afford to 'fix' SS, or provide universal healthcare?

It seems to me that it's a political issue, not a technical problem, or am I missing something here?

Korual , June 8, 2018 at 6:54 pm

It's the difference between nationalization and centralization. We can change policy direction or we can double down, as the Swiss are considering.

OpenThePodBayDoorsHAL , June 8, 2018 at 8:11 pm

Cui bono?
The current mission of the custodians of our "money" is to keep banks afloat. It's not to provide general benefit, or to even preserve the buying power of the scrip they issue, despite what you might hear about the supposed "dual mandate" (which is now a "triple mandate": prices, employment, and the stock market).

"Financing material benefits for all" could be a bank that extends credit to a small business. Take a look at commercial credit creation to see how well that's been going. Take a look at velocity.

The Fed gifted Citi $174 billion on a day when they could have purchased 100% of the Citi Class A common stock for $4B. This is the difference Michael Hudson points about about China: their instant ability to swap debt for equity because all banks are state-owned and because they're Communists and nobody would blink an eye .

Most interesting in The Middle Kingdom are the moves to protect the state-owned banks. They started about 18 months ago, when people were told they could only have one Tier 1 bank-linked e-commerce account. As a result 7.5 billion (with a B) accounts were closed. Next they said all payments systems (including WeChat and Alipay) must clear through a new central bank clearinghouse. Two weeks ago they said not only will everything clear through these but the actual funds will need to be transferred to the new CB account .

Ant Financial announced that in the future they would be concentrating on services to finance and e-commerce companies, and away from providing those services themselves. They even anticipate a name change, from Ant Financial to Ant Lifestyle. All this makes perfect sense: President Xi will see every financial transaction in the country, and presumably apply a Social Score filter on whether he allows it to go through. 11 million people have already been denied the right to purchase train tickets or buy a house because they spat on a sidewalk, jaywalked, or made the wrong comments on social media.

Paul L. , June 8, 2018 at 7:21 pm

Wow! We are clearly past the "First they ignore you.." stage and just on the other side of " then they ridicule you.." phase. What a basket of slurs, gross omissions of fact and outright falsehoods is this current blog post.
Anytime Milton Friedman is invoked to slur a concept developed before he was even born, should be an indicator that there is no substance to the argument against the democratization of money creation.

Thanks to the internet however, one can easily visit the Positive Money site, the American Monetary Institute and International Movement for Monetary Reform sites to see those fake progressives in action. While you're at it, go to the Vollgeld site yourself and read what those wolves in sheep's clothing are really saying instead of the creative writing displayed in the blog.

How can anyone who claims to be concerned over the excesses of capitalism prostrate themselves in front of the current banking system, the driver of capitalism as it rides off the rails.

I can't bring myself to respond to the stream of unsubstantiated assertions presented but need to remind people that banks, MUST create money first for the most creditworthy. I won't insult the readers any further by naming who that class represents. A child can see that this, by definition, must lead to the accelerating inequality we see today.

As a challenge, I ask the author to show specifically in the US code where it permits the Federal Government to spend before its accounts at the Fed are replenished either by borrowing or taxing. Stay tuned to these pages for the evidence .

Clint Ballinger , June 8, 2018 at 7:29 pm

PM just wants OMF (Overt Monetary Financing) with ZIRP and a very small horizontal money system. MMT analysis suggests OMF with ZIRP and a much more regulated horizontal system is needed. There is actually very little difference in their policy prescriptions. They just arrived at them from opposite sides of the track

steven , June 8, 2018 at 8:43 pm

I'm sort of disappointed in this thread.

I'll second that but for different reasons. Buried not far beneath the surface of this issue (money's creation, how and how much) are hugely important issues. But the discussion never seems to get beyond everyone's favorite system for creating money. The assumption seems to run along the lines of: if we can just come up with some scheme for government or gold backed money, those who possess or produce the real wealth for that money to buy will forever be content to exchange it for the money we will forever create to pay for it. There seems to be a belief countries like China or Russia can never escape the 'dollar trap' – or if they try we can threaten and intimidate them back in line with our "full spectrum dominance" military. Money IS debt – and sooner or later those who hold it are going to want to call that debt in.

Both Positive Money and MMT appear to me to just be attempts to continue 'business as usual', operating without a real definition of wealth and trusting / hoping 'the market' will sort it out.

Paul L. , June 8, 2018 at 9:23 pm

Please explain your comment "Money IS debt". Money may represent a debt but is not debt in and of itself.

steven , June 9, 2018 at 1:24 am

Money is debt, both functionally and conceptually. This is true for most of the money used in the Main Street economy. It is created as debt – yours to a bank when you use your credit card or borrow money; the bank's to you when you deposit money with one. In its role as a medium of exchange money serves as a claim on society's goods and services, its real wealth. You don't exchange real wealth for fiat or bank-created money without the expectation you will at some future time be able to again exchange that money for real wealth at least equivalent to what you had to give up in exchange for the money originally.

Jamie Walton , June 9, 2018 at 7:48 am

Rather than a claim on wealth, money could be viewed as a representation of value. Value exchange is more like a giving/sharing economy, rather than debt-swapping. I think this psychological improvement will lead to many physical/social/environmental improvements.

Of course, in any case, people need to be willing sellers/exchangers – it's not automatic or universal; we need some freedom to choose, and the better the conditions are generally, the better the freedom we will have.

Paul L. , June 9, 2018 at 10:24 am

OK but the term, "money is debt" is used too loosely and can be very misleading. Money does not have to be issued as debt as claimed by MMT. In fact, money can first appear as equity on the government's balance sheet with no counterbalancing debt. So this concept is grossly misused to imply money must be issued as debt when, in fact, once issued it may represent a claim on the wealth of society. Proponents of MMT first make the claim that money is debt, and that the notion that money can be issued debt-free is therefore false on its face. Pretty clever. They slyly blur the distinction between the creation of money by a government and the role of that money once in the economy.

WobblyTelomeres , June 9, 2018 at 10:28 am

SOME proponents of MMT first make the claim that money is debt.


tegnost , June 9, 2018 at 10:33 am

How can money first appear as equity? Isn't the other side of that the deficit? Granted I am naive on these points but I thought money was a bond of zero duration.See skippy re time and space

steven , June 9, 2018 at 11:17 am

I don't believe you are

"naive on these points"

. A question for Paul: Unless it is 'privatized' is there even such a thing as 'government equity'? The way the West's financial system works nothing that can't be sold appears to have any value. What's missing from that system – and the discipline of economics (see below) – is a definition of wealth.

Paul L. , June 9, 2018 at 1:10 pm

steven –
I believe we know what wealth is – but I don't understand your claim that money needs to be privatized to be considered equity. The government declares by fiat that the money it creates can be used to purchase goods and services in the economy.

steven , June 9, 2018 at 5:11 pm

I believe we know what wealth is

I don't believe this is anywhere nearly correct. From all over the political spectrum commentators lament the lost of trillions of dollars (or euros or whatever) of wealth. At least until the effects of a financial crisis start to take hold, no physical or intellectual capital is lost. The only thing that is lost are a few zeros on some financial ledgers.

As for money as equity, you may be technically correct, i.e. the rules of accounting may permit governments to count the stacks of paper currency they print (in any case, small change in terms of the total money supply) as 'equity'. But for most of us the only thing governments possess that we would count as equity are asset classes like public infrastructure. And until the services they provide (or the assets themselves) are sold, that infrastructure would, from a business accounting standpoint, technically be 'worthless'. (that last is a question?)

tegnost , June 9, 2018 at 11:24 am

I'll add watt4bob has stated what I feel is true, which is that we have MMT right now, and it's more commonly known as socialism for the rich

Paul L. , June 9, 2018 at 1:04 pm

tegnost – There is nothing in the accounting standards that prevents the inclusion of equity on a balance sheet. If we were under the gold standard and you happened to find a nugget of gold in your back yard, are you telling me that you would have to imagine some kind of "debt" to balance your household balance sheet? When Lincoln issued the Greenbacks in the 1860's there was no bond or debt associated with it. It paid soldiers wages and goods and services during he civil war.
Just as MMT states the government isn't a household, it also isn't a commercial bank either. It has the constitutional power to coin money as needed, no debt involved.

tegnost , June 9, 2018 at 2:42 pm

presumably you bought the nugget of gold when you purchased the property and it's land use rights so it's not a virgin birth, the debt is what you purchased the land for. Maybe one of those diamonds in the outback that hardy souls find, but those may have some territorial claim as well.

Paul L. , June 9, 2018 at 3:37 pm

tegnost – If you have to go there to make your point I let others judge.

tegnost , June 9, 2018 at 5:18 pm

ok how bout I come into your yard and look for some gold?

Plenue , June 10, 2018 at 1:33 am

The gold nugget has no inherent value. It's just a lump of cold metal. It will only become valuable when you go to someone else with it and try to exchange it for something, whether it be a currency or some kind of good. And only if the other person agrees with you that it's valuable. This is fundamentally what money is: a token of social interaction. The gold becomes valuable when you go to exchange it for something else. In other words when a debt comes into play. Money is debt. Or rather, it's a measurement of debt and credit. 'Store of value' and all that econ 101 rot is so much gibberish.

Once you realize that, then a question arises: "Well, why bother with rare metals or pressed coins? If it's just a token, you could literally just take a stick and carve marks into it and it would be the same thing". Yes, exactly. Which is precisely the sort of thing we see lots of in history.

RBHoughton , June 8, 2018 at 9:15 pm

Murphy sounds like one of those indecisive chaps who dispute with everyone but have no ideas of their own. I shall ignore him. Good luck to Switzerland. They have the courage and political system to try the experiment and we will all know the result in early course.

Oregoncharles , June 8, 2018 at 11:50 pm

What am I missing? As far as I can tell, the proposal is just Modern Money with the central bank substituted for the Treasury. Yes, that makes it less democratic.

MMT is inflation-limited, too. That's how you know you've overshot your resources. In fact, MMT poses a technical problem: how do you know when you've reached resource limits, EXCEPT by observing inflation? Because without that, you have a ratchet. Of course, that's just what we have, usually, so maybe that's evidence for the theory.

"First, this puts inflation at the core of economic policy." – is a false claim. As quoted, it treats inflation as a limitation. The core is promoting adequate economic activity.

Finally, he treats "money is debt" as doctrine. he doesn't justify it and it makes little sense, ESPECIALLY in MMT. How can you pay a debt with a debt? Someone's getting cheated. MMT actually proposes free money, to a point. I've seen elaborations of the idea, but they use a very extended sense of "debt." And I don't see how it's even relevant to his overall thesis.

The Swiss are pretty conservative, so I doubt they'll pass it.

Yves Smith Post author , June 9, 2018 at 1:45 am

No, Positive Money is not remotely MMT. Wash your mouth out.

The Positive Money types want to limit the extension of credit and put it under the control of what Lambert called "a magic board," a regular gimmick from his days back in debate where someone needed to be in charge but no one wanted to think hard about who or how. In practice, a central bank would be in charge. So how democratic is that?

MMT does not fetishize money the way the Positive Money does. MMT despite having Monetary in the name is about the role of government spending in a fiat currency system. MMT argues that (as Kalekci did) that businesses have strong incentive (not wanting workers to get uppity) to keep the economy at less than full employment. So the government can and should spend to mobilize resources. And it can because its role as the currency issuer means it can never go bankrupt, it can only create too much inflation. Taxes are what contain inflation in MMT.

By contrast, the Positive Money types want to do it by limiting credit creation. And thus Murphy is correct. That means their priority is to preserve the value of financial assets, not achieve full employment.

steven , June 9, 2018 at 11:03 am

I don't believe it is accurate to say that Positive Money "fetishizes money". Irving Fisher acknowledged his debt to Frederick Soddy for the concept of "100% Money", the intellectual foundation for the Positive Money movement. Soddy's intent in limiting the creation of money to the stock of wealth available for it to purchase was to retain independence from the state in obtaining the means of subsistence. He compared the use of monetary policy to goose the economy to a merchant putting his or her finger on the scale, making it difficult to impossible for money to fulfill two of its primary functions: serving as a medium of exchange and a store of value.

So long as there was wealth available for it to purchase, he – and presumably Fisher's Positive Money crowd – would have no objection to creating as much money as needed to keep the economy running. What he and every other respectable economist have been trying to bring under control is the excess money creation fueling speculation and the seemingly inevitable boom-bust cycle accompanying the private creation of money.

Rather than curbing that excess, however, the 'solution' that seems to have been adopted is for the US and other Western governments to absorb the excess credit (money as debt) creation by taking it on their (governments') own books. Government debt is I believe called 'near money' in the financial markets. But neither the governments nor the bankers of countries that no longer create real wealth have any logical right to create the money to buy it. Just retaining the right to 'print' more money or 'near money' doesn't change that, except perhaps in an absurdly narrow legal sense.

There are, of course, some issues like globalization intimately connected with the construction of a logical and fair monetary system. But underlying them all, including for countries other than the US, is a logical definition of 'wealth':

a logical definition of wealth is absolutely needed for the basis of economics if it is to be a science."

Frederick Soddy, WEALTH, VIRTUAL WEALTH AND DEBT, 2nd edition, p. 102
(Soddy might have added "if government is to be a science".)

skippy , June 9, 2018 at 8:12 pm

Here in lies the rub economics will never be a Science.

Firstly the medium used by most economics – philosophy – does not even have a functioning model of time and space and is prone to fads. Magnified by scale WRT elite tastes or self dealing. Wealth or Capital is also a bit complicated by say the Cambridge Controversy et al. So until some very fundamental flaws are sorted, that have nothing to do with – money – the concept of "Science of Money" is going to be a non starter.

Worst is those that use such syntax and dialectal style are going to be called into question – over it.

I mean we had political theory, then some bolted on science to it, and called it economic science. Which then begat a whole time line of dominance front running the political process regardless of political incumbents.

I think Scientists that dabble in monetary theory fall victim to the same dilemma that say religious based views do – their optics are ground before looking.

steven , June 9, 2018 at 9:55 pm


Probably best to start with the first part of Soddy's (actually John Ruskin's) observation, "a logical definition of wealth is absolutely needed ". "Most economics" may indeed disguise its prostitution with a veneer of philosophy or mathematics. But I don't think you can say that about Soddy's:

A definition of wealth must be based upon the nature of physical or material wealth, in the sense of the physical requisites which empower and enable human life-that is, which supply human beings with the means to live, and, as an after consequence of living, to love, think and pursue goodness, beauty and truth.p. 108

(All citations are from Soddy's Wealth, Virtual Wealth and Debt, 2nd edition- WVWD)
For that matter, according to Michael Hudson, you can not accuse the classical economists of just dabbling in philosophy. They were ALL about freeing society from free-lunch economic rent seekers, freeing up the resources so they could be devoted as completely as possible to the development of "the physical requisites which empower and enable human life".

What we have to do to develop those physical requisites – and increasingly the limitations imposed by the requirements of sustainability – is pretty well known. Whether a science of money can be devised to help accomplish that goal or some other mechanism for distributing the wealth made possible by advances in science and technology is required is increasingly open to question.

Take a look at Soddy's –THE THREE INGREDIENTS OF WEALTH (DISCOVERY, NATURAL ENERGY AND DILIGENCE). p. 61 The first two are firmly embedded in time and space.

skippy , June 9, 2018 at 11:21 pm

I have read Soddy, more so I have talked with PM sorts for a long time, hence I'm not ignorant of the camps views or actions during said time.


"a logical definition of wealth is absolutely needed ".

I did reference the Cambridge Controversy, are you informed WRT this aspect.

"A definition of wealth must be based upon the nature of physical or material wealth, in the sense of the physical requisites which empower and enable human life-that is, which supply human beings with the means to live, and, as an after consequence of living, to love, think and pursue goodness, beauty and truth.p. 108"

Sorry but . "consequence of living, to love, think and pursue goodness, beauty and truth" has nothing scientific about it.

I reiterate – Metaphilosophy has no scientific underpinnings and attempts to "brand" it otherwise in only to burnish its credentials without any empirical satisfaction is just rhetorical gaming.

"you can not accuse the classical economists of just dabbling in philosophy."

Hay I respect Hudson, that does not mean I worship him, hes been invaluable to the discovery process, but, that does not mean everything he has to say is the word of dawg, nor would I surrender my cognitive processes just because someone uses the term classical.

If I have to go that space I would favor say Veblen or Lars P. Syll where if your to own a thing one must accept the responsibility from a social aspect and not one of atomistic individualism.

But hay I regress . because I'm still waiting for someone to show me a few decades of a labour market in "action".

skippy , June 9, 2018 at 11:22 pm

BTW it would be incumbent of you to redress my concerns above without forging a new path which excludes them.

steven , June 10, 2018 at 1:40 am
"BTW it would be incumbent of you to redress my concerns above without forging a new path which excludes them." – Sorry if I did that. It was not my intent. Wikipedia is my only exposure to the Cambridge Controversy . As I understand it, science is supposed to be all about observing the real world and then drawing conclusions from those observations. It looks to me like the participants in the debate were looking at their models and maybe the logic they used to construct them, not the world they were supposed to be modeling.
"Most of the debate is mathematical, while some major elements can be explained as part of the aggregation problem. The critique of neoclassical capital theory might be summed up as saying that the theory suffers from the fallacy of composition;"
This kind of cant is a far cry from something like:

"Though it was not understood a century ago, and though as yet the applications of the knowledge to the economics of life are not generally realised, life in its physical aspect is fundamentally a struggle for energy , in which discovery after discovery brings life into new relations with the original source. Evolutionary development has been parasitic, higher and higher organisms arising and obtaining the requisite supplies of energy by feeding upon the lower. But with man and the development of conscious reason, that process as regards energy is being reversed. "

(emphasis added)

Sister Gloria , June 9, 2018 at 8:46 am

Sorry, but where does Positive Money , in any of the publications and articles, propose any limitations on 'credit' ?
I never saw that.
Or AMI or any of these public money types for that matter?
Thank you.

Paul L. , June 9, 2018 at 9:45 am

You are completely correct, they don't. This is all made up propaganda against the democratization of the money supply. What PM proposes is sound credit creation.

skippy , June 9, 2018 at 8:23 pm

PM wants to establish a non democratic administration of government issuance and then allow a return to the free banking period of the 1800s. All based on notions of EMH and QTM contra to all the historical data from that period. So on one had PM wants to lay claim to scientific methodology WRT money yet still cling to scientifically refuted EMH.

As far as I can discern PM proponents advance the belief that this would compel banks to become investment entities for "productive" activities. Don't know how that would work out considering how corporatism views society.

Sound of the Suburbs , June 9, 2018 at 4:13 pm

MMT has looked at publicly created money.

The positive money people have come at it from the other angle. People like Richard Werner have been studying the problems with privately created money since the Japanese economy blew up in the 1980s .

They have seen all the problems with privately created money and the positive money people were very pleased when the BoE confirmed their beliefs in 2014.

The positive money people have come to the wrong conclusion through not understanding publicly created money.

The MMT people can learn a lot about the problems of privately created money from the positive money people.

The two camps should merge to get the big picture.

I started looking into all the problems of privately created money after 2008 and was a latecomer to MMT.

The two merge nicely when you think about it and realise the why the positive money people came to the conclusion they did. They just didn't understand the way publicly created money works now.

djrichard , June 9, 2018 at 4:19 pm

In the case of Japan, unless I'm misunderstanding things there, presumably they've embraced MMT out the wazoo, in that they're willing to leverage federal gov debt out the wazoo. And yet I think the consensus still seems to be that their economy is still zombified (still not really recovered from the debt overhang from their go go years). In which case, why is that?

Has Japan been hamstringing their use of MMT, so it's less effective than it could be? Do they need to up the ante, employ MMT-on-steroids to overcome the trap that they're in, say like the US needed WWII to get out of its trap?

Withstanding MMT-on-steroids, should it be QE-on-steroids instead that get the animal spirits rekindled? I don't have a strong sense of whether the US central bank has done more in that department compared to the central bank of Japan. Or if indeed, the US central bank has been more successful on that front. It's clear that animal spirits are certainly rekindled in the US – the usual playahs are back at it. Though whether that's unzombified our economy, I'm not so sure – I don't think it has.

If these hurdles are so difficult, seems to me we should have a monetary system that doesn't result in a zombified economy to begin with, per the comment I was making further above.

Synoia , June 9, 2018 at 10:41 pm

And yet I think the consensus still seems to be that their economy is still zombified (still not really recovered from the debt overhang from their go go years). In which case, why is that?

Debt Peonage. For it to work there has to be a debt jubilee (a forgiveness of peoples debt).

Older & Wiser , June 9, 2018 at 8:21 pm

China´s Battle for Money

" It seems there are greater similarities between China and the US than may be visible at first glance. China builds real estate for a shrinking population, invests for an over-indebted client (the US, which even insists on a drastic reduction of the bilateral trade deficit) and finances all this with money it does not have ."

skippy , June 9, 2018 at 9:39 pm

I know the answer to this dilemma – Praxeology – !!!!!

skippy , June 9, 2018 at 8:29 pm

MMT has always stated to whom the debt is owed is the crux of the matter and in what form denoted.

I have trouble understanding the dramas with bank issued credit when squared with say equities, why all the focus on one and not to be inclusive of a wide assortment of other mediums of exchange and how they are created and why.

skippy , June 9, 2018 at 9:27 pm

Sorry comment was directed at djrichard above.

So tell me why J – bonds are called the death trade e.g. shorters nightmare – albeit they will tell you their shorts are being thwarted by ev'bal forces.

The Rev Kev , June 9, 2018 at 10:26 pm

Couldn't resist this. That title has me intrigued so, with apologies to Winston Churchill-

" What (neoliberals have) called the Battle of (Credit) is over the Battle of (Money) is about to begin. Upon this battle depends the survival of (world) civilisation. Upon it depends our own (western) life, and the long continuity of our institutions and our (civilization). The whole fury and might of the enemy must very soon be turned on us. (Neoliberals) knows that (they) will have to break us in this (idea) or lose the war. If we can stand up to (them), all (the world) may be freed and the life of the world may move forward into broad, sunlit uplands.
But if we fail, then the whole world, including the United States, including all that we have known and cared for, will sink into the abyss of a new dark age made more sinister, and perhaps more protracted, by the lights of perverted science. Let us therefore brace ourselves to our duties, and so bear ourselves, that if the (United Nations) and its (Countries) last for a thousand years, men will still say, "This was their finest hour." "

skippy , June 9, 2018 at 10:50 pm

Yet then some say AET and Neoclassical economics just needs to implement PM and all will be well.

I've yet to see any PM advocate or proponent criticize an executive or corporatism, only banksters and some politicians. On the other hand I've seen many PM sorts back crypto based on the argument of decentralization. So which is it, counterfeiting of national money with a side of corruption or a case of counterfeiting ex nihilo via some arbitrary computational source with a predominate side of corruption.

I am completely at a loss to understand how the debate about money proceeds things like Marginalism, supply and demand as a monolith, rational agent models, theoclassical opinions elevated to truisms [economic laws] and a reduction of human experience as a binary condition set in stone.

I also have issues with PM advocates and their UBI agenda, due to its original proponents views on the need to water down democracy more to keep the unwashed from just voting themselves more money. It is in my opinion logically incoherent, that is just what has occurred during the neoliberal period and corporatists via the democracy of money through lobbyists – every dollar is a vote – et al.

In light of that I can only surmise that PM is actually pro elitist, not that I have issues with some being elite, that is another story altogether, but money itself is not the bar.

[Jun 10, 2018] Trump At G-7 Closing Remarks We're The Piggy Bank That Everybody's Robbing

Looks like Trump adopted Victoria Nuland "Fuck the EU" attitude ;-). There might be nasty surprises down the road as this is uncharted territory: destruction of neoliberal globalization.
Trump proved to be a really bad negotiator. he reduced the USA to a schoolyard bully who beats up his gang members because their former victims have grown too big.
As the owner of world reserve currency the USA is able to tax US denominated transactions both via conversion fees and inflation. As long as the USA has dollar as a reserve currency the USA has so called "exorbitant priviledge" : "In the Bretton Woods system put in place in 1944, US dollars were convertible to gold. In France, it was called "America's exorbitant privilege"[219] as it resulted in an "asymmetric financial system" where foreigners "see themselves supporting American living standards and subsidizing American multinationals"."... "De Gaulle openly criticised the United States intervention in Vietnam and the "exorbitant privilege" of the United States dollar. In his later years, his support for the slogan "Vive le Québec libre" and his two vetoes of Britain's entry into the European Economic Community generated considerable controversy." Charles de Gaulle - Wikipedia
Notable quotes:
"... Errrr, that so-called "piggy bank' just happens to; ..."
"... have the world's reserve currency ..."
"... dominates the entire planet militarily since the end of the Cold War ..."
"... dictates "regime change" around the world ..."
"... manipulates and controls the world's entire financial system, from the price of a barrel to every financial transaction in the SWIFT system. ..."
"... And Trump has the ignorance, the arrogance and the audacity to be pleading 'poverty?' ..."
Jun 10, 2018 |

On trade:

"We had productive discussion on having fair and reciprocal" trade and market access.

"We're linked in the great effort to create a more just and prosperous world. And from the standpoint of trade and creating more prosperous countries, I think they are starting to be committed to more fair trade. We as a nation lost $870 billion on trade...I blame our leaders and I congratulate leaders of other countries for taking advantage of our leaders."

"If they retaliate they're making a tremendous mistake because you see we have a tremendous trade imbalance...the numbers are so much against them, we win that war 1000 times out of a 1000."

"We're negotiating very hard, tariffs and barriers...the European Union is brutal to the United States....the gig is up...there's nothing they can say."

"We're like the piggy bank that everybody's robbing."

"I would say the level of relationship is a ten - Angela, Emmanuel and Justin - we have a very good relationship. I won't blame these people, unless they don't smarten up and make the trades fair."

Trump is now making the 20-hour flight to Singapore, where he will attend a historic summit with North Korea leader Kim Jong Un. We'll now keep our eye out for the finalized communique from the group. The US is typically a leader in the crafting of the statement. But this time, it's unclear if the US had any input at all into the statement, as only the leaders from Britain, Canada, France, Germany, Italy and Japan as well as the presidents of the European Commission and European Council remain at the meeting. But regardless of who writes it, the statement will probably be of little consequence, as UBS points out:

Several heads of state will be heading off on a taxpayer-financed "mini-break" in Canada today. In all of its incarnations (over the past four years, we've gone from G-8 to G-6+1) the group hasn't really accomplished much since an initial burst of enthusiasm with the Plaza Accords and Louvre Accords in the 1980s.

And this meeting likely won't be any different.

Simplifiedfrisbee -> ravolla Sat, 06/09/2018 - 11:31 Permalink

Unprepared son of a bitch.

Sack of filth.

Klassenfeind -> Dickweed Wang Sat, 06/09/2018 - 11:43 Permalink

"We're the piggy bank that everybody is robbing." Excuse me?!

Errrr, that so-called "piggy bank' just happens to;

  1. have the world's reserve currency
  2. dominates the entire planet militarily since the end of the Cold War
  3. dictates "regime change" around the world
  4. manipulates and controls the world's entire financial system, from the price of a barrel to every financial transaction in the SWIFT system.

And Trump has the ignorance, the arrogance and the audacity to be pleading 'poverty?'

Who THE FUCK is robbing who here?!?

Escrava Isaura -> helltothenah Sat, 06/09/2018 - 14:51 Permalink

By the way, Trump is right on the tariffs in my view, Europeans should lower their tariffs and not having the US raising it.

Trump: "We're The Piggy Bank That Everybody's Robbing"

Isn't Trump great in catch phrases? Trump's base will now regurgitate it to death.

Now reconcile Trump's remarks with reality:

Professor Werner: Germany is for instance not even allowed to receive delivery of US Treasuries that it may have purchased as a result of the dollars earned through its current account surplus: these Treasuries have to be held in custody by the Federal Reserve Bank of New York, a privately owned bank: A promise on a promise. At the same time, German influence over the pyramid structure of such promises has been declining rapidly since the abolition of the German currency and introduction of the euro, controlled by an unaccountable supranational international agency that cannot be influenced by any democratic assembly in the eurozone. As a result, this structure of one-sided outflows of real goods and services from Germany is likely to persist in the short and medium-term.

To add insult to injury:

Euro-federalists financed by US spy chiefs

The documents show that ACUE financed the European Movement, the most important federalist organisation in the post-war years. In 1958, for example, it provided 53.5 per cent of the movement's funds.

bshirley1968 -> Escrava Isaura Sat, 06/09/2018 - 15:00 Permalink

Okay, everyone set your "team" aside for a few minutes and let's look at the facts and reality.

Do you really believe the rest of the world has trade advantages over the US? Well, let's consider major industries.

Agriculture.....maybe, but only sightly. Our farmers are the richest in the far.

Manufacturers.....probably so....because we gave it away to countries with slave labor. Manufacturers jobs were jobs where people could earn a decent living...and that had to go..can't be cutting into corporate profits with all that high cost labor.

Defense.....need I go here? We spend more than the next 11 countries combined! We sell more as well.

Energy.....we rule thus space because we buy it with worthless printed fiat debt...whenever we want to....and nd if you deny us, we will bomb the hell out of you and take it.

Technology. ....Apple, Microsoft, Intel, Google, Amazon, Oracle, Dell, Cisco.....who can touch that line up....not to mention all the on-line outfits like Facebook and Twitter.

Finance.....the best for last. We control the printing press that prints the dollar the rest of the world needs. We control energy and foreign policy. Don't do what we like and we will cut you off from SWIFT and devalue the hell out of your currency...and then move in for the "regime" change to some one who plays ball the way we like it. 85% of all international trade takes place in dollars everyday. We have the biggest banks, Wall Street, and infest the world with our virus called the dollar so that we can Jeri their chain at will.

Now I ask you....just where the hell is the "trade imbalances"? Sure there are some companies or job sectors that get a raw deal because our politicians give some foreigners unfair trade advantages here and there, but as a whole, we dominate trade by far. The poor in our country lives like kings compared to 5.5 billion of the world's population. Trump knows this.....or he is stupid. He is pandering to his sheeple voting base that are easily duped into believing someone is getting what is their's.

Hey, I am thankful to be an American and enjoy the advantages we have. But I am not going to stick my head up Trump's ass and agree with this bullshit. It is misdirection (corporate America and politicians are the problem here, not foreign countries) and a major distraction. Because all the trade in the world isn't going to pull us out of this debt catastrophe that's coming.

waspwench -> bshirley1968 Sat, 06/09/2018 - 16:47 Permalink

But, if we cut through all the verbiage, we will arrive at the elephant in the room.

American manufacturing jobs have been off-shored to low wage countries and the jobs which have replaced them are, for the most part, minium wage service jobs. A man cannot buy a house, marry and raise a family on a humburger-flippers wage. Even those minimum wage jobs are often unavailable to Americans because millions of illegal aliens have been allowed into the country and they are undercutting wages in the service sector. At the same time, the better paid positions are being given to H-1B visa holders who undercut the American worker (who is not infrequently forced to train his own replacement in order to access his unemployment benefits.)

As the above paragraph demonstrates the oligarchs are being permitted to force down American wages and the fact that we no longer make, but instead import, the things we need, thus exporting our wealth and damaging our own workers is all the same to them. They grow richer and they do not care about our country or our people. If they can make us all into slaves it will suit them perfectly.

We need tariffs to enable our workers to compete against third world wages in countries where the cost-of-living is less. (American wages may be stagnating or declining but our cost-of-living is not declining.) We need to deport illegal aliens and to stop the flow of them over our borders. (Build the wall.) We need to severely limit the H-1B visa programme which is putting qualified Americans out of work. (When I came to the US in 1967 I was permitted entry on the basis that I was coming to do a job for which there were not enough American workers available. Why was that rule ever changed?)

bshirley1968 -> waspwench Sat, 06/09/2018 - 18:45 Permalink

You are making my point. China didn't "off shore" our jobs....our politicians and corporations did. You can't fix that by going after other countries. You fix that by penalizing companies for using slave labor workers from other countries. Tariffs are not going to fix this. They will just raise prices on everyone.

I can't believe you Trumptards can't see this! Once again we will focus on a symptom and ignore the real problem. Boy, Trump and his buddies from NYC and DC have really suffered because of unfair trade practices, right? Why can't you people see that "government is the problem" and misdirection your attention to China, Canada, Germany, Mexico, or whomever is just that....misdirection.

I would tax the shit out of companies like Apple that make everything overseas with slave labor and then ship it in here to sell to Americans at ridiculous prices.

Plenty of down votes but no one has proven that I am wrong on one point.

mkkby -> helltothenah Sat, 06/09/2018 - 17:52 Permalink

The EU countries have free college, health care, day care and just about everything else. All paid for because they have no military spending.

It's all on the backs of the US tax payer. Or the fed, if you prefer.

Trump is working both angles. Forcing them to pay for their own defense. Forcing them to allow US products with no trade disadvantages. Go MAGA and fuck the EU.

[Jun 05, 2018] Jim Chanos on Fraud "Cryptocurrency Is a Security Speculation Game Masquerading as a Technological Breakthrough" naked capit

Notable quotes:
"... By Lynn Parramore, Senior Research Analyst, Institute for New Economic Thinking. Originally published at the Institute for New Economic Thinking website ..."
"... Jim Chanos, founder and managing partner of New York-based Kynikos Associates, has spent much of his career studying financial fraud. He shares his thoughts with the Institute for New Economic Thinking -- where he is a member of the ..."
"... Global Partners Council ..."
"... -- on cryptocurrency, fraud coming from China, and why fraudsters may currently be on the rise. Chanos teaches a course on the history of financial fraud at Yale University and the University of Wisconsin. ..."
"... down with the blockchain ..."
Jun 05, 2018 |

Jim Chanos on Fraud: "Cryptocurrency Is a Security Speculation Game Masquerading as a Technological Breakthrough" Posted on June 5, 2018 by Yves Smith By Lynn Parramore, Senior Research Analyst, Institute for New Economic Thinking. Originally published at the Institute for New Economic Thinking website

Jim Chanos, founder and managing partner of New York-based Kynikos Associates, has spent much of his career studying financial fraud. He shares his thoughts with the Institute for New Economic Thinking -- where he is a member of the Global Partners Council -- on cryptocurrency, fraud coming from China, and why fraudsters may currently be on the rise. Chanos teaches a course on the history of financial fraud at Yale University and the University of Wisconsin.

Lynn Parramore: As someone who pays a lot of attention to financial fraud, you've noticed that this activity has a connection to business cycles. Can you explain that and say where you think we are right now?

Jim Chanos: I've found in my research and my teaching that what I would call the "fraud cycle" -- instances of large-scale financial fraud over multiple platforms and companies in the financial markets in the modern era (the last 500 years) -- follows the financial cycle with a lag. That means that as business and particularly financial markets improve, peoples' sense of disbelief and caution that they've often earned from the previous downturn begins to erode. Schemes that before might have seemed too good to be true begin to be embraced.

LP: So people relax their financial vigilance.

JC: Exactly. The longer the cycle goes on, the easier it becomes for the dishonest and the fraudsters to ply their trade because people will begin to believe in things that they shouldn't financially. As cycles go on, we tend to see higher instances of fraud. In recent memory, there were clearly, from a legal and prosecutorial point of view, more cases of fraud after the dot-com bull market of the late '90s, which went from 1991 to 2000. Many of the dot-coms turned out to be fraudulent. We then saw the Enrons and the WorldComs and the Tycos. Frauds generally come to light after the financial cycle turns down. We saw this again after the crisis following the bull market of 2003 to 2007.

What happens is that the new capital going into these things dries up. Many frauds are, by their nature, Ponzi schemes that require new money and new investors to pay off the old investors. When people want their money back, the insolvency of the venture is discovered. John Kenneth Galbraith has this wonderful term called "the bezzle" [inventory of undiscovered embezzlement]. That's the heart of the fraud, the nature of the fraud in the company. He points out that in the up phase, there's this wonderful period where both the fraudsters and the defrauded think they're getting richer. An interesting observation, right?

Of course, it works the other way on the down side. That's what I mean when I tell my students to follow the cycles and be on guard the longer a financial and business cycle lasts because people will get a little bit jiggy with their capital. They're willing to take risks, willing to believe things. So today we've got bitcoin and ICOs [initial coin offerings], which went ballistic in 2017. I suspect going forward we're going to see more and more evidence of questionable companies as this bull market keeps advancing and aging. We're now nine years into this bull market, same as the '90s, so I suspect that now things are starting to percolate. I think bitcoin and the ICOs are just one manifestation of that.

LP: I just passed a huge crowd gathered around the New York Hilton Midtown for "Blockchain Week NYC," a series of events put on to showcase the city as a hub for blockchain jobs. You could feel the excitement in the air with all the attendees and reporters jostling on the sidewalk. What's your take on all this hype?

JC: At one blockchain gathering there were a set of rented Lamborghinis parked outside to entice the traders and day traders and retail investors: this, too, can be yours if you hop aboard the blockchain and bitcoin bonanza!

I teach about a guy from the early 18th century called John Law. He was the architect of one of the great financial frauds of all time -- the Mississippi scheme of 1718-20 in Paris. (He's also the guy who founded New Orleans. He sent settlers there who named it after his benefactor, the Duc d'Orléans).

Law was the first person to write about the need for foreign governments to have fiat currencies and not be tethered to gold and silver. Because of the power of taxation and the power of the governments through enforcement and force of arms, they could enforce their currency to be used, and because of their ability to expand the monetary base and do all the kinds of things that central banks now do, it was in their best interest to do so.

This was revolutionary back then. Law's failed experiment, which added lots of fraudulent bells and whistles to that scheme in France, put the idea on the backburner for a while. But economic historians have revisited it now and his early papers are genius. They're up there with some of the stuff Keynes wrote in the 20th century in terms of the way he envisioned monetary systems to work. Law points out sort of obliquely the positive ways in which the citizenry would come to accept and trust paper money. Not only would the power of the state compel you to accept it, but the power of the state also acted as a third party to adjudicate problems, fraud and act as a lender of last resort in times of crisis instead of going down into a deflationary spiral. That was the positive side.

In the new bitcoin and crypto-craze, the whole idea is that we need to get away from fiat currencies by creating our own fiat currency for which there is no lender of last resort, no third party adjudicator. For those who believe it's a store of value in the coming apocalypse, the idea is that you're going to have to safeguard your key under a mountain with fingerprint and eye scan security while the hordes are outside your bunker trying to get in to use it -- for what, I have no idea. Because for those who believe that you need to own digital currency as a store of value in the worst-case scenario, that's exactly the case in which a digital currency will work the least. Food would work the best!

LP: Sounds like a libertarian fantasy.

JC: That's exactly what it is. And if you say, well, fiat currency is going to bring the world down, which could, of course, happen, then I say the last thing I'd want to own is bitcoin if the grid goes down.

LP: It also sounds like the perfect realm for people looking to commit fraud.

JC: Well, there you go. Bitcoin is still the area for people who are trying to avoid taxation or other examinations of their transactions. That's one thing where I think it probably still has utility, but the governments have figured that out.

Last year, just as the mania was really going, an early convert who had gotten in early and had made a lot of money wrote this humorous blog about trying to cash in his winnings, if you will. He chronicled telling the exchange that he wanted to convert his bitcoins into U.S. dollars and have them wired into his U.S. bank. It took something like eight or ten days and numerous follow-ups and phone calls. The funniest part was his having to fax his passport to Lithuania.

LP: That doesn't sound very high-tech or efficient.

JC: Exactly. Using a fax machine to Eastern Europe struck me as kind of the antithesis of what you're trying to do here. So this is simply a security speculation game masquerading as a technological breakthrough in monetary policy. Someone at Grant's interest rate conference recently said that it was as if we had intentionally created a "monetary Somalia."

LP: So buyer beware.

JC: I think so.

LP: You recently appeared in a fascinating documentary, " The China Hustle ," which concerns the reverse merger boom in which I believe 400 Chinese companies came to market on the U.S. stock exchange. Can you say a bit about what these mergers are and how U.S. investors got conned?

JC: A reverse merger is simply when the company in question merges into a defunct, U.S.-listed corporation, typically on NASDAQ, which has been moribund for years but has still been filing with the SEC, so it may have a listing somewhere.

We can see these reverse mergers in the late '90s when they became dot-com companies, and also in the late '70s, when gold was a hot asset and they became gold mining companies. In the last ten years, they started to appear to take advantage of the growth of Asia and the growth of China. It's very easy to sell small, retail investors on this idea. It sounds very appealing.

What happens is you merge the Happy Flower High Tech Company into some defunct company and you rename the old company with the Chinese name. Voila! The Chinese company is now public in the U.S. without having to file an IPO [initial public offering] prospectus with the SEC. You don't go through underwriters, a due diligence process, or a vetting process where the SEC asks questions on the IPO. But you now have a company on NASDAQ or the U.S. Stock Exchange.

This is what "The China Hustle" was about -- this raft of companies that merged with companies you've never heard of and created, instantaneously, reasonably large-capitalization companies operating in China but trading in the U.S. Of course, therein lies the rub. How do you really know what was going on in the operating company? How good was the accounting? How good were the representations of the outside auditors and representatives of the boards? It turned out that a lot of them were frauds.

LP: So I'm an investor and I hear that this Chinese company has come to market in the U.S. and it has been audited by Pricewaterhouse, Deloitte, or some other well-known auditing firm. I think it must be legit. What's wrong with this assumption?

JC: There are two big problems there. When people always ask me about the large frauds we've dealt with, they ask, who were the auditors? And I say, who cares? Every great fraud was basically audited, most of the time by major firms. In China it's even worse than that because although the statements might say Pricewaterhouse, if you read the fine print it actually says, "Pricewaterhouse reviewed the work by an affiliate in China." So it's often a smaller firm that has a relationship with the big firm that actually does the auditing. Pricewaterhouse just puts its stamp of approval on that.

LP: Sounds kind of like what the big credit ratings agencies did by giving triple-A ratings to securities that were fraudulent in the lead-up to the financial crisis.

JC: Right. But you have to remember that auditors are not the financial check that most people think they are. The financial statements are not prepared by auditors. The financial statements in publicly traded firms are prepared by management and the auditors review the statements. Unless they have reason to believe something is amiss or are pointed to something being amiss by a whistleblower or short seller or journalist, they're not going to detect anything most of the time.

LP: Auditors are not detectives.

JC: No they're not. They're really paid by the company to review the company's own financial statements. So at the end of the day, this still comes back to the management and the board. Do you trust them? Do you believe what they're telling you? What is your ability to check?

LP: In the case of the Happy Flower Company, I can't really check.

JC: Not only that, one of the points that the movie made very well was that even if you find the smoking gun and the chairman runs off with all the money and you're left with nothing, the recourse to western investors is virtually nil. None of these CEOs are prosecuted. The view of the Chinese court system, which, I should point out, is an arm of the Communist Party, not the Chinese state, is, "sorry, but no jurisdiction here. You're a western investor and you ought to know better."

LP: Can the SEC do anything?

JC: The SEC did announce a crackdown after the fact, but besides monitoring companies' ongoing disclosures and trying to halt trading in the securities if there is evidence of a problem, there isn't a lot that the SEC can do. These are Chinese companies.

LP: How do you view the climate for financial fraud under the Trump administration? I note that Trump's SEC nominee, who was sworn in as chair last May, was an Alibaba IPO advisor -- the Silicon Valley lawyer Jay Clayton. You've expressed skepticism about Alibaba.

JC: I have, and so far I've been wrong, at least with respect to the stock price. But I challenge anyone to explain to me cogently what Alibaba is doing with all its capital and flipping companies back and forth to insider and revaluing the prices of companies upward.

Be that as it may, the real issue is, what is the sense of the administration? I'll say one thing, when the George W. Bush administration started -- remember, he was the MBA president -- he came in on a pro-business platform and was seen as very pro-business and anti-regulation, similar to the Trump administration. But when the wave of fraud started hitting in '01 and '02, I have to give the John Ashcroft Justice Department a lot of credit. They did a 180 and went after the bad guys hard.

I always joke that the two presidents who have put more executives in jail than all the rest combined were both named Bush. W's father was instrumental in prosecuting the S&L [Saving and Loan] crooks back in the early '90s and put about 3,000 of them in jail. I think they realized that the public was losing money in the stock markets, not just because of the frauds, but because the long dot-com bull market had ended. People were upset. Then when you had the revelations of WorldCom and Enron on top of it, there was a sense that every corporation was crooked and this was going to have exogenous impacts on the economy and the market as a whole. I think they correctly realized that we've got to basically show that we're the cops on the beat. And they did.

That did not happen, as you well know, after the GFC [Global Financial Crisis], for lots of reasons, including a Justice Department that actually took the extraordinary step of admitting that it considered economic and financial market factors in figuring out when, or if, to prosecute a company. So justice now had an economic angle to it. We sort of know how we think about the Trump administration -- I noted the other day that the Education Department seems to have shut down its division investigating fraud at the for-profit education companies, which are one of the biggest cesspools out there in terms of financial fraud and fraud upon the taxpayer. So that's not a good sign. On the other hand, public opinion can move things quickly as it did in the Enron case. We saw a real stepped-up effort to go after the bad guys.

I think a lot depends on circumstances at the time. We're still in the expansionary phase of the financial cycle and, arguably, the fraud cycle, so we'll have to see what happens once that rolls over.

LP: Let's talk about emerging markets. Do you think a big crisis could develop as investors head back to the U.S. as the Federal Reserve raises rates here?

JC: The emerging markets are always sort of the end of the wick, right? They always go down the most when fear is out there and they go up the most when people are euphoric. Emerging markets had a really rough go of it from 2011 right on to 2015. They never really recovered a lot from the GFC. Then someone hit the light switch and whether it was things changing in Brazil or [former president] Jacob Zuma being ousted in South Africa or South America turning the corner. I would note that Argentina issued a one hundred-year bond a year ago that was oversubscribed, and this week Argentina went back hat in hand to the IMF [International Monetary Fund], so we've had this amazingly quick shot across the bow in the emerging markets. We'll see if it's the start of something bigger. But it's sort of amazing to me that after only a two-year respite, places like Argentina and Turkey seem to find themselves in trouble again. Time will tell.

LP: One thing you said in "The China Hustle" is that we've never seen a credit build-up like the one we've seen in China today that hasn't been followed by a major financial crisis. That sounds pretty worrisome.

JC: I'm always told confidently it won't matter because they owe it to themselves. Well, if that was that were the case, then Zimbabwe would be one of the wealthiest countries in the world today!

The build-up of China's debt and the speed of that build-up is nothing short of stunning. There's a new book that I recommend, " China's Great Wall of Debt ." It does a great job of chronicling just how massive this build-up has been in the last ten years following China's stimulus in '09 to pull the world out of the GFC. You've heard me call it the "treadmill to hell" because you have to put more and more debt on the books to keep the growth going and this is where China is finding itself. If they don't increase the debt, the economy hits stall speed and for all the talk about innovation and technology and transferring to a consumer-driven, technology-driven economy, the evidence on that is kind of scant. It's still basically an economy driven by debt-driven investment, which is still over 40% of GDP. I think when we started talk about China it was 46% and I think the most recent number is about 43%. So it's improved slightly over the eight or nine years, but not much.

China is still basically a giant construction site and shows no signs of changing. In fact, with the One Belt One Road Initiative [a project launched in 2013 to develop trade routes to connect China to the world], they're trying to basically export their construction capabilities and credit to countries along what we would call the Old Silk Road.

LP: In terms of the overall picture of fraud, are we any better off than we were after the financial crisis?

JC: Personally, I think we're worse off. I think we were better off after the dot-com era. Not because we enacted Sarbanes Oxley [passed by the U.S. Congress in 2002 to protect investors from fraudulent corporate accounting activities] but because the public saw that there was justice. The bad guys got caught and at least if I lost money, they paid the price of their freedom. That never happened in '08 and '09 for a variety of reasons. We've just had a continuation of the cycle and the cycle is still going.

LP: So fraudsters are emboldened?

JC: Right. And now we come back to bitcoin. What's your recourse if you lose money in an ICO traded on an exchange offshore? If people lose lots of money, there will be an outcry, but no recourse. So we're building into something. I suspect it's in front of us and it will be interesting to see what happens.

LP: What happens in a capitalist system to good people who want to behave ethically? How can they succeed in an atmosphere in which fraud and unethical behavior are constantly happening?

JC: I think capitalism is still the best game in town, but the very best games have good sets of rules, and, even more importantly, good umpires and referees. When the game becomes tilted and the house has the advantage, people tend to stop playing.

When the system is seen as corrupt or dishonest, there's a political price. We saw this after the GFC. People in New York and San Francisco and Boston might be fine with everything, but in the South and Midwest, where you're from and where I'm from, there's still this general sense that "the bastards got away with it and I'm still suffering." So there is an exogenous cost to this where people don't feel that there was justice. They feel that they were taken advantage of by those sharpies on the coasts. It brings out some of the worst in people, of course, so that's one small step, then, away from social problems like anti-Semitism and anti-immigrant feelings. It's us v. them. Nobody is looking after us.

Economists and financial analysts have a hard time quantifying all these things, but I think that the point is that fair markets where there's a set of rules, where there's a cop on the beat, where there are regulators making sure that people are adhering to the rules, are far better markets than one in which caveat emptor is written above the casino. I think it behooves us as a society to understand that capitalism is an amazing driver of progress and prosperity and wealth, but it can be diverted. There's a dark side to it if we don't play by the rules and if we don't encourage capital formation from all members of society who don't feel they're getting a fair shake.

Everybody gets that capitalism involves risk-taking. But the asymmetric situation where people who are dishonest get away with it while people who are honest and provide capital get left holding the bag will really stunt capitalism. I think that's the issue which the vigilance on fraud, why it's so important. It is part of the capitalistic system. There will always be people trying to take advantage of other people. It's still better than when the whole system is flawed, like totalitarian communism, where corruption starts at the very top in terms of the planning itself. But on the other hand, the counterfactual is that it could be so much better if everybody is participating and understands that there is a strong set of rules and penalties when you break them and justice as well. That's what I think has been lacking in the last generation.

ChrisAtRU , June 5, 2018 at 10:57 am

Ha! Timely from Izabella Kaminska today:

Only in cryptocurrency can an enterprise that calls itself "ethical" be represented by someone who is both an "award winning journalist" and "PR relations" -- Izabella Kaminska (@izakaminska) June 5, 2018

flora , June 5, 2018 at 11:55 am

Tasnim should have contacted Osborne's London Evening Standard, not the FT. ;)

Ignacio , June 5, 2018 at 12:15 pm

Ethical cryptocurrency!!!
Sounds great, hahahahahahahahahahahaha!

So, we have learned two things lately about things that will happen when the crisis unfolds:

– There is high risk for a deflationary wage spiral
– The fraudsters won't be (again) prosecuted

ChrisAtRU , June 5, 2018 at 6:37 pm

Don't laugh so soon This came across my Twitter feed a couple days ago, and I was a little taken aback.

I really like the idea of community currencies, but I'm wondering why on earth you'd want to get them tangled up with blockchain for the purpose of trading/conversion ?

Needless to say, the usual suspects have chimed in.


Just make a Global CC and have that be that or am I oversimplifying this? #OrHaveIMissedSomething

PS: I also take exception to using the term Bancor as well, given what it's original purpose was. Not too sure #JMK would be down with the blockchain .

Lambert Strether , June 5, 2018 at 11:39 am

I think of "The Bezzle" as the happy time between hubris and nemesis.

Wukchumni , June 5, 2018 at 12:21 pm

Why wouldn't a Zimbabwe type country embrace cryptocurrency as money of the iRealm?

Seems like it wouldn't be that hard to get outsiders to believe in it, as long as it was pretty vague, and most wouldn't know that the very same country issued $100 Trillion banknotes not so long ago.

Synoia , June 5, 2018 at 1:42 pm

Why wouldn't a Zimbabwe type country embrace cryptocurrency as money of the iRealm?

Because 50% of the people DO NOT HAVE ELECTRICITY.

If the do have electricity, they cannot afford to Verify a Cryptocurrency.

Before making comments about 3rd world countries, visit a few, a look outside the tourist areas.

Soweto or Alexandria near Joburg, or the Township on the East side of Boksburg in South Africa.

Or The area near Apapa, Nigeria close to the Mobil Tank Farm.

Wukchumni , June 5, 2018 at 1:48 pm

as if you need a physical location within a country, in order to make cryptos~

They're mining bitcoins in Inner Mongolia, for instance.

Wukchumni , June 5, 2018 at 2:14 pm


Zimbabwe didn't need printing facilities when they were cranking out oodles of currency, as it was all printed in Germany. (who got stiffed on payment, if memory serves)

Jim Haygood , June 5, 2018 at 12:25 pm

'John Law was the first person to write about the need for foreign governments to have fiat currencies and not be tethered to gold and silver. Law's failed experiment, which added lots of fraudulent bells and whistles to that scheme in France, put the idea on the back burner for a while. But economic historians have revisited it now and his early papers are genius.' -- Jim Chanos

This is bizarre historical revisionism. John Law didn't add "fraudulent bells and whistles" -- fraud was the whole point of fiat currencies, then [1720 -- Mississippi bubble] and now.

Fiat currencies were born in original sin, that is. When Bubble III blows like Kilauea, the central banksters who engineered this global calamity may find themselves (like Law) involuntarily expatriated by angry mobs of peasants with pitchforks.

Got gold?

PKMKII , June 5, 2018 at 2:11 pm

Currency is born in sin, and may only be cleansed by the divine power of God, err, Gold. Only by having supreme faith in its shininess will your economy be saved. Do not question how or why, as Gold works in mysterious way. Au men.

diptherio , June 5, 2018 at 3:55 pm

That's the best pun I've seen in awhile!

skippy , June 5, 2018 at 4:07 pm

I don't understand Jim . central banks have been staffed largely by monetarist and quasi monetarists throughout the entire neoliberal period. Then you have the vast majority of the politicians holding the same view.

But anyway I thought quality held true in both cases, so what agenda threatened the quality of fiat – at onset. I mean what mob forwarded all the innovation [tm], completely ignored poor or criminal underwriting standards, completely miss-priced risk, was completely oblivious to obvious gaming everything for "personal" profit.

I really can't see how fiat forced some people to act in such an anti social manner by its will alone. I mean that sort of broad social dominance is usually reserved for social narratives.

Sorry but I really never understood the logic behind the money did it thingy .

Isotope_C14 , June 5, 2018 at 1:40 pm

"like totalitarian communism"

I do wonder about folks who describe alternative forms of governance with a very clear lack of understanding of political/economic arrangements.

You can't really have a totalitarian communism. Chanos should do some history homework on what the USSR was, and why the system was doomed to fail starting all the way back with Lenin. Lenin didn't believe that the Russians were ready for the revolution, he considered it a holding pattern waiting for the revolution to happen in Germany.

Just because you (or an autocrat like Stalin) call something a communism or socialism, doesn't make it so.

"But the asymmetric situation where people who are dishonest get away with it while people who are honest and provide capital get left holding the bag will really stunt capitalism."

Good. I can't think of any better evidence that the system is archaic and if left unchecked eats itself. Chanos might think about re-reading some Marx.

Tim , June 5, 2018 at 2:38 pm


Sadly, there will be plenty of people LFIN right up to the coming RIOT as a consequence of the autopiloted crash from the fraud.

Micky9finger , June 5, 2018 at 2:46 pm

Whenever i get to Zimbabwe in an article i stop reading.
A sure sign the economics is going off the rails into neoliberalism and argle bargle.

Rates , June 5, 2018 at 4:11 pm

"I'm always told confidently it won't matter because they owe it to themselves." Isn't that the basis of MMT? Heck, that means Murica is heading towards eternal prosperity.

djrichard , June 5, 2018 at 4:31 pm

I'm still wondering if the long game is to use a crypto currency as a petro currency, to supplant the US dollar. That way, countries (and corporations) with trade surpluses with the US can hoard their surpluses in the crypto-cum-petro currency rather than US assets (bonds and stocks). In an asset that has neutrality with respect to any nation state. Just like gold used to have.

djrichard , June 5, 2018 at 4:42 pm

There's a book that suggests this line of thinking, but doesn't really seem to chase it down adequately: . See review on Frances Coppola's website.

RBHoughton , June 5, 2018 at 7:34 pm

There is a 25 minute clip here that describes the creation of money and the recording of transactions (the blockchain) and does not seem fraudulent in any way:

[May 03, 2018] A sovereign that HAS NO DEBT IN A FOREIGN CURRENCY has zero risk of insolvency

May 03, 2018 |

karlof1 | May 2, 2018 5:28:28 PM | 175

WJ @172--

Just when during WW1 the British determined they were going to be backstabbed by their American cousins is unknown to me, but hopefully my unfinished research into that era will provide an answer. Clearly, Keynes knew what would occur as he observed the proceedings at Versailles, which prompted him to go to Marseilles to write Consequences. I greatly disagree with most of Wikipedia's discussion of Consequences except for this bit in the intro:

"In his book, he argued for a much more generous peace, not out of a desire for justice or fairness – these are aspects of the peace that Keynes does not deal with – but for the sake of the economic well-being of all of Europe, including the Allied Powers, which the Treaty of Versailles and its associated treaties would prevent. [My Emphasis]

Thanks to Wilson's stroke, we'll never know how he really felt about the last months of his administration; his wife becoming the first de facto female president of the USA. One of the better indicators about the nascent Deep States's feeling about Versailles is their behavior during the 1920s as it laid the ground work for the Great Depression's onslaught with Dollar Diplomacy and Teapot Dome exemplifying its moral compass. Prohibition's gangsters and coppers provided the required distraction of the masses until the money vanished. Then came radio, the beginnings of mass media and onset of media conglomeration.

paulmeli , May 2, 2018 6:07:44 PM | 176

james @ 166
i think what is missing in your analysis "how governments that print their own currency such as US, UK and China can print as much as they want and use it as they like" is the key acknowledgement that the us$ has been used as world currency.

and Canada.

The US $ is the World Currency because the US is the only country in the World that exports it's currency more than $0.5 Trillion/year. Like a virus really. It's that simple if the US didn't export $ it wouldn't be the reserve currency.

The other part about sovereigns being able to "print all they want" is a falsehood without context.

First of all, when people refer to "printing" it usually means "spending" although I'm not sure they think of it in those terms. The actual printing of physical currency/coins moves money from checking accounts in the banking system to petty cash accounts. No new money is created by that kind of "printing". About 2% of US $ is coins or currency, the rest exists only on balance sheets.

Secondly, a sovereign is able to buy anything for sale in it's own currency as long as the resource being bought exists and is for sale. You can't buy something that doesn't exist. The constraint on money creation is resources not arithmetic, which is the most widely misunderstood characteristic of fiat currencies.

Further, a sovereign that HAS NO DEBT IN A FOREIGN CURRENCY has zero risk of insolvency there is no liability (in it's own currency) a sovereign cannot satisfy. The US holds no foreign debt. Nor does Canada, Australia, Japan, UK, etc. as far as I know. Every member in the Eurozone is a de-facto holder of foreign debt (the Euro member countries cannot freely create Euro's. They are more like private borrowers).

gov'ts were in a position to print their own money and not have to pay interest thru the private banking sector for it.

James, this is another myth unless you are talking about the Eurozone. The US Federal government does not pay interest to the banking sector, it pays interest to holders of Treasury securities. To do so was a CHOICE not a requirement. Paying interest on previously created monies was voluntary. Congress created the banking system (for the US) through the Federal Reserve Act of 1913, which created and governs the banking system, and chose to pay interest later after WWI I believe (probably as a give-away to bankers who didn't think they made enough money off of WWi). MRW knows a lot more about this history if he's around.

Interest paid on the "debt" (all money is debt, interest or not by definition) is a net transfer of funds to the private sector (those who hold Treasury securities). Those funds increase the money supply. Anyone can hold Treasury securities, not just banks. They are a risk-free investment vehicle (the only one).

Further, it is the Fed that sets interest rates, not the bond-holders ("bond vigilantes") as they are referred to. 10 years of zero-interest rates post 2008 should be proof enough of that.

Treasury securities (bonds) move $ from a checking account at the Fed to a savings account at the FED. They are $ that earn interest. This is all explained in the Mosler pdf I linked to.

In double-entry accounting a National Debt™ for the government is NATIONAL SAVINGS for the citizens, as are the interest payments. All this worry about sovereign debt is silliness. Without sovereign debt the currency of issue wouldn't exist. Sovereign debt is our money (although the elites won't let us acquire much of it).

ashley albanese , May 2, 2018 6:40:23 PM | 177
May2 172

Of course the Marxist critique of and challenge to Capitalism was central in all this ! The West was competing with the East ( simplifying)and when this situation changed with Anglo Hegemony 1990 , these balances that had seen overall development towards the 'welfare state ' disintegrated .

Once the U S got its opportunistic run at this situation, crudely grasping for further power we rapidly reached the present situation , with its repeat of World War scenarios , as competing economic / militarised blocs do exactly that !

paulmeli , May 2, 2018 6:49:08 PM | 178
@ SteveK9 @ 160

Yes, Mosler not being an economist is a feature, not a bug. I agree, economists are idiots, but I suspect they're paid idiots. What's the Upton Sinclair quote ?

From where I sit MMT savvy economists are not idiots. They are however outcasts. If your not an insider you're an outsider, and outsiders don't get to make the big money, if they don't starve.

Here's a video excerpt regarding our pre-eminent economist Paul Krugman lest you think he isn't in on the con:

"Never Touch the Money System"

james , May 2, 2018 7:51:46 PM | 179
@176 paulmeli.. thanks.. i had to read your comment a few times, and it still isn't sinking in fully.. i am getting some of it, but maybe it is my conspiracy run brain that wants to know how we've been screwed over by the banks.. that is what i believe has happened...MRW.. haven't seen him in a good while.. every time he would come all my negative stereo types about the private banking sector were put on hold, as i recall!

i think a lot of this has to do with exporting / importing between countries... especially the part about holding foreign debt.. how does another country pay for something? this is why we read today of how russia, china and iran are getting into financial arrangements whereby they don't have to go thru the us$.. wasn't this a good part of the reason the usa went to war in iraq, or libya? iraq and libya wanted to trade in euros, as opposed to us$.. well - hopefully MRW can come and bring me back to reality! it seems the world financial markets are one big ponzi scheme... think of the derivative markets.. one is not trading in some actual commodity.. it is increasingly opaque and shrouded in speculation, while run on computers...

i am sorry paul, but i can only go so far in my understanding here.. as i understand it, something is very wrong in the financial system at present.. it is also the reason these financial sanction games are typically a lead up to war... one group has undue power and influence over the worlds finances - the usa - and they exercise this clout via sanctions, and if that doesn't work - war / regime change - etc. etc... obviously i am missing something here, but i will be damned if i buy the official hokum from an economist! thanks for trying to educate me.. n

Josh , May 2, 2018 7:56:05 PM | 180
I despise Netanyahu but please change the headline from Netanyahoo as Yahoo was used as an antisemtic slur in the past. I'm sure the author was not aware of this outdated meaning but it does the cause harm. Thank you.
paulmeli , May 2, 2018 8:07:23 PM | 181
james @ 179
something is very wrong in the financial system at present..

I think it's always been this way but now the corruption is so out in the open it seems like it's worse. I'm not sure it is.

The way finance corrupts is that obscene riches are offered to state leaders to sell out their own citizens for pennies on the dollar. And they do it, because if they don't regime change will follow. It's similar to the way corporate raiders take over businesses, sell off the assets and load the business up with debt, then sell what's left. With all of that debt said business has no chance of success. A handful of financial guys (parasites of the worse kind) walk away with the cash.

Corporate strip-mining - the business plan is simple and it's always the same - no matter if it's a business or a country.

david hogg , May 2, 2018 8:23:36 PM | 182
Something to keep in mind about all of this Iran business is that Trump can now move full speed ahead with Bolton and Pompeo in place. I find it oddly comforting that, generally speaking, Trump and his administration make no attempt to cloak their psychopathy in coded language. I thought these remarks from Pompeo yesterday as he addressed the lackeys at Foggy Bottom yesterday particularly illuminating in this regard:

"I talked at my hearing about the fact that this nation is so exceptional, and so incredibly blessed and the facts that derive from that are that it also creates a responsibility, a duty for America all across the world. And I know for certain that America can't execute that duty, can't achieve its objectives absent you all. Absent executing America's foreign policy in every corner of the world with incredible vigor and incredible energy. And I look forward to helping you all advance that."

spudski , May 2, 2018 8:44:26 PM | 183
paulmeli @ 181

Excellent précis of corporate/country asset stripping.

Pft , May 2, 2018 9:16:21 PM | 184
@paulmeli 176

Money supply increases with debt creation and decreases with debt payment. Wipe out all debt and money supply is zero. Taking out a loan is an example of money creation. The money does not exist in the system till its deposited into your account. Paying off the mortgage depletes the money supply.

Its true that the government does not pay interest on money the Fed loans them. Thats why so little is loaned directly to the government until the last crash. Money is not created by interest. That money does not exist without new debt. The government borrows the money to pay the interest.

A key reason the US is the reserve currency is OPEC. OPEC serves Big Oil interests which is interlocked with Big Banking and requires purchases of Oil to be in USD. Hence the name Petro Dollar. OPEC may produce the oil but its The Big Oil (4 sisters) that transports most of it to market, refines much of it and provides the equipment for OPEC members to get the oil out of the ground.

We also export a tremendous amount of food that requires payment in USD, and US manufacturing is now in China and consumer debt allows us to purchase a great amount of goods from China in USD. Manufacturers in China need to pay expenses in RMB so sell USD to Chinese banks. Chinas Central Bank Prints up RMB at no interest to buy the USD and then loans it to the US at interest.

Its a perfect system and is basically why the USD will never fail unless those in control want it to.

[May 02, 2018] Neoliberalism and Christianity

Highly recommended!
Money quote: " neoliberalism is the fight of finance to subdue society at large, and to make the bankers and creditors today in the position that the landlords were under feudalism."
Notable quotes:
"... ... if you take the Bible literally, it's the fight in almost all of the early books of the Old Testament, the Jewish Bible, all about the fight over indebtedness and debt cancellation. ..."
"... neoliberalism is the fight of finance to subdue society at large,and to make the bankers and creditors today in the position that the landlords were under feudalism. ..."
"... They call themselves free marketers, but they realize that you cannot have neoliberalism unless you're willing to murder and assassinate everyone who promotes an alternative ..."
"... Just so long as you remember that most of the strongest and most moving condemnations of greed and money in the ancient and (today) western world are also Jewish--i.e. Isaiah, Jeremiah, Micah, the Gospels, Letter of James, etc. ..."
"... The history of Jewish banking after the fall or Rome is inextricable from cultural anti-judaism of Christian west and east and de facto marginalization/ghettoization of Jews from most aspects of social life. The Jewish lending of money on interest to gentiles was both necessary for early mercantilist trade and yet usury was prohibited by the church. So Jewish money lenders were essential to and yet ostracized within European economies for centuries. ..."
"... Now Christianity has itself long given up on the tradition teaching against usury of course. ..."
"... In John, for instance most of the references to what in English is translated as "the Jews" are in Greek clearly references to "the Judaeans"--and especially to the ruling elite among the southern tribe in bed with the Romans. ..."
May 02, 2018 |

karlof1 , May 1, 2018 2:27:06 PM | 13

Just finished reading the fascinating Michael Hudson interview I linked to on previous thread; but since we're discussing Jews and their religion in a tangential manner, I think it appropriate to post here since the history Hudson explains is 100% key to the ongoing pain us humans feel and inflict. My apologies in advance, but it will take this long excerpt to explain what I mean:

"Tribes: When does the concept of a general debt cancellation disappear historically?

"Michael: I guess in about the second or third century AD it was downplayed in the Bible. After Jesus died, you had, first of all, St Paul taking over, and basically Christianity was created by one of the most evil men in history, the anti-Semite Cyril of Alexandria. He gained power by murdering his rivals, the Nestorians, by convening a congress of bishops and killing his enemies. Cyril was really the Stalin figure of Christianity, killing everybody who was an enemy, organizing pogroms against the Jews in Alexandria where he ruled.

"It was Cyril that really introduced into Christianity the idea of the Trinity. That's what the whole fight was about in the third and fourth centuries AD. Was Jesus a human, was he a god? And essentially you had the Isis-Osiris figure from Egypt, put into Christianity. The Christians were still trying to drive the Jews out of Christianity. And Cyril knew the one thing the Jewish population was not going to accept would be the Isis figure and the Mariolatry that the church became. And as soon as the Christian church became the establishment rulership church, the last thing it wanted in the West was debt cancellation.

"You had a continuation of the original Christianity in the Greek Orthodox Church, or the Orthodox Church, all the way through Byzantium. And in my book And Forgive Them Their Debts, the last two chapters are on the Byzantine echo of the original debt cancellations, where one ruler after another would cancel the debts. And they gave very explicit reason for it: if we don't cancel the debts, we're not going to be able to field an army, we're not going to be able to collect taxes, because the oligarchy is going to take over. They were very explicit, with references to the Bible, references to the jubilee year. So you had Christianity survive in the Byzantine Empire. But in the West it ended in Margaret Thatcher. And Father Coughlin.

"Tribes: He was the '30s figure here in the States.

"Michael: Yes: anti-Semite, right-wing, pro-war, anti-labor. So the irony is that you have the people who call themselves fundamentalist Christians being against everything that Jesus was fighting for, and everything that original Christianity was all about."

Hudson says debt forgiveness was one of the central tenets of Judaism: " ... if you take the Bible literally, it's the fight in almost all of the early books of the Old Testament, the Jewish Bible, all about the fight over indebtedness and debt cancellation. "

Looks like I'll be purchasing Hudson's book as he's essentially unveiling a whole new, potentially revolutionary, historical interpretation.

psychohistorian , May 1, 2018 3:31:50 PM | 26
@ karlof1 with the Michale Hudson link....thanks!!

Here is the quote that I really like from that interview
Michael: No. You asked what is the fight about? The fight is whether the state will be taken over, essentially to be an extension of Wall Street if you do not have government planning. Every economy is planned. Ever since the Neolithic (era), you've had to have (a form of) planning. If you don't have a public authority doing the planning, then the financial authority becomes the planners. So globalism is in the financial interest –Wall Street and the City of London, doing the planning, not governments. They will do the planning in their own interest. So neoliberalism is the fight of finance to subdue society at large,and to make the bankers and creditors today in the position that the landlords were under feudalism.

karlof1, please email me as I would like to read the book as well and maybe we can share a copy.

And yes, it is relevant to Netanyahoo and his ongoing passel of lies because humanity has been told and been living these lives for is time to stop this shit and grow up/evolve

james , May 1, 2018 10:30:01 PM | 96
@13 / 78 karlof1... thanks very much for the links to michael hudson, alastair crooke and the bruno maraces articles...

they were all good for different reasons, but although hudson is being criticized for glossing over some of his talking points, i think the main thrust of his article is very worthwhile for others to read! the quote to end his article is quite good "The question is, who do you want to run the economy? The 1% and the financial sector, or the 99% through politics? The fight has to be in the political sphere, because there's no other sphere that the financial interests cannot crush you on."

it seems to me that the usa has worked hard to bad mouth or get rid of government and the concept of government being involved in anything.. of course everything has to be run by a 'private corp' - ie corporations must run everything.. they call them oligarchs when talking about russia, lol - but they are corporations when they are in the usa.. slight rant..

another quote i especially liked from hudson.. " They call themselves free marketers, but they realize that you cannot have neoliberalism unless you're willing to murder and assassinate everyone who promotes an alternative ." that sounds about right...

@ 84 juliania.. aside from your comments on hudsons characterization of st paul "the anti-Semite Cyril of Alexandria" further down hudson basically does the same with father coughlin - he gets the anti-semite tag as well.. i don't know much about either characters, so it's mostly greek to me, but i do find some of hudsons views especially appealing - debt forgiveness being central to the whole article as i read it...

it is interesting my own view on how money is so central to the world and how often times I am incapable of avoiding the observation of the disproportionate number of Jewish people in banking.. I guess that makes me anti-semite too, but i don't think of myself that way.. I think the obsession with money is killing the planet.. I don't care who is responsible for keeping it going, it is killing us...

WJ | May 1, 2018 10:48:58 PM | 100

James @96,

Just so long as you remember that most of the strongest and most moving condemnations of greed and money in the ancient and (today) western world are also Jewish--i.e. Isaiah, Jeremiah, Micah, the Gospels, Letter of James, etc.

The history of Jewish banking after the fall or Rome is inextricable from cultural anti-judaism of Christian west and east and de facto marginalization/ghettoization of Jews from most aspects of social life. The Jewish lending of money on interest to gentiles was both necessary for early mercantilist trade and yet usury was prohibited by the church. So Jewish money lenders were essential to and yet ostracized within European economies for centuries.

Now Christianity has itself long given up on the tradition teaching against usury of course.

WJ , May 1, 2018 8:23:40 PM | 88
Juliana @84,

I too greatly admire the work of Hudson but he consistently errs and oversimplifies whenever discussing the beliefs of and the development of beliefs among preNicene followers of the way (as Acts puts is) or Christians (as they came to be known in Antioch within roughly eight or nine decades after Jesus' death.) Palestinian Judaism in the time of Jesus was much more variegated than scholars even twenty years ago had recognized. The gradual reception and interpretation of the Dead Sea Scrolls in tandem with renewed research into Phili of Alexandria, the Essenes, the so-called Sons of Zadok, contemporary Galilean zealot movements styles after the earlier Maccabean resistance, the apocalyptism of post exilic texts like Daniel and (presumably) parts of Enoch--all paint a picture of a highly diverse group of alternatives to the state-Church once known as Second Temple Judaism that has been mistaken as undisputed Jewish "orthodoxy" since the advent of historical criticism.

The Gospel of John, for example, which dates from betweeen 80-120 and is the record of a much earlier oral tradition, is already explicitly binitarian, and possibly already trinitarian depending on how one understands the relationship between the Spirit or Advocate and the Son. (Most ante-Nicene Christians understood the Spirit to be *Christ's* own spirit in distributed form, and they did so by appeal to a well-developed but still largely under recognized strand in Jewish angelology.)

The "theological" development of Christianity occurred much sooner that it has been thought because it emerged from an already highly theologized strand or strands of Jewish teaching that, like Christianity itself, privileged the Abrahamic covenant over the Mosaic Law, the testament of grace over that of works, and the universal scope of revelation and salvation as opposed to any political or ethnic reading of the "Kingdom."

None of these groups were part of the ruling class of Judaean priests and levites and their hangers on the Pharisees.

In John, for instance most of the references to what in English is translated as "the Jews" are in Greek clearly references to "the Judaeans"--and especially to the ruling elite among the southern tribe in bed with the Romans.

So the anti-Judaism/Semiti of John's Gispel largely rests on a mistranslation. In any event, everything is much more complex than Hudson makes it out to be. Christian economic radicalism is alive and well in the thought of Gregory of Nysa and Basil the Great, who also happened to be Cappadocian fathers highly influential in the development of "orthodox" Trinitarianism in the fourth century.

I still think that Hudson's big picture critique of the direction later Christianity took is helpful and necessary, but this doesn't change the fact that he simplifies the origins, development, and arguably devolution of this movement whenever he tries to get specific. It is a worthwhile danger given the quality of his work in historical economics, but still one has to be aware of.

[Mar 23, 2018] How money work

Mar 23, 2018 |

Posted by: Allen | Mar 22, 2018 9:02:51 PM | 42

Allen , Mar 22, 2018 9:02:51 PM | 42

An Imaginary Conversation....

A modern fellow of genus Homo protests his innocence. "I don't work because I worked much harder before", says he. "I labored for ten years at a crap job earning $30,000 per year and that earned me the right to live in miserable conditions in which the loss of my job would have made me destitute in weeks. But, I was not content to labor as my fellows. I got a second job at $20,000 per year and I was so thrifty that I spent not a penny of it but banked it all so that at the end of my time I had $300,000, a princely sum. I invested it wisely at 10% and now I can live for the rest of my life, if modestly, off the proceeds of only my own sweat, my own thriftiness, and my own discipline. And, if there was any luck to it - in my not facing misfortune or ill health or any other calamity - that was the product of my own luck too. I owe nothing to anyone. What I have is due to myself alone, and those who have much more than I, it seems to me that they must have arrived at it the same as I, perhaps over generations. What is this social power you speak of when it is only individual labor and individual property that stems from it? It seems to me that you merely envy that which you are too lazy to earn for yourself."

"My dear independent fellow" says we, "let us understand the simple arithmetic of your claims. If your story is as you say and we ignore all else that you report, still at the end of ten years, we see only $200,000. And, if you continue to live at this admittedly low level, nevertheless, you will have run through your entire accumulated proceeds in only 6 years and eight months. More than this, by your accounting, it would take one and a third lifetimes to create a single lifetime without labor, and this at the exceedingly low standards and exceptionally favorable circumstances that you assume. How then are we to explain those who live without labor for generations, and this at a thousand or ten thousand times times the level that you report? How many generations of 'thrift' and 'hard work' would this require? What you claim is impossible for you and beyond impossibility for those who live above you. Where is this magic of 'individual labor and individual property' that you speak of?"

"But you forget interest", protests our friend. "My money makes money, and simply by the act of having some which is not consumed in day to day living, that which I save is augmented. It is this which grants me my independence."

"We forget as much as your money 'makes'," answers we, "which is nothing at all. Set your money on the table and leave it there for as long as you like. Nothing happens to it. It remains the same. It is only by setting it in motion as capital that anything whatever is 'made' and that 'making' is the product of labor, the same as your own. Your interest comes from the command of the labor of others, just as your own was once commanded and after 6 years and eight months not a speck of 'hard work', 'thrift', 'good luck' or 'wisdom' is left. Neither is there any trace of 'independence' or 'personal property' You now live by the labor of others... by the transformation of your pitiful 'savings' into Capital, no matter how small the sum. It is your ability to command the labor of others as a social power that gives you your ability and that you have a poor man's caricature of that process changes nothing other than to lay fraudulent your claims to the right. You might as well claim innate superiority or the right of the sword as did the slave master or the god-given hierarchy of obligations of the lord or even the phases of the moon, if you like. You eat without working because you have maneuvered yourself into a position in which others work to feed you. You are the opposite of what you claim."

"You're just trying to make me feel bad.", says our friend.

"We don't give a shit how you feel", says we. "It is modest enough what you do... just as you claim. It is your willingness to ignore what is closer to your face than your nose that we tire of. "

Our friend orders another beer and pretends to watch the hockey game though he would be hard pressed to name two players on either team.

Capital is therefore not only personal; it is a social power.

There it is...

psychohistorian , Mar 23, 2018 12:06:52 AM | 68
@ jivno who keeps asking how money works

hojo , Mar 23, 2018 4:11:22 AM | 78
jinvo @48
Here's an interesting 144-slide presentation on "Modern Monetary Theory" from J.D. Alt .

[Mar 22, 2018] It is my opinion that China, Russia, Iran, and probably additional countries decided to make a move after the brazen 2003 invasion of Iraq by the U.S. and others, and the massive financial fraud partly exposed in the U.S. and Britain in 2008 and afterwards, which fraud was not stopped and the perpetrators were bailed out and none were prosecuted.

Notable quotes:
"... China, Russia, et. al. realized that the debt-saturated U.S. was propped up by the fact that the U.S. "dollar" was the reserve banking and trading currency of the entire world and that the "Petrodollar" was one of the main pillars of it, and that this system was the main source of U.S. influence and power around the world and allowed the U.S. and friends to impose financial sanctions on other countries. They also saw that the U.S. was not using gold or silver as a type of support or backup for the financial system. Therefore, they developed their own computer servers to route orders between banks and financial companies that will operate outside of the SWIFT system dominated by the U.S. It is now operational and is called CIPS (Cross-Border Interbank Payment System)-- ..."
Mar 22, 2018 |

robt willmann 21 March 2018 at 01:43 PM

John Minnerath,

In addition to the common desire of some (or many) human beings to exercise authority over other groups of people, I think Xi Jinping and his supporters want to complete the large and complex economic and financial projects they have started. It is not just the road and railroad and other infrastructure projects tied to the regional trading structure China has been working on, but a financial structure independent of the existing banking and financial system that was put together by the U.S. and Britain.

It is my opinion that China, Russia, Iran, and probably additional countries decided to make a move after the brazen 2003 invasion of Iraq by the U.S. and others, and the massive financial fraud partly exposed in the U.S. and Britain in 2008 and afterwards, which fraud was not stopped and the perpetrators were bailed out and none were prosecuted.

China, Russia, et. al. realized that the debt-saturated U.S. was propped up by the fact that the U.S. "dollar" was the reserve banking and trading currency of the entire world and that the "Petrodollar" was one of the main pillars of it, and that this system was the main source of U.S. influence and power around the world and allowed the U.S. and friends to impose financial sanctions on other countries. They also saw that the U.S. was not using gold or silver as a type of support or backup for the financial system. Therefore, they developed their own computer servers to route orders between banks and financial companies that will operate outside of the SWIFT system dominated by the U.S. It is now operational and is called CIPS (Cross-Border Interbank Payment System)--

In addition, they are moving to break the Petrodollar. In the early 1970's, the U.S. made a non-treaty deal with Saudi Arabia that if they got the rest of OPEC to sell oil and gas to the whole world only in U.S. dollars and would plough some of the money back into U.S. government debt and into the stock market casino, the U.S. would protect the Saudi ruling family so it could run the entire country as its private business. This forced the whole world to get U.S. dollars in order to buy oil and gas, which further put the dollar in as banking reserves around the world, which further pushed the dollar into being used to settle much of the trade between countries.

However, now some contracts are being made to buy and sell oil and gas not in the U.S. dollar, but in other currencies, especially the Chinese renminbi (a/k/a yuan). Also, both China and Russia have been buying large amounts of gold for several years. To get around some of the U.S. sanctions prior to the Joint Comprehensive Plan of Action (JCPOA), Iran sold oil and gas in exchange for gold. Since gold is not a government created and ordered "fiat" money, it cannot be choked off by the SWIFT system or controlled through numbers on computer hard drives in banks.

Russia also remembers what happened after the collapse of the Soviet Union when the U.S. financial "experts" [sic] went there to set up a "wonderful" market-based economy, but what happened of course was the creation of a system to loot Mother Russia and establish a new oligarchy tied in with the U.S., Britain, and Israel.

In the early 1990's when the Soviet Union pulled out of eastern Europe, the U.S. had a chance to help the world be a safer and more peaceful place. The methods of medical diagnosis and surgical technology developed in the U.S. could have been the basis of a new foreign policy that would have voluntarily opened doors across the world.

But it was not to be. The desire of some to be king of the world pushed the chance of improvement aside. Nevertheless, today even autocratic governments see that having financial and governmental options can be a beneficial thing.

And to our immediate south, a movement has been going on for a while in Mexico to establish a money based on silver, promoted by Hugo Salinas Price and others--

For obvious reasons, I am not optimistic about Mexico, the deterioration of which has been a sad thing to see. It needs a new and real revolution.

Xi's move is not a unilateral thing. He had to have the support of the ruling committees in China. Keep your eye on the financial structure, gold, and silver.

[Mar 22, 2018] I've been waiting to see what happens with the SDR (Special Drawing Right). The IMF (International Monetary Fund) added it to the SDR basket in October 2016 after a lot of foot dragging by the US.

Notable quotes:
"... I see the global monetary reset currently underway as the slowly moving, but unstoppable, glacier that is forcing all other events. ..."
Mar 22, 2018 |

EEngineer -> robt willmann... 21 March 2018 at 04:14 PM

I've been waiting to see what happens with the SDR (Special Drawing Right). The IMF (International Monetary Fund) added it to the SDR basket in October 2016 after a lot of foot dragging by the US. The AIIB (Asian Infrastructure Investment Bank) was setup largely as a Chinese alternative to the US dominated IMF and World Bank because they were not being given an appropriate "place at the table" in the IMF, which was founded as part of the Bretton Woods Agreement at the end of WWII.

I see the global monetary reset currently underway as the slowly moving, but unstoppable, glacier that is forcing all other events.

[Feb 05, 2018] Blockchain: what it is, what it does, and why you probably don't need one by Scott Adams Interest in blockchain is at a fever pitch lately. This is in large part due to the eye-popping price dy...

Feb 05, 2018 |

[Feb 05, 2018] Link to my past posts on the subject of Bitcoin and Blockchain

Feb 05, 2018 |

Sunday, January 21, 2018 Blockchain: what it is, what it does, and why you probably don't need one

Dilbert - by Scott Adams
Interest in blockchain is at a fever pitch lately. This is in large part due to the eye-popping price dynamics of Bitcoin --the original bad-boy cryptocurrency--which everyone knows is powered by blockchain ...whatever that is. But no matter. Given that even big players like Goldman Sachs are getting into the act (check out their super slick presentation here: Blockchain--The New Technology of Trust ) maybe it's time to figure out what all the fuss is about. What follows is based on my slide deck which I recently presented at the Olin School of Business at a Blockchain Panel (I will link up to video as soon as it becomes available)

Things are a little confusing out there I think in part because not enough care is taken in defining terms before assessing pros and cons. And when terms are defined, they sometimes include desired outcomes as a part of their definition. For example, blockchain is often described as consisting of (among other things) an immutable ledger. This is like defining a titanic to be an unsinkable ship.

So what do people mean when they bandy about the term blockchain ? I recently had a chance to learn about the project from a corporate perspective as represented by Ed Corno of IBM (see IBM Blockchain ), the other member of the panel I mentioned above. From Ed's slide deck we have the following definition:

Blockchain: a shared, replicated, permissioned ledger with consensus, provenance, immutability and finality.
Well, if this is what blockchain is, then maybe I want one too! The issue I have with this definition (apart from the fact that it confounds descriptive elements with desired outcomes) is that it glosses over what I consider to be an important defining characteristic of blockchain: the consensus mechanism. Loosely speaking, there are two ways to achieve consensus. One is reputation-based (trust) and the other is game-based (trustless).

I'm not 100% sure, but I believe the corporate versions of blockchain are likely to stick to the standard model of reputation-based accounting. In this case, the efficiency gains of "blockchain" boil down to the gains associated with making databases more synchronized across trading partners, more cryptographically secure, more visible, more complete, etc. In short, there is nothing revolutionary or radical going on here -- it's just the usual advancement of the technology and methods associated with the on-going problem of database management. Labeling the endeavor blockchain is alright, I guess. It certainly makes for good marketing!

On the other hand, game-based blockchains--like the one that power Bitcoin--are, in my view, potentially more revolutionary. But before I explain why I think this, I want to step back a bit and describe my bird's eye view of what's happening in this space.

A Database of Individual Action Histories

The type of information that concerns us here is not what one might label "knowledge," say, as in the recipe for a nuclear bomb. The information in question relates more to a set of events that have happened in the past, in particular, events relating to individual actions. Consider, for example, "David washed your car two days ago." This type of information is intrinsically useless in the sense that it is not usable in any productive manner. In addition to work histories like this, the same is true of customer service histories, delivery/receipt histories, credit histories, or any performance-related history. And yet, people value such information. It forms the bedrock of reputation and perhaps even of identity. As such, it is frequently used as a form of currency.

Why is intrinsically useless history of this form valued? A monetary theorist may tell you it's because of a lack of commitment or a lack of trust (see Evil is the Root of All Money ). If people could be relied upon to make good on their promises a priori , their track records would largely be irrelevant from an economic perspective. A good reputation is a form of capital. It is valued because it persuades creditors ( believers ) that more reputable agencies are more likely to make good on their promises. We keep our money in a bank not because we think bankers are angels, but because we believe the long-term franchise value of banking exceeds the short-run benefit a bank would derive from appropriating our funds. (Well, that's the theory, at least. Admittedly, it doesn't work perfectly.)

Note something important here. Because histories are just information, they can be created "out of thin air." And, indeed, this is the fundamental source of the problem: people have an incentive to fabricate or counterfeit individual histories (their own and perhaps those of others) for a personal gain that comes at the expense of the community. No society can thrive, let alone survive, if its members have to worry excessively about others taking credit for their own personal contributions to the broader community. I'm writing this blog post in part (well, perhaps mainly) because I'm hoping to get credit for it.

Since humans (like bankers) are not angels, what is wanted is an honest and immutable database of histories (defined over a set of actions that are relevant for the community in question). Its purpose is to eliminate false claims of sociable behavior (acts which are tantamount to counterfeiting currency). Imagine too eliminating the frustration of discordant records. How much time is wasted in trying to settle "he said/she said" claims inside and outside of law courts? The ultimate goal, of course, is to promote fair and efficient outcomes. We may not want something like this creepy Santa Claus technology , but something similar defined over a restricted domain for a given application would be nice.

Organizing History

Let e(t) denote a set of events, or actions (relevant to the community in question), performed by an individual at date t = 1,2,3,... An individual history at date t is denoted

h(t-1) = { e(t-1), e(t-2), ..., e(0) }, t = 1,2,3,...

Aggregating over individual events, we can let E(t) denote the set of individual actions at date t, and let H(t-1) denote the communal history, that is, the set of individual histories of people belonging to the community in question:

H(t-1) = { E(t-1), E(t-2), ... , E(0) }, t = 1,2,3,...

Observe that E(t) can be thought of as a "block" of information (relating to a set of actions taken by members of the community at date t). If this is so, then H(t-1) consists of time-stamped blocks of information connected in sequence to form a chain of blocks. In this sense, any database consisting of a complete history of (community-relevant) events can be thought of as a "blockchain."

Note that there are other ways of organizing history. For example, consider a cash-based economy where people are anonymous and let e(t) denote acquisitions of cash (if positive) or expenditures of cash (if negative). Then an individual's cash balances at the beginning of date t is given by h(t-1) = e(t-1) + e(t-2) + ... + e(0). This is the sense in which " money is memory ." Measuring a person's worth by how much money they have serves as a crude summary statistic of the net contributions they've made to society in the past (assuming they did not steal or counterfeit the money, of course). Another way to organize history is to specify h(t-1) = { e(t-1) }. This is the "what have you done for me lately?" model of remembering favors. The possibilities are endless. But an essential component of blockchain is that it contains a complete history of all community-relevant events. (We could perhaps generalize to truncated histories if data storage is a problem.)

Database Management Systems (DBMS) and the Read/Write Privilege

Alright then, suppose that a given community (consisting of people, different divisions within a firm, different firms in a supply chain, etc.) wants to manage a chained-block of histories H(t-1) over time. How is this to be done?

Along with a specification of what is to constitute the relevant information to be contained in the database, any DBMS will have to specify parameters restricting:

1. The Read Privilege (who, what, and how);
2. The Write Privilege (who, what, and how).

That is, who gets to gets to read and write history? Is the database to be completely open, like a public library? Or will some information be held in locked vaults, accessible only with permission? And if by permission, how is this to be granted? By a trusted person, by algorithm, or some other manner? Even more important is the question of who gets to write history. As I explained earlier, the possibility for manipulation along this dimension is immense. How to guard against to attempts to fabricate history?

Historically, in "small" communities (think traditional hunter-gatherer societies) this was accomplished more or less automatically. There are no strangers in a small, isolated village and communal monitoring is relatively easy. Brave deeds and foul acts alike, unobserved by some or even most, rapidly become common knowledge. This is true even of the small communities we belong to today (at work, in clubs, families, friends, etc.). Kocherlakota (1996) labels H(t-1) in this scenario "societal memory." I like to think of it as a virtual database of individual histories living in a distributed ledger of brains talking to each other in a P2P fashion, with additions to, and maintenance of, the shared history determined through a consensus mechanism. In this primitive DBMS, read and write privileges are largely open, the latter being subject to consensus. It all sounds so.. . blockchainy.

While the primitive "blockchain" described above works well enough for small societies, it doesn't scale very well. Today, the traditional local networks of human brains have been augmented (and to some extent replaced) by a local and global networks of computers capable of communicating over the Internet. Achieving rapid consensus in a large heterogeneous community characterized by a vast flows of information is a rather daunting task.

The "solution" to this problem has largely taken the form of proprietary databases with highly restricted read privileges managed by trusted entities who are delegated the write privilege. The double-spend problem for digital money, for example, is solved by delegating the record-keeping task to a bank, located within a banking system, performing debit/credit operations on a set of proprietary ledgers connected to a central hub (a clearing agency) typically managed by a central bank.

The Problem and the Blockchain Solution

Depending on your perspective, the system that has evolved to date is either (if you are born before 1980) a great improvement over how things operated when we were young, or (if you are born post 1980) a hopelessly tangled hodgepodge of networks that have trouble communicating with each other and are intolerably vulnerable to data breaches (see figure below, courtesy Ed Corno of IBM).

The solution to this present state of affairs is presented as blockchain (defined earlier) which Ed depicts in the following way,
Well sure, this looks like a more organized way to keep the books and clear up communication channels, though the details concerning how consensus is achieved in this system remain a little hazy to me. As I mentioned earlier, I'm guessing that it'll be based on some reputation-based mechanism. But if this is the case, then why can't we depict the solution in the following way?

That is, gather all the agents and agencies interacting with each other, forming them into a more organized community, but keep it based on the traditional client-server (or hub-and-spoke) model. In the center, we have the set of trusted "historians" (bankers, accountants, auditors, database managers, etc.) who are granted the write-privilege. Communications between members may be intermediated either by historians or take place in a P2P manner with the historians listening in. The database can consist of the chain-blocked sets of information (blockchain) H(t-1) described above. The parameters governing the read-privilege can be determined beforehand by the needs of the community. The database could be made completely open--which is equivalent to rendering it shared. And, of course, multiple copies of the database can be made as often as is deemed necessary.

The point I'm making is, if we're ultimately going to depend on reputation-based consensus mechanisms, then we need no new innovation (like blockchain) to organize a database. While I'm no expert in the field of database management, it seems to me that standard protocols, for example, in the form of SQL Server 2017 , can accommodate what is needed technologically and operationally (if anyone disagrees with me on this matter, please comment below).

Extending the Write Privilege: Game-Based Consensus

As explained above, extending the read-privilege is not a problem technologically. We are all free to publish our diaries online, creating a shared-distributed ledger of our innermost thoughts. Extending the write-privilege to unknown or untrusted parties, however, is an entirely different matter. Of course, this depends in part on the nature of the information to be stored. Wikipedia seems to work tolerably well. But its hard to use Wikipedia as currency. This is not the case with personal action histories. You don't want other people writing your diary!

Well, fine, so you don't trust "the Man." What then? One alternative is to game the write privilege. The idea is to replace the trusted historian with a set of delegates drawn from the community (a set potentially consisting of the entire community). Next, have these delegates play a validation/consensus game designed in such a way that the equilibrium (say, Nash or some other solution concept ) strategy profile chosen by each delegate at every date t = 1,2,3,... entails: (1) No tampering with recorded history H(t-1); and (2) Only true blocks E(t) are validated and appended to the ledger H(t-1).

What we have done here is replace one type of faith for another. Instead of having faith in mechanisms that rely on personal reputations, we must now trust that the mechanism governing non-cooperative play in the validation/consensus game will deliver a unique equilibrium outcome with the desired properties. I think this is in part what people mean when I hear them say "trust the math."

Well, trusting the math is one thing. Trusting in the outcome of a non-cooperative game is quite another matter. The relevant field in economics is called mechanism design . I'm not going to get into details here, but suffice it to say, it's not so straightforward designing mechanisms with sure-fire good properties. Ironically, mechanisms like Bitcoin will have to build up trust the old-fashioned way--through positive user experience (much the same way most of us trust our vehicles to function, even if we have little idea how an internal combustion engine works).

Of course, the same holds true for games based on reputational mechanisms. The difference is, I think, that non-cooperative consensus games are intrinsically more costly to operate than their reputational counterparts. The proof-of-work game played by Bitcoin miners, for example, is made intentionally costly (to prevent DDoS attacks ) even though validating the relevant transaction information is virtually costless if left in the hands of a trusted validator. And if a lack of transparency is the problem for trusted systems, this conceptually separate issue can be dealt with by extending the read-privilege communally.

Having said this, I think that depending on the circumstances and the application, the cost associated with a game-based consensus mechanism may be worth incurring. I think we have to remain agnostic on this matter for now and see how future developments unfold.

Blockchain: Powering DAOs

If Blockchain (with non-cooperative consensus) has a comparative advantage, where might it be? To me, the clear application is in supporting Decentralized Autonomous Organizations (DAOs). A DAO is basically a set of rules written as a computer program. Because it possesses no central authority or node, it can offer tailor-made "legal" systems unencumbered by prevailing laws and regulations, at least, insofar as transactions are limited to virtual fulfillments (e.g., debit/credit operations on a ledger).

Bitcoin is an example of a DAO, though the intermediaries that are associated with Bitcoin obviously are not. Ethereum is a platform that permits the construction of more sophisticated DAOs via the use of smart contracts . The comparative advantages of DAOs are that they permit: (1) a higher degree of anonymity; (2) permissionless access and use; and (3) commitment to contractual terms (smart contracts).

It's not immediately clear to me what value these comparative advantages have for registered businesses. There may be a role for legally compliant smart contracts (a tricky business for international transactions). But perhaps the potential is much more than I can presently imagine. Time will tell.

Link to my past posts on the subject of Bitcoin and Blockchain .

[Jan 12, 2018] >When Your Bank Fails, Don't Walk Run!

Notable quotes:
"... or history. ..."
"... "Bail Outs." ..."
"... "Too Big to Fail," ..."
"... "Globally Active, Systemically Important, Financial Institutions" ..."
"... "unsecured creditors" ..."
"... "Good morning, Sir!," ..."
"... "would be glad to help me." ..."
"... "Today, you've come to the right place." ..."
"... "super-priority" ..."
"... Naked Capitalism ..."
"... before you may have your savings cash. ..."
"... "cross-border bank resolution." ..."
"... "Resolving Globally Active, Systemically Important, Financial Institutions." ..."
"... Financial Sense ..."
"... "about two days." ..."
"... Au Contraire ..."
"... "We expect to be cutting a lot out of Dodd-Frank," ..."
Jan 12, 2018 |

by Brett Redmayne-Titley / January 11th, 2018

So. The US economy is just fine. The post-recession 2010 Dodd-Frank legislation has cured all. Banks have lots of cash. Congress is your friend and that certain-to-pass Tax Cut and Jobs bill will finally allow you, your family and America to MAGA.


... ... ...

Oh, those evil banks! The shadowy corporatist denizens of New York, London, and Brussels, all guilty of a staggering set of every-expanding frauds couched in the beneficent language of greedy short-term materialistic gain. Financial "crimes of the decade," like the Savings and Loan meltdown, the Enron Collapse, and the Great Recession are nowadays reported almost monthly. With metered US justice amounting only to a monetary fine for the offending criminal bank – usually a small fraction of the money it previously stole, hypothecated, leveraged or manipulated – and with criminal prosecution no longer a possibility, these criminals continue to shovel trillions – not billions – into off-shore, non-tax paying accounts of the already uber-rich. There is never enough.

Just in time for Christmas, Americans received the "Tax Cut and Jobs Bill 2017" that, of course, contains not one word about jobs, but sounds so good to the ignorant who are still transfixed on the false mantra of MAGA.

LIBOR, FOREX, COMEX, which used high-speed program securities trading combined with insider manipulation, were the first serious examples of recent bank frauds. Since the Great Recession magically became the Great Recovery, Wachovia and HSBC banks plead guilty to laundering money for Mexican drug cartels, dictators, and terrorists. Wells Fargo and Bank of America were also guilty of defrauding 10's of thousands of homeowners of their properties during the "robo-signing" scandal; that was a scandal until Wells and BA paid the mortdita and all returned to business as usual. Example: In July 2017 it was revealed that more than 800,000 customers who had taken out car loans with Wells Fargo were charged for auto insurance they did not need. Barely a month later, Wells was forced to disclose that the number of bogus accounts that had been created was actually 3.5 million, a nearly 70 percent increase over the bank's initial estimate. Why not? When the predictable result will be a small percentage fine and keep the rest. Now that's MAGA!

If the individual retail – Mom and Pop – investor actually had a choice of where to put their cash money, then no one with better than a fifth-grade education would put a penny into the major stock markets. However, the goal of the many banking manipulations have had one goal: eliminate financial investment choices to one – stocks.

One choice, Gold and silver, the previous historical champion alternative in preserving one's wealth, was deliberately eliminated from short-term, private investment. The banks, issued and sold massive amounts of worthless certificate gold and derivative gold (not bullion), and the same in silver, at a current ratio of 272 paper instruments to one measly ounce of real physical gold. All this has been leveraged against real precious metals, and next used to influence the price of gold-down- by selling huge tranches of these ostensibly worthless gold contracts (1 contract=100 paper ounces) within seconds when the spot price of gold begins to rise. The banks have done this so often that gold has not risen to levels it would likely reach without this manipulation. This has driven massive liquidity that would have gone to precious metals towards stocks. This is likely evidenced by the advent of the meteoric rise in the price of BitCoin, one that-like gold- escapes the bank's control and a super-inflated stock market.

Similarly, thanks to the economic trickery that has been three rounds of Quantitative Easing, the other two conventional options; the bond market and personal bank savings accounts, have been manipulated to also produce a very low rate of return, driving these cash funds to stocks. It is this entire package of criminality – providing no other place for liquidity to go – that has performed as the plot to push a surging world stock market to obscene levels that have no basis in factually-based accounting or economic methods or history.

Banks Are Ready for the Next Crash – You're Not!

The banks know the next crash is coming. Like 2007, they have set in motion the next great(est) recession. Predator banks know that most people, thanks to the aforementioned financial control, media omission and an inferior education system, are "stupid," especially regarding the nuances of financial fraud. As the majority of Americans and Europeans live in the illusion that their financial institutions will protect their savings, they miss their bank's greedy preparations for the next stock market crash slithering through the halls of their Parliament or Congress. This already completed legislation states in plain English, and the language of endemic corruption, that your bank intends to steal your money directly from your savings account. And your government will let them do this to you.

30,000 pages make up the Dodd-Frank post-recession legislation, authored by the banks in the aftermath of the Great Recession. The Dodd-Frank legislation was touted as eliminating the massive bail-outs the US gave virtually every ill-defined too big to fail worldwide bank and US corporation in 2008-9. In reality, Dodd-Frank was as much a fraud against Americans as LIBOR or COMEX manipulation, et al .

Title II of the media-acclaimed 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act provides the Federal Deposit Insurance Corporation (FDIC) with new powers and methods to again guarantee – first and foremost – the massively leveraged derivatives trade once this massive leverage plummets as it did with AIG in 2007-09. However, that collapse was singular. The next will include all banking sectors.

The bank's paid-for politicians made sure a post-crash congress did not regulate derivatives via Dodd-Frank, and thereby encouraged a further increase in this financial casino betting, despite it being the root cause of the original problem. Thanks to Dodd-Frank and its predecessor, the 2005 Bankruptcy Act, Congress made sure these new fraudulent bets on stock market manipulation would surely be paid. But, not to worry; there would be no more "Bail Outs." Next time, these banks would use their depositors' savings, including yours. Meet: the "Bail-In."


All Americans recall the massive "Bail-Outs" of 2007-9 and how their corporately controlled Federal Reserve Bank and an equally controlled US Congress threw several trillions of US taxpayer dollars at US banks, dozens of foreign banks, and any corporation with enough political pull to be defined as "Too Big To Fail" (TBTF). In the aftermath a year later, the banks understood that Americans and European citizens had lost enthusiasm for any future government Bail-Out, most preferring instead that any institution suffering self-inflicted financial duress should enjoy the fruits of their crimes next time, via the reality of formal bankruptcy proceedings.

The will or financial safety of the public is, of course, no concern to criminal corporations, and so easily circumvented via congress and the president. So, the banksters have redefined their criminality using two newly defined methods, both rebranded to be far more palatable to the public.

Currently, "Too Big to Fail," (TBTF) has a very fraudulent and elitist connotation just like, "Bail-Out." To millions across the world who have lost their homes, pension funds, retirement plans, and dreams, this decade-old moniker for financial oppression and fraud has now been conveniently re-branded. The bailed-out TBTF banks now have a far more magnificent definition: TBTFs are now, "Globally Active, Systemically Important, Financial Institutions" (G-SIFI).

This sounds so much better.

But, "Bail-Out"? No No. Would you not prefer a "Bail-In"? Not if you know the details. "Bail-Outs," may have also lost their flavour but in the new world of the G-SIFI, the next one is actually just a "Bail-In," away.

Yes, Bail-Ins, the new "systemically" correct term for publicly guaranteed bank fraud are already named as such in new national policies and laws, appearing in multiple countries. These finance laws, such as Dodd-Frank and its pending UK and European Union version, make upcoming Bail-Ins legal. These Bail-Ins allow failing G-SIFI banks to legally convert the funds of "unsecured creditors" (that's you) into bank capital (that's them). This includes "secured" creditors, like state and local government funds.


With this in mind, I entered the main branch of Wells Fargo. The two checks in hand. On the way in I was greeted warmly, one after the other, by three more fresh-faced and eager proteges, all smartly uniformed to match the Wells décor, and who proffered, "Good morning, Sir!," again, and again and again. Certainly, these little fish were not in possession of authority enough to cash my mammoth checks, so I asked for bigger game, the Branch Manager.

Thus, I explained my plight to a very lovely lass who predicted she "would be glad to help me."

"Cheryl," patiently explained that I had come to the right place and she would be glad to cash both checks. Regarding my previous polite banking experience, she admitted that it was indeed bank policy to have limits on the availability of cash for withdrawals and that different branches had different limits. This was the main branch so my request here was meritorious. Further, she admitted that whatever daily cash coming into the branches in the form of deposits was not available for withdrawal, but was sent from the main branch for daily accounting at a central point common to all area Wells bank branches. Only a prescribed amount of cash was provided with each bank for daily customer cash withdrawals.


"A couple of times your current request," was her cautious response to my question about her branch's limits on check cashing. Not to be put-off, I asked about a hypothetical US$25,000 check. She admitted this would be beyond her branches authority. "But," she smiled, "Today, you've come to the right place."

The financial law firm Davis Polk estimates the final length of Dodd-Frank, the single longest bill ever passed by the US government, is over 30,000 pages. Before passage, the six largest banks in the US spent $29.4 million lobbying Congress in 2010 and flooded Capitol Hill with about 3,000 lobbyists prior to Obama predictably signing its final unread version. No US congressman or senator had read it. But, the bank's congressional minions were told to vote for it. And dutifully they did.

The major cause of the upcoming financial meltdown, as with the pre-2008 conditions, is globally systemic gambling against national economies, called derivatives. Derivatives are sold as a kind of betting insurance for managing fraudulent banking profits and risk. So, why fix systemic banking fraud when the final result allowed these same banks to make even more money in the aftermath of the national and personal financial destruction they originated in the first recession?

Instead, thanks to Dodd-Frank, derivatives suddenly have "super-priority" status in any bankruptcy. The Bank for International Settlements quoted global OTC derivatives at $632 trillion as of December 2012. Naked Capitalism states that $230 trillion in worthless derivatives are on the books of US banks alone. Applied to Dodd-Frank this means that all these bad bank bets on derivatives will be paid-off first before you may have your savings cash. If there's actually any cash left once you get to the teller's counter.

Normally in a capital liquidation or bankruptcy proceeding, secured creditors such as a bank's personal depositors are paid off first because these are hard assets, not investments, and thus normally have a mandated priority. Under these new "Bail-In" Dodd-Frank mandates, your government has re-prioritized your bank's exposure and your cash deposit. Derivatives and other similar banking high-risk ventures are now more highly protected than bank depositor's savings. In the 2013 example of Cyprus, Germany and the ECB also made depositors inferior to other bank holdings leaving depositors with, after many months, a small fraction of their deposits.

And then came Greece.

Selling the lie while using the language of Dodd-Frank, we are told by media whores that banks will not be given taxpayer bailouts next time. True. The preamble to the Dodd-Frank Act claims "to protect the American taxpayer by ending bailouts." But how, then, to Bail-In the G-SIFIs without another taxpayer Bail-Out? No problem.

Enter the FDIC and another new banking term, "cross-border bank resolution." As the sole US agency required to pay back depositors who lose savings up to $250,000, FDIC is armed with a paltry US$25 billion war chest to pay depositors. Under Dodd-Frank, the FDIC will be the mechanism to replace deposits lost or squandered by bank fraud. The public, however, has an estimated total US cash deposits of US$7.36 trillion so, once the banks steal your savings, FDIC will be just a little bit short of funds. How to fix this mathematical shortfall? With, of course, more of your money via emergency taxes or a massive new round of Quantitative Easing (QE). Either way, by the time this happens your money is long gone. And it gets worse.


Say, "Goodbye" to your Savings- Two Greedy Methods

It's [FDIC] already indicated that they will confiscate [savings] funds .

-- US congressman Ron Paul

On December 10, 2012, a joint strategy paper was drafted by the Bank of England (BOE) in conjunction with the Federal Deposit Insurance Corporation (FDIC) titled, "Resolving Globally Active, Systemically Important, Financial Institutions." Here the plot to steal depositor savings is clearly laid out.

The report's "Executive Summary" states:

the authorities in the United States (US) and the United Kingdom (UK) have been working together to develop resolution strategies These strategies have been designed to enable [financial institutions] to be resolved without threatening financial stability and without putting public funds at risk.

Sounds good until you read the fine print; i.e., whose risk are they actually protecting?

While claiming to protect taxpayers, Title II of Dodd-Frank gives the FDIC an enforcement arm, the Orderly Liquidation Authority (OLA) which is similar to its British counterpart the Prudent Regulation Authority (PRA). Both now have the authority to punish the personal depositors of failing banking institutions by arbitrarily making their savings deposits subordinate – actually tertiary – to bank claims for the replacement value of their derivatives. Before Dodd-Frank savings deposits were legally senior and primary to these same claims in a routine bankruptcy.

With the US banks holding only $7 trillion in personal cash savings deposits compared to $230 trillion is US derivative obligations, FDIC's $25 billion will not be enough. The creators of Dodd-Frank knew this before it was signed. As John Butler points out in an April 4, 2012, article in Financial Sense :

Do you see the sleight-of-hand at work here? Under the guise of protecting taxpayers, depositors are to be arbitrary, subordinated when in fact they are legally senior to those claims Remember, its stated purpose [Dodd-Frank] is to solve the problem namely the existence of insolvent TBTF institutions that were "highly leveraged with numerous and dispersed financial operations, extensive off-balance-sheet activities, and opaque financial statements.

Oh, but bank depositors can rest easy in the knowledge that replacing their savings will not come out of their pockets via another bank Bail-Out. Thanks to Dodd-Frank, the first line of defence will allow Congress to instead replace personal savings with a government paid for $7 trillion bail-in to FDIC to "replace" these savings.

But, that's the good choice.

Worse, Dodd-Frank gives new powers to FDIC and its OLA that allow an even more powerful and draconian resolution: any deposited funds in a bank, from $1 to $250,000 (the FDIC limit), and everything above, can instead be converted to bank stock! FDIC has provisions so this can be done, via OLA, quite literally overnight.


An FDIC report released in 2012 ago reads:

An efficient path for returning the sound operations of the G-SIFI to the private sector would be provided by exchanging or converting a sufficient amount of the unsecured debt from the original creditors of the failed company [meaning the depositor's cash] into equity [or stock].

Additionally, per April 24, 2012 IMF report, conversion of bank debt to stock is an essential element of Bail-Ins included in Dodd-Frank.

The contribution of new capital will come from debt conversion and/or issuance of new equity, with an elimination or significant dilution of the pre-bail in shareholders. Some measures might be necessary to reduce the risk of a 'death spiral' in share prices.


For affected depositors to retrieve the value of what was formerly the depositor's account balance, the stock must next be sold. When Lehman Brothers failed, unsecured creditors (depositors are now unsecured creditors) got eight cents on the dollar.

This type of conversion of deposits into equity already had another test-run during the bankruptcy reorganization of Bankia and four other Spanish banks in 2013. The conditions of a July 2012 Memorandum of Understanding resulted in over 1 million small depositors becoming stockholders in Bankia when they were sold without their permission -- "preferences" (preferred stock) in exchange for their missing deposits. Following the conversion, the preferences were converted into common stock originally valued at EU 2.0 per share, then further devalued to EU 0.1 after the March restructuring of Bankia.

Canada has also stated they are planning a similar "Bail-In" program. The Canadian government released a document titled the Economic Action Plan 2013 which says, "the Government proposes to implement a "Bail-In" regime for systemically important banks."

However, don't be getting cute by hiding your cash, precious metals, or passport in a bank safe deposit box. There are no longer safe either. Dodd-Frank took care of that, too.

Under Dodd-Frank the FDIC, using the auspices of Dept. of Homeland Security (DHS) can legally, without a warrant, enter the bank vault, have the manager secretly open any and/or all safe deposit boxes and inventory, or seize the contents. Further, if the manager is honest enough to inform the depositor of the illegal incursion he is subject to criminal charges and termination from bank employ. Independent reports reveal that all of America's safe deposit boxes have already been invaded and inventoried for future confiscation.

This already happened in Greece. Depositors who removed their jewellery or precious metals were met at the bank's door by security, a metal detector and confiscation.


The power of the now remaining G-SIFI banks and FDIC was further evident when, cash finally in hand, I headed to my bank, JP Morgan Chase, right next door to Wells Fargo. The manager confirmed that the cash withdrawal policy at Chase was in keeping with that at Wells; very little cash available on demand. I posed a slight untruth and inquired as to what I should do about my upcoming need for $50,000 in hard cash. No, her bank would not do that on demand, but arrangements could be made to have the cash transferred to her bank. That would only take "about two days." Of course, I would need to fill out a few forms.

What a Difference a Congress Makes!

With the American and UK public again on the hook by law for the anticipated loss of the banks a distressed depositor might think the plot to defraud them now complete. Au Contraire .

In its rush to transfer further wealth upwards to off-shore bank accounts, US president Trump and his recently re-aligned republican bootlickers have left no stone unturned. First, Trump issued a memorandum that sets in motion his plan to scale back the provisions of Dodd-Frank and repeal the Fiduciary Rule.

It should be noted that the only voice of economic reason at the White House, Former Fed Chairman, Paul Volker, divorced himself from this growing scandal of basic mathematics very publicly. As head of Obama's recession inspired, President's Economic Recovery Advisory Board, Volker ran into the headwinds of fiscal insanity for too long, resigning in January of 2011 in disgust. His departure thus coincided with the renewal of the litany of criminal financial manipulation already discussed here. And now

The House approved legislation on February 2, 2017, to erase a number of core financial regulations put in place by the 2010 Dodd-Frank Act, as Republicans moved a step closer to delivering on their promises to eliminate rules that they claim have strangled small businesses and stagnated the economy. Said Trump:

I have so many people, friends of mine, with nice businesses, they can't borrow money, because the banks just won't let them borrow because of the rules and regulations and Dodd-Frank.

Poor banks!

Never mind, of course, that these poor banks are holding derivative exposure thirty-five times the total cash deposits of US savers nor that their ill-gotten riches – such as the UBS, Wells Fargo, Bank of America, RBS multi-billion dollar frauds – were taken off-calendar in Federal court for approximately 15% of the total crime. The banks kept the rest.

And they want more?!

"We expect to be cutting a lot out of Dodd-Frank," Trump said further defining the mantra of MAGA. This will likely see the deterioration of the newly created Financial Stability Oversight Council (FSOC) and the Consumer Financial Protection Bureau (CFPB) since these agencies curb further excessive risk-taking and the existence of too-big-to-fail institutions on Wall Street.

Well, depositors, your extreme caution is required. The wording of these new, bank-inspired sets of legislation is silently waiting to be used by many nations to prioritize banks before their citizen's. When the time comes, the race to the bank will be a short-lived event indeed.

With this in mind, I stepped into the bright sunshine outside the walls of JP Morgan/Chase bank, all but $100.00 of my day's take stuffed deep- and securely- in my pocket, its final outcome no one's business but my own.

However, for almost everyone else? Well when YOUR bank fails, don't walk, run! YOU do not want to be second in line.


Brett Redmayne-Titley is an Independent Journalist, Photographer/ World Citizen. He is a former columnist: PRESS TV/IRAN; writer and contributor to: Earth First! Journal; Zero Hedge; Veterans Today; Activist Post; Off-Guardian; Western Journalism; Intellihub; UK Progressive; Fars News Agency; Russia Insider; Mint Press News; State of the Nation; News of Globe; Blacklisted News; Before It's News; Common Dreams; Shift Frequency; etc

Read other articles by Brett .

This article was posted on Thursday, January 11th, 2018 at 8:01am and is filed under Banks , Barack Obama , Cyprus , Deposits/Depositors , Donald Trump , EU , Greece , Money supply , Wall Street .

[Dec 26, 2017] BotCoin: Bitcoins are pure speculative assets which enable people to gamble. by Robert Waldmann

Notable quotes:
"... They have behaved badly with an unstable value of bitcoin (huge unpredictable Bitcoin deflation damages any use of bitcoin as a means of exchange as much as huge inflation would). ..."
"... Now no one is really interested in cryptocurrency except as a way to gamble and take money from fools. But if anyone were, linking the blockchain program to prices on an exchange would make it more nearly possible to use the cryptocurrency as a means of exchange. ..."
"... The system is vulnerable to a tacit agreement to trade only on unofficial exchanges. It is necessary that the problem is also made easier if daily trading volume on the official exchange is zero. The problem is the price could shoot up on unofficial exchanges, but this would not affect the price on the official exchange if there were no transactions on the official exchange. ..."
"... The basis was and remains to remove any and all national gov'ts across he globe from any influences on values of currencies, thus pure laissez-faire in the extreme .. as you say libertarian chaos. ..."
"... There is a much more severe problem with bitcoin. As the number mined asymptotically approaches the pre-determined maximum, the cost of mining approaches infinity. As miners are the ones who validate coins, what will happen to the reliability of bitcoin when it becomes uneconomical for anyone to participate in mining? ..."
Dec 25, 2017 |

I am going to make a fool of myself by suggesting that a cryptocurrency might actually be useful. Bitcoin et al have negative social utility. They are pure speculative assets which enable people to gamble. Also bitcoin miners use as much electricity as Denmark. The problem is exactly the aspect which has made bitcoin famous and which bitcoin enthusiasts consider a strength -- the enormous increase in the dollar price of bitcoin. This increase, and the recent sharp decline, make bitcoin useless as a means of exchange. Most firms don't want to gamble.

So I (semi-seriously this time) propose botcoin which might have a more stable dollar exchange rate. The idea is to link the blockchain verification program to an official exchange.

Backing up, there are two very different sorts of web-servers related to bitcoin. One set, the bitcoin miners, implements the original idea using the Bitcoin shareware. They keep a copy of the ledger of all bitcoin transactions -- the blockchain, race to create new blocks, and evaluate new blocks and add valid new blocks to the chain. The other servers are bitcoin exchanges in which bitcoin is traded for regular currency. They are not part of the original plan in which bitcoin would be traded for goods and services and function as a means of exchange. They have behaved badly with an unstable value of bitcoin (huge unpredictable Bitcoin deflation damages any use of bitcoin as a means of exchange as much as huge inflation would).

I propose linking the blockchain program to an exchange. So there would be an official botcoin exchange (this means it isn't entirely free-entry shareware libertarian anarchism). If anyone were interested in a new cryptocurrency designed so that speculators can't become rich (and pigs fly) there would be other unofficial exchanges.

The bitcoin program regulates the frequency of creation of new blocks to roughly one every six minutes. It does this by adjusting the difficulty of the pointless arithmetic problem which must be solved to make a new valid block. The idea was to limit the total amount of bitcoin which will ever be created (to 21 million for some reason). This was supposed to make bitcoin valuable. So far it has succeeded all too well (I am confident that in the end bitcoin will have price 0).

It is possible to make the supply of botcoin flexible so the dollar price doesn't shoot up. I would aim at a price of, say, 1 botcoin = $1000. The idea is to make the pointless problem which must be solved to add a block easier if the dollar price of botcoin exceeds the target, and harder if it falls below the target. This should stabilize the price.

Now no one is really interested in cryptocurrency except as a way to gamble and take money from fools. But if anyone were, linking the blockchain program to prices on an exchange would make it more nearly possible to use the cryptocurrency as a means of exchange.

The system is vulnerable to a tacit agreement to trade only on unofficial exchanges. It is necessary that the problem is also made easier if daily trading volume on the official exchange is zero. The problem is the price could shoot up on unofficial exchanges, but this would not affect the price on the official exchange if there were no transactions on the official exchange.

Lyle , December 25, 2017 11:22 pm

Of course Goldman Sachs and its competitors are doing just this building an options and futures exchange. (it is not really that much different than any other futures and options business)

Longtooth , December 26, 2017 5:01 am

But Robert,

then the entire foundation for Bitcoin's purpose disappears entirely, so what advantage remains?

The basis was and remains to remove any and all national gov'ts across he globe from any influences on values of currencies, thus pure laissez-faire in the extreme .. as you say libertarian chaos.

By making crypto-currency values subject to national currency exchange rates they cease to have any reason to exist at all.

We / globally in fact already use crypto exchange via electronic transactions .. adding block chain to it would be a benefit but a separate cryptocurrency is a worthless redundancy if it is subject to valuation by exchange rates of national currencies.

What am I missing?.

likbez , December 26, 2017 5:27 am

Great Article !!! I wish I can write about this topic on the same level. Thank you very much. P.S. Happy New Year for everybody !

rick shapiro , December 26, 2017 10:26 am

There is a much more severe problem with bitcoin. As the number mined asymptotically approaches the pre-determined maximum, the cost of mining approaches infinity. As miners are the ones who validate coins, what will happen to the reliability of bitcoin when it becomes uneconomical for anyone to participate in mining?

[Jun 27, 2017] Inflation and money velocity

Notable quotes:
"... It implies that it is money supply that contributes to inflation. However it is not money supply that contributes to inflation it is income. That is money times the velocity of money ..."
Jun 27, 2017 |

djb , June 27, 2017 at 02:56 AM

Now I just read an article by some guy with the typical quantitative easing is bad because it just dilutes everyones wealth , debases the currency value and and all that

This is nonsense

It implies that it is money supply that contributes to inflation. However it is not money supply that contributes to inflation it is income. That is money times the velocity of money

and in fact it is not income that contributes to inflation it is income times the propensity to consume of that income

money in bonds is not really actively involved in income except for the interest it's earning

so when the central bank "prints money" and then uses that money to buy bonds all the central bank is doing is exchanging one form of inactive wealth with another form of inactive wealth

that is neither the value of the bond nor the value of the money that the fed printed by the bond were actively involved in income anyway, except for the interest earned

therefore they do not affect inflation

in fact the value that bond at this point wasn't about to be used for consumption anyway, it was just being held

after the fed purchases the bond, that the former bondholder now has cash that is no longer getting a return, (as now the fed is getting the return)

which will prompt the former bondholder to look for a place to put that money

the idea is that the former bondholder will invest the money, that that money will find its way into funding ventures that cause increased employment, income and production

and it is that investment that will stimulate the economy

like maybe buy other bonds and the issuer of the bond gets that money and can invest in their business, creating jobs and income and production for their employees.

Which then will have the usual multiplier effect if we are at less than full employment

and at any point the fed can sell back the bond reducing the money supply

in the meantime we might have been able to keep the economy functioning at a high level, keep more people from being excluded from the benefits, and not lose all that production that is so essential to increasing our quality of life

djb -> djb... , June 27, 2017 at 02:58 AM
another way to look at inactive money is to say that part of the money supply has no velocity, ie it is not contributing to income.

[Jun 11, 2017] Estimates vary, but some believe 90% of all gold mined in 5000 years is still held by humans as property.

Jun 11, 2017 |

djb , June 09, 2017 at 02:09 PM

"Bitcoin and the conditions for a takeover of fiat money - longandvariable"

conditions are:

"hell freezing over"

DrDick - , June 09, 2017 at 04:27 PM
Pretty much. Bitcoin really is the quintessential "fiat money" (a redundancy, since all money is fiat currency, even gold and silver).
cm - , June 09, 2017 at 10:07 PM
I would say precious metals are subject to tighter physical constraints (first of all, availability) than most of what have been considered "fiat" currencies.

E.g. emergency "fiat" coin has been produced from cheaper metals, e.g. iron, aluminum, or brass. Forgery-resistant paper currency is not cheap, but probably still cheaper than precious metals.

All that is beside the point - today's currencies are only virtual accounting entries (though with a not so cheap supervision and auditing infrastructure attached to enforce scarcity, or rather limit issuance to approved parties).

mulp - , June 10, 2017 at 03:00 PM
Money is proxy for labor.

Gold and silver prices are determined by labor costs of production.

Cartels act to limit global supply to push prices above labor costs, but even the Cartels have trouble resisting selling into the market when the price far exceeds labor cost of the marginal unit of production.

In today's political economy, the barrier to entry is rule of law which requires paying workers to produce without causing harm to others. The lowest cost new gold production is all criminal, involving theft of gold from land the miners have no property rights, done by causing harm and death to bystanders, with protection of the criminal operations coming from criminals who capture most of the profit from the workers.

Estimates vary, but some believe 90% of all gold mined in 5000 years is still held by humans as property. If a method of extracting gold from sea water at a labor cost of $300 an ounce, the "destruction of wealth" would be many trillions of dollars.

All that's needed is a method of processing sea water that could be built for $300 per ounce of lifetime asset life. A $300 million in labor cost processing ship that kept working for 30 years producing over that 30 years a million ounces of gold would quickly drive the price of gold to $350-400. If it doesn't, a thousand ships would be quickly built that would add a billion ounces to the global supply in 30 years representing 1/6th global supply after 5000 years.

Unless gold suddenly gained new uses, say dresses that every upper middle class women had to have, and that cost more than $300 an ounce to return to industrial gold, such production would force the price of gold to or below labor cost.

However, a dollar coin plated one atom thick in 3 cents of gold will always have a value of a dollar's worth of labor. The number of minutes of labor or the skills required for each second of labor can change, but as long as the dollar buys labor, it will have a dollar of value.

If robots do all the work, then a dollar becomes meaningless. A theoretical economy of robots doing all the work means a car can be priced at a dollar or a gigadollars, but the customers must be given that dollar or that gigadollars, or the robots will produce absolutely nothing. Robots producing a million cars a month which no one has the money to buy means the cars cost zero. To simply produce cars that are never sold means the marginal cost is zero.

cm - , June 11, 2017 at 10:26 AM
Money is a rationing mechanism to control the use and distribution of scarce economic resources. Labor (of various specializations) is a scarce resource, or the scarcest resource commanding the highest price, only if other resources are more plentiful.

There are many cases where labor, even specialized labor, is not the critical bottleneck, and is not the majority part of the price. E.g. in the case of patents where the owner can charge what the market will bear due to intellectual property enforcement. Or any other part of actual or figurative "toll collection" with ownership or control of critical economic means or infrastructure. That's pure rent extraction.

Some things cost a lot *not* because of the labor involved - a lot of labor (not spent on producing the actual good) can be involved because the obtainable price can pay for it.

DrDick - , June 11, 2017 at 11:57 AM
The value of precious metals or gems is also entirely arbitrary. They only have value because someone says they do, as they have little utilitarian value.
cm - , June 09, 2017 at 10:14 PM
The initial allure of bitcoin has been "anonymity", until people figured out that all transactions are publicly recorded with a certain amount of metadata. This can be partially defeated by "mixing services", i.e. systematic laundering. There have also been alleged frauds (complete with arrests) that got a lot of press in the scene, where bitcoin "safekeeping services" (I don't quite want to say "banks") "lost" currency or in any case couldn't return deposits to depositors. No deposit insurance, not much in the way of contract enforcement, etc.

Then there were stories about computer viruses and malware targeted at stealing account credentials or "wallet files".

DrDick - , June 11, 2017 at 12:00 PM
FWIW, I regard bitcoin as a colossal folly intended to appeal to crazed libertarian idiots, goldbug nutters, and criminals and has little utility or real value. Investing in bubble gum cards makes more sense.
DrDick - , June 11, 2017 at 12:01 PM
It is also the ultimate pyramid scheme.

[Apr 25, 2017] The Operation and Demise of the Bretton Woods System: 1958 to 1971

Notable quotes:
"... By Michael Bordo, Professor of Economics, Rutgers University. Originally published at VoxEU ..."
"... See original post for references ..."
"... Greatest scam in history. ..."
"... So, it's not 'out of thin air. It's back by the might of the Pentagon mightier than gold. ..."
"... It is hard to believe in can continue much longer despite of Bordo's view that it will. ..."
Apr 25, 2017 |
Posted on April 25, 2017 by Yves Smith Yves here. The article makes a comment in passing that bears teasing out. The inflation that started in the later 1960s was substantially if not entirely the result of Lyndon Johnson refusing to raise taxes because it would be perceived to be to pay for the unpopular Vietnam War. Richard Nixon followed that approach.

By Michael Bordo, Professor of Economics, Rutgers University. Originally published at VoxEU

Scholars and policymakers interested in the reform of the international financial system have always looked back to the Bretton Woods system as an example of a man-made system that brought both exemplary and stable economic performance to the world in the 1950s and 1960s. Yet Bretton Woods was short-lived, undone by both flaws in its basic structure and the unwillingness of key sovereign members to follow its rules. Many commentators hark back to the lessons of Bretton Woods as an example to possibly restore greater order and stability to the present international monetary system. In a recent paper, I revisit these issues from over a half century ago (Bordo 2017).

The Bretton Woods system was created by the 1944 Articles of Agreement at a global conference organised by the US Treasury at the Mount Washington Hotel in Bretton Woods, New Hampshire, at the height of WWII. It was established to design a new international monetary order for the post war, and to avoid the perceived problems of the interwar period: protectionism, beggar-thy-neighbour devaluations, hot money flows, and unstable exchange rates. It also sought to provide a framework of monetary and financial stability to foster global economic growth and the growth of international trade.

The system was a compromise between the fixed exchange rates of the gold standard, seen as conducive to rebuilding the network of global trade and finance, and the greater flexibility to which countries had resorted in the 1930s to restore and maintain domestic economic and financial stability. The Articles represented a compromise between the American plan of Harry Dexter White and the British plan of John Maynard Keynes. The compromise created an adjustable peg system based on the US dollar convertible into gold at $35 per ounce along with capital controls. The compromise gave members both exchange rate stability and the independence for their monetary authorities to maintain full employment. The IMF, based on the principle of a credit union, whereby members could withdraw more than their original gold quotas, was established to provide relief for temporary current account shortfalls.

It took close to 15 years to get the Bretton Woods system fully operating. As it evolved into a gold dollar standard, the three big problems of the interwar gold exchange standard re-emerged: adjustment, confidence, and liquidity problems.

The adjustment problem in Bretton Woods reflected downward rigidity in wages and prices which prevented the normal price adjustment of the gold standard price specie flow mechanism to operate. Consequently, payment deficits would be associated with rising unemployment and recessions. This was the problem faced by the UK, which alternated between expansionary monetary and fiscal policy, and then in the face of a currency crisis, austerity – a policy referred to as 'stop-go'. For countries in surplus, inflationary pressure would ensure, which they would try to block by sterilisation and capital controls.

A second aspect of the adjustment problem was asymmetric adjustment between the US and the rest of the world. In the pegged exchange rate system, the US served as central reserve country and did not have to adjust to its balance of payments deficit. It was the n-1th currency in the system of n currencies (Mundell 1969). This asymmetry of adjustment was resented by the Europeans.

The US monetary authorities began to worry about the balance of payments deficit because of its effect on confidence . As official dollar liabilities held abroad mounted with successive deficits, the likelihood increased that these dollars would be converted into gold and that the US monetary gold stock would eventually reach a point low enough to trigger a run. Indeed by 1959, the US monetary gold stock equalled total external dollar liabilities, and the rest of the world's monetary gold stock exceeded that of the US. By 1964, official dollar liabilities held by foreign monetary authorities exceeded that of the US monetary gold stock (Figure 1).

Figure 1. US gold stock and external liabilities, 1951-1975

Source : Banking and Monetary Statistics 1941‐1970, Washington DC Board of Governors of the Federal Reserve System, September 1976, Table 14.1, 15.1.

A second source of concern was the dollar's role in providing liquidity to the rest of the world. Elimination of the US balance of payments deficits (as the French and Germans were urging) could create a global liquidity shortage. There was much concern through the 1960s as to how to provide this liquidity.

Robert Triffin (1960) captured the problems in his famous dilemma. Because the Bretton Woods parities, which were declared in the 1940s, had undervalued the price of gold, gold production would be insufficient to provide the resources to finance the growth of global trade. The shortfall would be met by capital outflows from the US, manifest in its balance of payments deficit. Triffin posited that as outstanding US dollar liabilities mounted, they would increase the likelihood of a classic bank run when the rest of the world's monetary authorities would convert their dollar holdings into gold (Garber 1993). According to Triffin when the tipping point occurred, the US monetary authorities would tighten monetary policy and this would lead to global deflationary pressure. Triffin's solution was to create a form of global liquidity like Keynes' (1943) bancor to act as a substitute for US dollars in international reserves.

Policies to Shore Up the System

The problems of the Bretton Woods system were dealt with by the IMF, the G10 plus Switzerland, and by US monetary authorities. The remedies that followed often worked in the short run but not in the long run. The main threat to the system as a whole was the Triffin problem, which was exacerbated after 1965 by expansionary US monetary and fiscal policy which led to rising inflation.

After a spike in the London price of gold to $40.50 in October 1960 – based on fears that John F Kennedy, if elected, would pursue inflationary policies – led the Treasury to develop policies to discourage Europeans from conversing dollars into gold. These included:

The US Treasury, aided by the Federal Reserve, also engaged in sterilised exchange market intervention.

The main instrument used by the Fed to protect the gold stock was the swap network. It was designed to protect the US gold stock by temporarily providing an alternative to foreign central bank conversion of their dollar holdings into gold. In a typical swap transaction, the Federal Reserve and a foreign central bank would undertake simultaneous and offsetting spot and forward exchange transactions, typically at the same exchange rate and equal interest rate. The Federal Reserve swap line increased from $900 million to $11.2 billion between March 1962 and the closing of the gold window in August 1971 (see Figure 2 and Bordo et al. 2015)

Figure 2. Federal Reserve swap lines, 1962 –1973

Source : Federal Reserve System.

The swaps and ancillary Treasury policies protected the US gold reserves until the mid-1960s, and were viewed at the time as a successful policy.

The Breakdown of Bretton Woods, 1968 to 1971

A key force that led to the breakdown of Bretton Woods was the rise in inflation in the US that began in 1965. Until that year, the Federal Reserve Chairman, William McChesney Martin, had maintained low inflation. The Fed also attached high importance to the balance of payments deficit and the US monetary gold stock in its deliberations (Bordo and Eichengreen 2013). Beginning in 1965 the Martin Fed shifted to an inflationary policy which continued until the early 1980s, and in the 1970s became known as the Great Inflation (see figure 3).

Figure 3 . Inflation rates

Source : US Bureau of Labor Statistics, IMF (various issues).

The shift in policy mirrored the accommodation of fiscal deficits reflecting the increasing expense of the Vietnam War and Lyndon Johnson's Great Society.

The Federal Reserve shifted its stance in the mid-1960s away from monetary orthodoxy in response to the growing influence of Keynesian economics in the Kennedy and Johnson administrations, with its emphasis on the primary objective of full employment and the belief that the Fed could manage the Phillips Curve trade-off between inflation and unemployment (Meltzer 2010).

Increasing US monetary growth led to rising inflation, which spread to the rest of the world through growing US balance of payments deficits. This led to growing balance of payments surpluses in Germany and other countries. The German monetary authorities (and other surplus countries) attempted to sterilise the inflows but were eventually unsuccessful, leading to growing inflationary pressure (Darby et al. 1983).

After the devaluation of sterling in November 1967, pressure mounted against the dollar via the London gold market. In the face of this pressure, the Gold Pool was disbanded on 17 March 1968 and a two-tier arrangement put in its place. In the following three years, the US put considerable pressure on other monetary authorities to refrain from converting their dollars into gold.

The decision to suspend gold convertibility by President Richard Nixon on 15 August 1971 was triggered by French and British intentions to convert dollars into gold in early August. The US decision to suspend gold convertibility ended a key aspect of the Bretton Woods system. The remaining part of the System, the adjustable peg disappeared by March 1973.

A key reason for Bretton Woods' collapse was the inflationary monetary policy that was inappropriate for the key currency country of the system. The Bretton Woods system was based on rules, the most important of which was to follow monetary and fiscal policies consistent with the official peg. The US violated this rule after 1965 (Bordo 1993).


The collapse of the Bretton Woods system between 1971 and 1973 led to the general adoption by advanced countries of a managed floating exchange rate system, which is still with us. Yet this outcome (at least at the time) was not inevitable. As was argued by Despres et al. (1966) in contradistinction to Triffin, the ongoing US balance of payments deficit was not really a problem. The rest of the world voluntarily held dollar balances because of their valuable service flow – the deficit was demand-determined. In their view, the Bretton Woods system could have continued indefinitely. This of course was not the case, but although the par value system ended in 1973 the dollar standard without gold is still with us, as McKinnon (1969, 1988, 2014) has long argued.

The dollar standard was resented by the French in the 1960s and referred to as conferring "the exorbitant privilege" on the US, and the same argument was made in 2010 by the Governor of the Central Bank of China. However, the likelihood that the dollar will be replaced as the dominant international currency in the foreseeable future remains remote. The dollar standard and the legacy of the Bretton Woods system will be with us for a long time.

See original post for references

0 0 5 0 0 This entry was posted in Currencies , Economic fundamentals , Globalization , Guest Post , Macroeconomic policy , The dismal science on April 25, 2017 by Yves Smith . Subscribe to Post Comments 59 comments Jim Haygood , April 25, 2017 at 11:00 am

'Because the Bretton Woods parities, which were declared in the 1940s, had undervalued the price of gold, gold production would be insufficient to provide the resources to finance the growth of global trade.'

Twenty years on from Britain's "lost decade" of the 1920s - caused by repegging sterling to gold at the pre-World War I parity - the same mistake was repeated at Bretton Woods. (The US had made the identical error in 1871, which required 25 years of relentless deflation to sweat out Civil War greenback inflation.)

Even as the Bretton Woods conference was underway in 1944, it went unnoticed that the US Federal Reserve had embarked on a vast buying spree of US Treasuries. This was done to peg their yield at 2.5% or below, in order to finance WW II at negative real yields. By 1945, US Treasuries (shown in blue and orange on this chart) loomed larger in the Fed's balance sheet than gold (shown in chartreuse):

Obviously a fixed gold price is utterly incompatible with a central bank expanding its balance sheet with government debt, reducing its gold holdings to the tiny residual that they constitute today.

Bretton Woods might have worked by limiting central banks' ability to monetize gov't securities. Or it might have worked with the gold price allowed to float with expanding central bank assets, according to a formula.

What was lost with Bretton Woods was fixed exchange rates, which are conducive to trade. Armies of traders seeking to extract rents from fluctuations between fiat currencies are a pure deadweight loss to the global economy.

In North America, sharp depreciations of the Mexican and Canadian currencies against the USD are fanning US protectionism, in forms ranging from a proposed border wall to countervailing duties on Canadian lumber and dairy products. What a mess.

Irredeemable fiat currencies are a tribulation visited on humanity. When the central bank blown Bubble III explodes in our fool faces, this insight will be more widely appreciated.

jsn , April 25, 2017 at 1:35 pm

Fiat currency is a tribulation visited on capitalist trade advocates and their financial backers.

International trade, which is hobbled by fiat currencies as you say, was a rounding error in most peoples lives until the Thatcher/Reagan neoliberal innovations.

Since then that rounding error has rounded away most of the distributive properties of the economic systems so distorted to facilitate capital profits through long distance trade that they are impoverishing enough people that Brits vote Brexit, Yanks vote Trump and French vote Le Pen.

Robert NYC , April 25, 2017 at 3:19 pm

Bretton Woods would have worked a lot better if Keynes had won the argument in favor of "bancor", but he was arguing from a position of weakness and lost out.

And yes, when this blows, as it will, it will all become more widely appreciated.

Gman , April 25, 2017 at 5:24 pm


gepay , April 25, 2017 at 8:30 pm

missing from the article is the decision to raise the price of oil in order to put most of the 3rd world into debt slavery. This exasperated the inflation mentioned, caused by US deficits. Because the US was still a manufacturing leader and the Unions were strong – we had the wage price stagflation of the 70's,. The elites solution – Nixon went to China – not to open up a market of a billion people but to make use of a disciplined labor force that would work for cheap – breaking the power of the unions with globalisation aided by computers. The Republicans in the US and Thatcher in England broke the unions in the 80s.Clinton went along in the 90s. Was that plan a factor in the decision to leave the gold standard?

Susan the other , April 25, 2017 at 11:09 am

This was most interesting for its lack of regret for losing a dollar pegged to $35 oz. gold. It is almost a rationale for letting inflation and deficit spending occur because in the end the system using a reserve currency works as good as anything. I do think the expense of the Vietnam war and the obvious policy that it was necessary to allow inflation (from the 70s onward) was incomplete, looking at everything today, because it was based on an assumption that we humans could just aggressively keep growing our way into the future like we had always done. Already in 1970 there were environmental concerns, well-reasoned ones, and global warming was being anticipated. If it had been possible to use a hard gold standard we might not be in this ecological disaster today, but there would have been some serious poverty, etc. The obvious policy today is to put our money into the environment and fix it and by doing that put people to work for a good and urgent cause. As opposed to bombing North Korea; building a Wall to nowhere; giving money to corporations which do not contribute to repairing the planet; and impoverishing people unnecessarily, etc. Money, in the end, is only as valuable as the things it accomplishes.

Robert NYC , April 25, 2017 at 3:29 pm

Wrong on your poverty concept. It is the inflation associated with a reckless fiat monetary system that causes much of the poverty. Prior the fiat era there was minimal inflation. As Keynes explained in his prophetic criticism of the Treaty of Versailles, The Economic Consequences of the Peace, when he called attention to Lenin, of all people:

"By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method, they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls . . . become 'profiteers', who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished not less than the proletariat. As the inflation proceeds . . . all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless.

Lenin was certainly right. There is no subtler, nor surer means of overturning the existing basis of society that to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."

jsn , April 25, 2017 at 5:25 pm

The core problem with hard currency is the power asymmetry of the fixed interest contract in whatever form.

Because costs are constant and growing under such contracts, income requirements become "sticky": in a market reverse, wage earners, renters, mortgage holders etc are obligated by these contracts and cannot accept a cut in their wage unless they have adequate financial reserves. Recessions soak these reserves from debtors to creditors despite the loose underwriting of creditors in the speculative and ponzi phases of the Minsky cycle being the root cause of the business cycle, not profligacy or irresponsibility by wage earners and small business people. In a depression, this liquidationist dynamic starts working its way up the the industrial supply chain, dismantling the actual means of production.

The main potential public benefit of fiat currency is that in such conditions it costs the state nothing to preserve the wealth of those not implicated in causing the collapse and to preserve those means of production. Unfortunately, what we saw in 2008 was Bush/Obama using the innocent victims of the business cycle to "foam the runway" for the institutions that caused it.

Poverty is a simple result of being cut off from possible income sources. To the extent that inflation is managed with what Keynes called "a reserve army of the unemployed", high levels of poverty are assured. In the high wage, high cost era of the New Deal, the intent was take what burden of financial risk could be taken off of workers and small producers and to provide good paying opportunities for one cycle's economic losers to get back on their feet in the next cycle. But this only works with full employment where labor has the power to bid for a share of the overall returns on investments.

OpenThePodBayDoorsHAL , April 25, 2017 at 6:53 pm

I found this fascinating and quite persuasive.
But unless you can posit the existence of a state that will reliably act to "preserve the wealth of those not implicated in causing the collapse and to preserve those means of production" it is just a useless academic exercise. I do not see any such state anywhere in view, with the possible exception of the Chinese, who seem to understand "preserving the means of production" as a state priority. For the West however that idea is a real howler.

Moneta , April 25, 2017 at 7:30 pm

No inflation can also lead to a form of confiscation where you are not letting new entrants (the young) into the game.

No inflation could reflect a form of protectionism.

MyLessThanPrimeBeef , April 25, 2017 at 3:30 pm

If it had been possible to use a hard gold standard we might not be in this ecological disaster today, but there would have been some serious poverty, etc.

Some serious poverty only if because the elites would have been even more neoliberal.

The last gold-standard-free 50 years of innovation and growth have made extinct

1. Shoes that last more than a few months
2. Clothes that you can pass on to future generations
3. Likewise, furniture
4. Milk or Coke in glass bottles

RBHoughton , April 25, 2017 at 7:35 pm

Isn't that because we have evicted competition from our global commercial model and replaced it with planned production so every factory knows the size of its likely market?

Enquiring Mind , April 25, 2017 at 11:18 am

At what point would China, for example, be able to assert more of a reserve currency, or at least alternative, role based on its economic and trade power and build-up of hard and financial assets? Or is their near-term internal surplus recycling through uneconomic lending enough to keep them off-balance for quite a while on the world financial stage? Many in the West are watching the development of the One Belt/One Road infrastructure and shifting country linkages and alliances with grave concern.

jsn , April 25, 2017 at 1:09 pm

The key to reserve status is large external holdings of your monetary instruments: for foreigners to transact in your currency they must have it. China, thus far, fails profoundly on this count, no one has its currency.

The inverse of this is that the best way for the US to end the dollars reserve status is to eliminate the "National Debt", which is in fact nothing other than the inventory if dollar instruments the rest of the world holds in order to be able to spend dollars into our system: eliminate that inventory and the dollar will no longer be a reserve currency.

Oregoncharles , April 25, 2017 at 1:28 pm

This raises the large question of whether "reserve status" is actually beneficial. Apparently it consists largely of being enormously in debt – and in fact, it's been a way for Japanese and Chinese to buy up large chunks of our "means of production." The prosperity of my original home town, Columbus, IN, rests on Japanese "investment." It does mean some good Japanese restaurants in town.

jsn , April 25, 2017 at 3:25 pm

To me the question is, who benefits from it? It has been of great benefit to a very particular set of people here in the US and quite destructive since the 70s to most everyone else.

It is a power relationship that has been used for imperial aims rather than for the good of citizens. It needn't be that way, but as US power has become increasingly unaccountable its abuse of this particular tool has grown.

Robert NYC , April 25, 2017 at 3:54 pm

@jsn, you get it!

Yves Smith Post author , April 25, 2017 at 9:39 pm

No, no, no, no, this is 100% wrong.

First, the US could just as easily deficit spend. We are not "in debt" because the US can always create more dollars to retire Treasury bonds.

The requirement for being a reserve currency is running trade deficits. That does require that furriners take and hold your paper. They prefer bonds or other investments to cash to get some yield.

Running ongoing trade deficits also means that you are using your domestic demand to support jobs overseas. That is the problematic feature, not all of this other noise.

Robert NYC , April 25, 2017 at 3:45 pm

The concept of a reserve currency came about from resolution 9 of the Genoa Monetary Conference of 1922. The idea was that any currency that was convertible to gold was de facto equivalent to gold and therefore an acceptable central bank reserve asset. In other words there is really no such thing as an international reserve currency without gold in the system according to the very reasoning that established the idea. The U.S. pulled off the greatest bait and switch in history when it "suspended" the gold window in 1971. The whole system because an enormous debt based Ponzi scheme after that and we are now dealing with the consequences.

And yes the key to reserve status: is large external holdings of your monetary instruments for foreigners to transact in". But what incentive do they have to hold such a currency and transact in it? Remember they don't need it since they generally run trade surpluses. The answer was, because that currency was convertible to gold. What about now when it is not tied to gold? Why hold the currency of profligate debtor nation? Answer provided in post below.

And anyone who thinks that running large trade and budget deficits is the secret to reserve currency status is a moron. Argentina or Paraguay could just as easily produce the necessary surplus liquidity under that logic.

craazyboy , April 25, 2017 at 4:07 pm

" But what incentive do they have to hold such a currency and transact in it? Remember they don't need it since they generally run trade surpluses. "

Restart back at the very beginning, forget everything you know, and try again.

"They" got foreign reserve currency by selling to the US and getting paid in dollars. Their banks then traded the dollars to the PBoC central bank for freshly printed renimbi.

Robert NYC , April 25, 2017 at 4:30 pm

yes, but why would the central bank endlessly collect another country's debt?

And you inadvertently point out one of the key frauds in the system. The dollar supports a double pyramid of credit, one domestic and the other foreign. There is also a third pyramid of credit, the euro dollar market, which is built on top of the U.S. domestic pyramid of credit, but lets ignore that for now.

So "they" give us real stuff made of raw material and labor inputs and we give them wampum!!! Greatest scam in history.

Mark P. , April 25, 2017 at 5:33 pm

Greatest scam in history.

It absolutely is. It's as much an advance on the British Empire as that was on the Roman system.

craazyboy , April 25, 2017 at 5:41 pm

"The dollar supports a double pyramid of credit, one domestic and the other foreign. "

Except the PBoC prints the Many Yuan to buy dollars from the Chinese banking system. The value of the Many Yuan is backed by sales of exports, in that case. A tiny little subset where MMT (The imaginary version) is actually in force. Then the PBoC buys our debt with these foreign reserves, which we wisely spend on our country and citizens.

Next, the Chinese banking system, thru the power of The Money Multiplier, uses that base money to make loans and expand credit to Chinese.

Robert NYC , April 25, 2017 at 8:14 pm

" The value of the Many Yuan is backed by sales of exports, in that case."

WTF? The value the "Many Yuan" is backed by the sale of exports which yields wampum, uh I mean dollars, and they purchase the dollars with the many yuan they created. The PBoC expands its balance sheet to buy those dollars with yuan created from nothing, hence the double pyramid of credit. The dollars get lent back to us in the form of U.S. government securities because we issue the word's "boomerang" currency.

And yes you can run a system like this; for how long? That is the big question.

Yves Smith Post author , April 25, 2017 at 9:45 pm

No, you have this wrong.

They want the jobs!

And you have misunderstood what those reserves are for. The Fed also can't spend all of those US assets it holds on its balance sheet either, now can it?

The use of foreign currency reserves is to defend the currency and keep the IMF away. Having a currency depreciate rapidly leads to a big inflation spike (unless you are close to being an autarky) due to the prices of foreign goods, in particular commodities, going up in your currency.

China is not self sufficient in a whole bunch of things, including in particular energy.

It had a spell last year when it was running through its FX reserves at such a rate that it would have breached the IMF trouble level for an economy of its size if it had persisted for 4-6 months more.

Robert NYC , April 25, 2017 at 4:56 pm

You sound like you must be an economist.

A chemist, a physicist and economist are ship wrecked on a deserted island with only some canned goods for food. They sit down to figure out how they are going to open the cans. To which the economist says: "assume we have a can opener"

craazyboy , April 25, 2017 at 5:47 pm

Three MMT Economists are stranded on a desert island.

They say, "WTF's a can opener? That sounds like work!" and live 3 months and are then rescued by Skipper, Gillian, Mary Ann and the Perfesser too, on an Easter Break Tour. Ginger and Mr. Howe are downstairs busy downstairs knocking up.

They are living happily ever after in Kansas City, Mo.

a different chris , April 25, 2017 at 11:41 am

>The dollar standard will be with us for a long time.


jsn , April 25, 2017 at 1:01 pm

That struck me as "famous last words" material.

Seems to me the dollar system will work until it doesn't. And those who run it have been doing all within their power for about 15 years to encourage anyone who can to come up with an alternative.

None look viable, and they won't until suddenly one is.

Yves Smith Post author , April 25, 2017 at 9:49 pm

There isn't a viable alternative.

The euro isn't one due to the mess its banking system is in. Japan doesn't want the job and in any event is a military protectorate of the US.

China is a minimum of 20 years away. Even though it would like the status of being the reserve currency, it most decidedly does not want the attendant obligations, which are running ongoing trade deficits, which is tantamount to exporting jobs. Maintaining high levels of employment and wage growth are the paramount goals for China's leaders. There are underreported riots pretty much all the time in China due to dissatisfaction over labor conditions now. The officialdom is not going to commit political suicide. Domestic needs always trump foreign goals.

lyman alpha blob , April 25, 2017 at 11:43 am

Just getting around to reading Piketty's doorstopper and was struck by his argument that prior to WWI there had been very little inflation worldwide for centuries. It was the need to pay off all the war debt that shook things up.

Graeber's book on debt also makes the argument that money as physical circulating metal currency came about because of the need to pay for wars.

Something similar seems to have been going on with the Bretton Woods agreement.

I know it's crazy but I'm just going to throw it out there – maybe if we'd like a more stable economy we could try starting fewer very destabilizing, extremely expensive wars???

wandering mind , April 25, 2017 at 3:16 pm

That is exactly my thought. There is a disturbing cycle of war, monetary expansion to pay for the war, post-war deflation leading to political instability, leading to a repeat of the cycle, at least in Europe and the U.S.

One can see this even in the period between the creation of the Bank of England through the end of the Napoleonic wars.

It is evident as well in the United States pre- and post-Civil war.

Deficit hawks never seem to have a problem with war-time deficit spending, only general welfare deficit spending.

We could have a system where the fiscal power of the state is fully harnessed for the general welfare, but that would threaten the current system which allows a small minority to overwhelmingly reap the benefits of the money creation power of the state and private banks.

This renders the issue a political one more than a purely economic one. If history is any guide, we will continue to have the kind of political uncertainty we've experienced until there has been enough war spending to start the cycle over again. :(

RBHoughton , April 25, 2017 at 7:42 pm

Wander no more Mind, you have struck on the bedrock of reality

Henry , April 25, 2017 at 12:21 pm

" The inflation that started in the later 1960s was substantially if not entirely the result of Lyndon Johnson refusing to raise taxes "

I'm almost afraid to ask, but how does this make sense? Any increase in taxes will be passed on to the consumer to increase prices even more. If you doubt this, watch what Trump's import taxes do to prices.

Yves Smith Post author , April 25, 2017 at 9:54 pm

No, you have been propagandized by the right wing anti tax people.

Taxes drains demand from the economy. Lower demand means more slack, more merchants having to compete with each other, some headcount cuts, etc.

By deficit spending in an economy that was already at full employment, Johnson basically guaranteed inflation. Both his own former economist, Walter Heller, and Milton Friedman warned against it. But because Heller was a Dem and an outlier (most Dems weren't gonna challenge their own party's policies), it was Friedman's warnings that were publicized.

Kalen , April 25, 2017 at 1:16 pm

Another subject that is relevant to the current post 2008 collapse and FED shenanigans to save the day. i.e. save their cronies. And what it is completely missing in this piece written by the insiders is exactly that Bretton Woods; Cui Bono:namely US ruling elite and new world order after WWII.

Bretton Woods was a monetary session of the overall conference 1944-1945 of new world order namely a formal switch from British empire global dominance system into American global dominance system and trade/monetary policies were just an important but small part of overall new global political and military arrangement.

Global pound was killed, global dollar has been created and blessed by western sphere of influence and defended by supposedly the most powerful US militarily in the world, [as was British navy before] US military of global reach via US navy and air force.

The political symbolism of Bretton Woods conference correlated with invasion of Normandy in June 1944, the last step in defeating Nazism in Europe cannot be understated.

Also the dominance of two figures of White and Keynes in this conference is an exemplification of closing era of British empire as a world [decaying at that time] leader which was accelerated by the role of Japanese and German/Italian aggression in colonial Asia, Africa [also helped by French surrender to Nazis that spurred western support for independent French colony of Algeria] and ME boosted up the anti-colonial movements and political parties, which like in Vietnam even US supported during WWII.

Little known fact is that Nazis championed themselves as anti-colonial force in ME while they attempted to colonize eastern Europe.The many Arabs fell for this propaganda siding with Nazis against British colonialism in Palestine setting themselves against Jews vehemently anti Nazi at that time.

In other words Bretton Woods was a consequence of the fact that British empire was collapsing fast ironically with the help of its allies and that Included Soviets. Also helped that British were broke and all the British Gold was already in the US as a payment for bankrolling British defenses in Europe since 1940 and elsewhere, so were Soviet gold payments for military technology and materiel they received from US and allies.

The political void had to be filled or it would have been filled by Soviets, and hence the Bretton Woods system was not based on unfettered exploitation of slaves of newly expanded US empire what US Oligarchy would have liked and was freely practicing before 1929, but for ideological reason was aimed for economic improvements in order to stem massive anti-capitalist, communist and anti-colonist movements that threatened western hegemony over the world and hence the dreaded anti-capitalist words used by in Bretton Woods system like fixed exchange rate or blasphemous capital controls, things the would crucify you if you utter them today during a seminar in any Ivy league economy department.

Bretton Woods was primarily a tool into an ideological war west and Soviets knew they would have to fight, cold or hot.

This [economic dominance] war ended in mid nineteen sixties when seeds of collapse of Soviet Union and betrayal of leftist ideals and socialist/communists movements all over the world were sawed and hence Bretton Woods was no longer needed and brutality of unfettered capitalist could begin to return starting with Kennedy tax cut freeing capital in private hands and then FED going full fiat in later 1960-ties, capital flow deregulation, free floating currencies, all that for benefit of oligarchic class and of colossal detriment to American workers, devastating result of which we are experiencing now.

jsn , April 25, 2017 at 1:48 pm

One of the great ironies of Bretton Woods is that Harry Dexter White, the US rep at the talks was in fact a Soviet agent. I wonder if he understood monetary economics enough to hope that the Bretton Woods gold standard system, as opposed to Keynes bancor proposal, would self immolate with a run on US gold stocks and take the West down with it.

OpenThePodBayDoorsHAL , April 25, 2017 at 6:15 pm

Let's think of "root causes", both Keynes and White were big fans of Soviet-style command and control top-down planned economies ("I have seen the future and it works!"). So that's what they divined and devised for money: a top-down price-fixing regime.

So while people would laugh themselves silly if you told them we were going to price things the way the Soviets did ("we'll raise X number of cows because we'll need Y quantity of shoe leather"), we somehow accept central planning for the price of the most important item of all: money itself. The supreme geniuses at the Fed et al, with their supreme formulae, can divine at any moment precisely what the price of money should be. This, of course, is folly.

And people should understand that the gold standard (not the gold-exchange standard it is often confused with) was not designed, was not somehow imposed, and was not agreed upon by some collective body. It simply arose organically because time and again through painful experience throughout history it was shown that any system where people can simply vote themselves more money ends in tears. Not usually, but always. You'd think that a 100% historical failure rate would clue people in to rethink the head-hammer-hitting approach.

And as Dr. Haygood points out above, "everything floating against everything else" is nothing but a colossal waste of time and money. You wouldn't attempt to build or make something without an agreed and immutable unit of measure.

jsn , April 25, 2017 at 6:46 pm

Completely untrue of Keynes. He ran the UK Treasury twice very pointedly in the interests of industrial capitalists. He was however very opposed to financial rents, a real classicist in that regard.

jsn , April 25, 2017 at 7:07 pm

Keynes ran the UK treasury twice more or less along classical lines: in favor of industrial capitalism and against financial rents. Not top down, not Soviet. Its not clear where you get your facts, fiat systems have lasted hundreds of years many times. They tend to arise in empires with secure borders. They depend on the productive relations of their societies for the value of their money rather than a commodity hedge.

Warfare favors the commodity hedge because the productive relations in a society are frequently destroyed by war. Because of the stickyness of wages, hard currency tends to choke economic growth because a fixed money supply has to be spread increasingly thin as more real wealth is created to be denominated with a fixed quantity of specie, requiring wages to drop because there is more stuff to purchase.

Each has benefits and costs, both are tools and while the one favors growth and the other war, neither must be used for either. A representative system will use either as its constituencies direct, an authoritarian one according to the intent of the authority. It isn't tools that make the problems, though some are better for some purposes than others. It is the intent of the powerful that is expressed and from which others suffer.

Robert NYC , April 25, 2017 at 8:18 pm

@jsn " fiat systems have lasted hundreds of years many times."

what? can you please back that statement up. Only major fiat system in history that I have ever seen written about is the one that existed in China several hundred years ago. If there were others you need to give some examples.

Todde , April 25, 2017 at 10:24 pm

Split Tally sticks.

OpenthepodbaydoorsHAL , April 25, 2017 at 9:58 pm

I think you objected to my comments without actually refuting them:
1. We have a top-down price fixing money system;
2. Keynes and White were a big fans of Soviet central planning (see The Battle for Bretton Woods for chapter and verse);
3. And I've never understood the "fixed quantity of specie" argument. Surely it's about price, not physical quantity. You could easily run the world economy on 100 tons of gold if it was priced accordingly.

Vikas Saini , April 25, 2017 at 2:41 pm

Michael Hudson's book Superimperialism, published astonishingly in 1972, nailed it. Details some great history of FDR's economic diplomacy during the late Depression and WW2 period that preceded the Bretton Woods settlement. Worth a read.

Mark P. , April 25, 2017 at 5:14 pm

More than worth a read. Essential.

Robert NYC , April 25, 2017 at 9:46 pm

yes Michael Hudson is great, but that is why he must be marginalized/ignored. Can't maintain control of the official narrative if people like Hudson were to ever be taken seriously..

Robert NYC , April 25, 2017 at 3:16 pm

"However, the likelihood that the dollar will be replaced as the dominant international currency in the foreseeable future remains remote. The dollar standard and the legacy of the Bretton Woods system will be with us for a long time."

That is the BIG question and the answer remains to be seen. I for one don't believe it will continue much longer, but then again nobody knows. Bordo also leaves out a critical part of the narrative, i.e., the U.S. secret deal with Saudi Arabia in 1974 to officially tie the dollar to oil. See link below for details. Without this secret arrangement the dollar would have never survived as the international reserve currency. The Saudis reportedly pushed for greater use of the SDR, but the U.S. made them a deal they couldn't refuse and the Saudi royal family realized that if they didn't go along with U.S. demands the CIA would find some other branch of the family that would.

The system is a mess and it is retarded to allow one country's currency to serve as the main reserve asset for the system. That is the ultimate free lunch and the equivalent to believing in a perpetual motion machine. It is hard to believe in can continue much longer despite of Bordo's view that it will. It has reached a point where it has created massive problems that can not continue.

MyLessThanPrimeBeef , April 25, 2017 at 3:33 pm

So, it's not 'out of thin air.

It's back by the might of the Pentagon mightier than gold.

Robert NYC , April 25, 2017 at 3:49 pm

Exactly! But nobody at the Fed is going to explain this to anyone, anytime soon.

Mark P. , April 25, 2017 at 5:30 pm

MyLessThanPrimeBeef wrote: So, it's not 'out of thin air. It's back by the might of the Pentagon mightier than gold.

And in turn the seignorage on that ability to create as much of the global reserve currency as the U.S. likes pays for the Pentagon.

So in a sense when China and Russia are forced to hold dollars for global trade, they're essentially paying for the Pentagon to do what it's doing. You can see why they'd be mad.

steven , April 25, 2017 at 3:47 pm

It is almost a gift from heaven when fixing a single problem offers the chance to fix a whole bunch of them. This IMHO is very possibly one of those gifts. Without this "ultimate free lunch" the globalization scam of allowing this country's and the world's 1% to keep adding zeros to their bank accounts ("to keep score" as Pres. Trump puts it) would not have been possible. Without countries like Saudi Arabia willing to keep accepting more "debt that can't be repaid (and) won't be", the US military industrial complex would not be able to keep increasing its threat to world peace and threatening the survival of humanity. Without the Saudi stranglehold over politics and US Middle Eastern policy the US could stop killing Muslims in its bogus 'war on terror'. It could get busy replacing its fossil fuel energy sources with renewable ones and its oil-powered transportation system with an electrified one (yes, maybe even a few EVs)

@Robert NYC – Thanks for the link.

Mark P. , April 25, 2017 at 5:23 pm

It is hard to believe in can continue much longer despite of Bordo's view that it will.

And yet where is the dollar's replacement?

If you'd told me ten years that the petrodollar as an institution enforcing compliance w. the dollar as global reserve currency could end and yet the dollar would continue with that status, I'd have laughed at you. However, that increasingly looks like it might happen.

Yes, yes, I know - we await the basket of currencies solution pushed by China and Russia, and others sick of the situation. We've been waiting for a while now.

Steven , April 25, 2017 at 7:03 pm

I'm thinking globalization has something to do with the dollar's longevity. Strip a country of the ability to support itself by exporting its jobs and it's people become dependent on a strong military to insure it's money continues to be "accepted" even when it's people no longer have anything to trade for what they really need.

Moneta , April 25, 2017 at 8:19 pm

I think there is indeed a link between the usd as reserve currency and the military budget.

Robert NYC , April 25, 2017 at 9:12 pm

@Moneta, these numbers are roughly correct. The U.S. defense budget is about $600 billion, the trade deficit is about $600 billion and last year we issued $1.4 trillion in incremental debt. Foreigners own about 40% of U.S. debt. 40% of of $1.4 trillion is $560 billion so yes there is a pretty strong correlation. Massive defense budget wouldn't be possible without reserve currency scam.

Robert NYC , April 25, 2017 at 8:21 pm

@Mark P.

yes that is the conundrum. It doesn't make a lot of sense but it goes on and on. Another 50 years? Unlikely.

Adamski , April 25, 2017 at 7:20 pm

I'm completely confused. Anything available in plain English for laypeople?

"The adjustment problem in Bretton Woods reflected downward rigidity in wages and prices which prevented the normal price adjustment of the gold standard price specie flow mechanism to operate"

George Job , April 25, 2017 at 9:05 pm

That fiat currencies have lasted hundreds of years jsn is simply not true. I was thinking forty but here we see 27!

And it's the US and Canada being the only countries globally not marking their gold holdings to market. (or audit) Reserve currency indeed!

Tim , April 25, 2017 at 9:52 pm

Canada which was one of the founding members of Bretton Woods pulled out as early as 1949 in order to move to a floating exchange rate and full capital mobility. Bretton Woods was dead before it ever began.

[Apr 14, 2017] If the Federal Reserve can create trillions of dollars with a single keystroke, and the Fed is the governments bank, then why does President Obama claim weve run out of money?

Apr 14, 2017 |
RGC , April 14, 2017 at 05:48 AM
So ask yourself this question:

If the Federal Reserve can create trillions of dollars with a single keystroke, and the Fed is the government's bank, then why does President Obama claim we've "run out" of money?

Why have Democrats and so-called progressives supported job-killing budget cuts in the name of "shared sacrifice"? Why are we throwing away the equivalent of $9.8 billion in lost output every single day? Why don't we do something about our $2.2 trillion infrastructure deficit, 25 million underemployed and unemployed Americans, 100 million Americans in or very near poverty, and so on?

The answer is simple. Most of us don't understand the monetary system. Instead of deciding how the government should wield its power over the dollar, we live in fear of the ratings agencies, the Chinese, the bond market vigilantes and other imaginary evils. And this holds all of us back. Unused resources abound, human needs go unmet, and the vast majority of Americans believe that 'There Is No Alternative' (TINA). Or, as Warren Mosler says, "Because we fear becoming the next Greece, we're turning ourselves into the next Japan."

There is an alternative. And it begins with an understanding of the monetary system. The cat is already out of the bag. Chairman Bernanke confirms it. Money is no object.

RGC -> RGC... , April 14, 2017 at 05:51 AM
Prominent C20th Economist Explains How the Lie is for Our Own Good

Posted on 2 January 2014

Infamous footage of Paul Samuelson, posted by Mike Norman, explaining why we can't be trusted with the truth.

Just believe the scary bedtime story about the big bad Budget Deficit and stay asleep now. There's a good child.

BenIsNotYoda -> RGC... , April 14, 2017 at 06:59 AM
the people here have been brainwashed and can not think for themselves. If it has not been approved by their favorite academic, it is a crank theory. they'd rather believe in fairy tales like NGDP level targeting - the fed will wish it into reality. Rather than pay attention to the MMT that you and I subscribe to.
BenIsNotYoda -> BenIsNotYoda... , April 14, 2017 at 07:04 AM
Moreover it is logical for them to stick to the "the Fed is omnipotent" as it bids up asset prices and maintains the status quo. It vests more power in the institutions that benefit the people you see here.

Blame the right, blame the deregulators, blame the tax cutters, blame the liberatarians, etc. that is the how they maintain the status quo. And Mosler is right on - Bernanke turned us into Japan trying to save us from that fate. And he is sliding down the rabbit hole - "I should have doubled down on my failed strategy"
why? because he was able to bid up the stock market? I bet you everyone of the Fed worshippers here benefit personally from the asset price binges that the stupid Fed has gotten us addicted to.

RGC -> BenIsNotYoda... , April 14, 2017 at 07:40 AM
There has been a major propaganda element in economics for a long time.

People have to dig deep to discover the truth and many don't have the time.

There is a lot of money behind the propaganda on the neoclassical/neoliberal side so it gets a lot more publicity.

As that side sinks the society deeper and deeper into malfunction, hopefully more people will take the time to understand.

JohnH -> RGC... , April 14, 2017 at 09:13 AM
Yep! "There has been a major propaganda element in economics for a long time."

Robert Rubin had an opinion piece at the Council on Foreign Relations, another propaganda rag: "Don't Politicize the Federal Reserve"

Per Rubin and his cronies in the Wall Street banking cartel, the Fed is fine as it is...serving the interests of the Wall Street banking cartel. The cartel has a good think going...why disrupt it by taking into account the public good?

Has Rubin ever done anything in the interest of the public?

[Apr 13, 2017] I hate the word manipulation in this context. China isn't doing anything in the dark of the night that we are trying to catch them at.

Apr 13, 2017 |
anne , April 13, 2017 at 07:44 AM

April 13, 2017

China and Currency Values: Fast Growing Countries Run Trade Deficits

I don't generally comment on pieces that reference me, but Jordan Weissman has given me such a beautiful teachable moment that I can't resist. Weissman wrote * about Donald Trump's reversal on his campaign pledge to declare China a currency manipulator. Weissman assures us that Trump was completely wrong in his campaign rhetoric and that China does not in fact try to depress the value of its currency.

"It's pretty hard to argue with that. Far from devaluing its currency, China has actually spent more than $1 trillion of its vaunted foreign reserves over the past couple of years trying to prop up the value of the yuan as investors have funneled money overseas. There are some on the left, like economist Dean Baker, who will argue that Beijing is still effectively suppressing the redback's value by refusing to unwind its dollar reserves more quickly. But if China were really keeping its currency severely underpriced, you'd expect it to still have a big current account surplus, reminiscent of 10 years ago, which it doesn't anymore."

Okay, to start with, I hate the word "manipulation" in this context. China isn't doing anything in the dark of the night that we are trying to catch them at. The country pretty explicitly manages the value of its currency against the dollar, that is why it holds more than $3 trillion in reserves. So let's just use the word "manage," in reference to its currency. It is more neutral and more accurate.

It also allows us to get away from the idea that China is somehow a villain and that we here in the good old US of A are the victims. There are plenty of large U.S. corporations that hugely benefit from having an under-valued Chinese currency. For example Walmart has developed a low cost supply chain that depends largely on goods manufactured in China. It is not anxious for the price of the items it imports rise by 15-30 percent because of a rise in the value of the yuan against the dollar.

The same applies to big manufacturers like GE that have moved much of their production to China and other developing countries. These companies do not "lose" because China is running a large trade surplus with the United States, they were in fact big winners.

Okay, but getting back to the issue at hand, I'm going to throw the textbook at Weissman. It is not true that we should expect China "to still have big current account surplus" if it were deliberately keeping its currency below market levels.

China is a developing country with an annual growth rate of close to 7.0 percent. The U.S. is a rich country with growth averaging less than 2.0 percent in last five years. Europe is growing at just a 1.0 percent rate, and Japan even more slowly. Contrary to what Weissman tells us, we should expect that capital would flow from slow growing rich countries to fast growing developing countries. This is because capital will generally get a better return in an economy growing at a 7.0 percent rate than the 1-2 percent rate in the rich countries.

If capital flows from rich countries to poor countries, this means they are running current account surpluses. The capital flows are financing imports in developing countries. These imports allow developing countries to sustain the living standards of their populations even as they build up their infrastructure and capital stock. In other words, if China was not depressing the value of its currency we should it expect it to be running a large trade deficit.

This is actually the way the world worked way back in the 1990s, a period apparently beyond the memory of most economics reporters. The countries of East Asia enjoyed extremely rapid growth, ** while running large trade deficits. This all changed following the East Asian financial crisis and the disastrous bailout arranged by Secretary of Treasury Robert Rubin and friends. *** Developing countries became huge exporters of capital as they held down the value of their currencies in order to run large trade surpluses and build up massive amounts of reserves.

But Weissman is right that China is no longer buying up reserves, but the issue is its huge stock of reserves. As I explained in a blogpost **** a couple of days ago:

"Porter is right that China is no longer buying reserves, but it still holds over $3 trillion in reserves. This figure goes to well over $4 trillion if we include its sovereign wealth fund. Is there a planet where we don't think this affects the value of the dollar relative to the yuan?

"To help people's thought process, the Federal Reserve Board holds over $3 trillion in assets as a result of its quantitative easing program. I don't know an economist anywhere who doesn't think the Fed's holding of assets is still keeping interest rates down, as compared to a scenario in which it had a more typical $500 billion to $1 trillion in assets.

"Currencies work the same way. If China offloaded $3 trillion in reserves and sovereign wealth holdings, it would increase the supply of dollars in the world. And, as Karl Marx says, when the supply of something increases, its price falls. In other words, if China had a more normal amount of reserve holdings, the value of the dollar would fall, increasing the competitiveness of U.S. goods and services, thereby reducing the trade deficit."

So, there really are no mysteries here. China is holding down the value of its currency, which is making the U.S. trade deficit worse. It is often claimed that they want their currency to rise. That may well be true, which suggests an obvious opportunity for cooperation. If the U.S. and China announce a joint commitment to raise the value of the yuan over the next 2-3 years then we can be fairly certain of accomplishing this goal.

This should be a very simple win-win for both countries. Walmart and GE might be unhappy, but almost everyone else would be big winners, especially if we told them not to worry about Pfizer's drug patent and Microsoft's copyright on Windows.





-- Dean Baker

[Apr 13, 2017] Currency manipulation vs currency management

Apr 13, 2017 |
anne , April 12, 2017 at 08:23 AM

April 11, 2017

Trump, China, and Trade

It is unfortunate that Donald Trump seems closer to the mark on China and trade than many economists and people who write on economic issues for major news outlets. Today, Eduardo Porter gets things partly right in his column * telling readers "Trump isn't wrong on China currency manipulation just late." The thrust of the piece is that China did in fact deliberately prop up the dollar against its currency, thereby causing the U.S. trade deficit to explode. However, he argues this is all history now and that China's currency is properly valued.

Let's start with the first part of the story. It's hardly a secret that China bought trillions of dollars of foreign exchange in the last decade. The predicted and actual effect of this action was to raise the value of the dollar against the yuan. The result is that the price of U.S. exports were inflated for people living in China and the price of imports from China were held down.

Porter then asks why the Bush administration didn't do anything when this trade deficit was exploding in the years 2002–2007. We get the answer from Eswar Prasad, a former I.M.F. official who headed their oversight of China:

"'There were other dimensions of China's economic policies that were seen as more important to U.S. economic and business interests,' Eswar Prasad, who headed the China desk at the International Monetary Fund and is now a professor at Cornell, told me. These included 'greater market access, better intellectual property rights protection, easier access to investment opportunities, etc.'"

Okay, step back and absorb this one. Mr. Prasad is saying that millions of manufacturing workers in the Midwest lost their jobs and saw their communities decimated because the Bush administration wanted to press China to enforce Pfizer's patents on drugs, Microsoft's copyrights on Windows, and to secure better access to China's financial markets for Goldman Sachs.

This is not a new story, in fact I say it all the time. But it's nice to have the story confirmed by the person who occupied the International Monetary Fund's China desk at the time.

Porter then jumps in and gets his story completely 100 percent wrong:

"At the end of the day, economists argued at the time, Chinese exchange rate policies didn't cost the United States much. After all, in 2007 the United States was operating at full employment. The trade deficit was because of Americans' dismal savings rate and supercharged consumption, not a cheap renminbi. After all, if Americans wanted to consume more than they created, they had to get it somewhere."

Sorry, this was the time when even very calm sensible people like Federal Reserve Board Chair Ben Bernanke were talking about a "savings glut." The U.S. and the world had too much savings, which lead to a serious problem of unemployment. Oh, we did eventually find a way to deal with excess savings.

Anyone remember the housing bubble? The demand generated by the bubble eventually pushed the labor market close to full employment. (The employment rate of prime age workers was still down by 2.0 percentage points in 2007 compared to 2000 - and the drop was for both men and women, so skip the problem with men story.)

Yeah, that bubble didn't end too well. So much for Porter's no big deal story.

But what about the present, are we all good now?

Porter is right that China is no longer buying reserves, but it still holds over $3 trillion in reserves. This figure goes to well over $4 trillion if we include its sovereign wealth fund. Is there a planet where we don't think this affects the value of the dollar relative to the yuan?

To help people's thought process, the Federal Reserve Board holds over $3 trillion in assets as a result of its quantitative easing program. I don't know an economist anywhere who doesn't think the Fed's holding of assets is still keeping interest rates down, as compared to a scenario in which it had a more typical $500 billion to $1 trillion in assets.

Currencies work the same way. If China offloaded $3 trillion in reserves and sovereign wealth holdings, it would increase the supply of dollars in the world. And, as Karl Marx says, when the supply of something increases, its price falls. In other words, if China had a more normal amount of reserve holdings, the value of the dollar would fall, increasing the competitiveness of U.S. goods and services, thereby reducing the trade deficit.

At the beginning of the piece, Porter discusses the question of China's currency "manipulation." (I would much prefer the more neutral and accurate term "currency management." There is nothing very secret here.) He tells readers:

"It would be hard, these days, to find an economist who feels China fits the bill."

Perhaps. Of course it would have been difficult to find an economist who recognized the $8 trillion housing bubble, the collapse of which wrecked the economy. As the saying goes, "economists are not very good at economics."


-- Dean Baker

[Apr 12, 2017] Should France leave the EU, would euros held by, say, someone in Italy then become worthless?

Apr 12, 2017 |
Anachronism -> anne... , April 12, 2017 at 04:58 AM
Dr Krugman ignored another wrinkle in France leaving the euro; the euro itself.

While GB joined the EU, it retained the british pound. So, Brexit won't affect it monetarily. France, on the other hand, did convert to the euro (in hindsight, another enormous mistake). Each euro has an identifier, similar to how we designate the origin by Fed Reserve, which designates it's country of origin.

So, should France leave the EU, would euros held by, say, someone in Italy then become worthless? This isn't someone most people concern themselves with. When was the last time someone on this blog check to see which dollars in your wallet came from the Denver Fed? But, it may well be that the EU would stop honoring French euros, should they leave.

What a mess.

anne -> Anachronism... , April 12, 2017 at 05:18 AM
Interesting conjecture, but a Euro printed in France belongs to the Euro Area rather than to France in the same way that a dollar printed in Denver belongs to the United States. There is by the way, to my understanding, no treaty provision describing how any country in the Euro Area might leave.
pgl -> Anachronism... , April 12, 2017 at 05:42 AM
"Start with the euro. The single currency was and is a flawed project, and countries that never joined – Sweden, the UK, Iceland – have benefited from the flexibility that comes from independent currencies. There is, however, a huge difference between choosing not to join in the first place and leaving once in."

What did he ignore again?

pgl -> Anachronism... , April 12, 2017 at 05:43 AM
"should France leave the EU, would euros held by, say, someone in Italy then become worthless?"

They could readily convert existing Euros into Francs. This is the reverse of what they did in 1999.

Peter K. -> pgl... , April 12, 2017 at 08:27 AM
PGL thinks France can easily convert Euros into Francs or Germany can convert its Euros into DMs?

That would blow up the monetary union.

What a nut bar.

pgl -> Peter K.... , April 12, 2017 at 09:26 AM
"That would blow up the monetary union."

Oh gee - the end of the Euro would be the end of the universe. My internet stalker writes another incredibly stupid comment.

Peter K. -> pgl... , April 12, 2017 at 09:53 AM
" My internet stalker writes another incredibly stupid comment."

Shut up, old man. Stick to the subject at hand. Oh right you WANT to change the subject with insults.

Peter K. -> Anachronism... , April 12, 2017 at 08:29 AM
"So, should France leave the EU..."

Even if Greece left it would cause turmoil in the financial markets. That's the known unknown people are focused on to start the next crisis.

[Apr 12, 2017] What is the conceptual difference between the monetary base and outside money ?

Apr 12, 2017 |
Lee A. Arnold April 12, 2017 at 03:02 AM

A question, for anyone: What is the conceptual difference between the "monetary base" and "outside money"? pgl -> Lee A. Arnold ... , April 12, 2017 at 05:40 AM
Outside money is money that is not a liability for anyone "inside" the economy. Think gold and silver.

The monetary base represents bank reserves and cash which are liabilities of the FED.

Lee A. Arnold -> pgl... , April 12, 2017 at 06:23 AM
Okay, but then the bank reserves which are held at the Fed by law could be defined as part of "outside money", because they aren't backed by anything in the private economy. Those reserves are established, or insisted upon, by government fiat, in essence. We know those reserves are not really backed by a precious metal or anything else but faith. So why are bank reserves held at the Fed not included in the definition of "outside money"?
RGC -> Lee A. Arnold ... , April 12, 2017 at 07:08 AM
From the standpoint of the private economy, reserves are 'outside money", because they circulate only within the Fed system. Currency is inside money because it circulates within the private economy, although it also circulates between government and private banks.

The monetary base is both currency and reserves.

So it takes a clear understanding of the purpose of the discussion and maybe even a Venn diagram.

Lee A. Arnold -> RGC... , April 12, 2017 at 09:13 AM
According to the definitions I can find, cash notes and coins (currency) are "outside money", even though they circulate within the private economy.
pgl -> RGC... , April 12, 2017 at 09:24 AM
You are using a different definition of "outside" here.
RGC -> pgl... , April 12, 2017 at 10:03 AM
How about this:

Outside money is money that is either of a fiat nature (unbacked) or backed by some asset that is not in zero net supply within the private sector of the economy.

Thus, outside money is a net asset for the private sector. The qualifier outside is short for (coming from) outside the private sector.

Inside money is an asset representing, or backed by, any form of private credit that circulates as a medium of exchange.

Since it is one private agent's liability and at the same time some other agent's asset, inside money is in zero net supply within the private sector.

The qualifier inside is short for (backed by debt from) inside the private sector.

JF -> Lee A. Arnold ... , April 12, 2017 at 08:57 AM
Reserves established by govt fiat????

These are entries in accounts owned by the banks and put there by the banks and are money. These can not be 'taken' by the govt without compensation per law.

Govt fiat money created these??? No.

What concerns you?

pgl -> JF... , April 12, 2017 at 09:25 AM
Good point and the right question.
Lee A. Arnold -> JF... , April 12, 2017 at 09:53 AM
JF, Sorry, I only meant that the minimum reserves are established by the decree of the public-private partnership known as the central bank. So I was using "fiat" in the sense of "law". I should not have written that the bank reserves are established by gov't "fiat" in a discussion about money, because that is confusing.

And the reason for this law is to make sure that banks can cover their needs for cash, to prevent a run on the banking system.

But what this means, is that the ultimate foundation of part of the individual's trust in the money that is used, is based upon the existence of the requirement for bank reserves. Otherwise, people wouldn't trust the money supply. The trust is not based on any function more basic than bank reserves.

What else do people trust? Well of course people already trust paper notes and coins in daily transactions: they automatically suppose that the gov't backs it up. Backs it up, with what?, they do not know; but it works. And for checks and debits, they suppose that the bank is good for the cash -- which ultimately is based on the reserve requirement. So therefore, "trust" of money by the common folk is presently based upon 2 things, the existence of currency and the (vaguely understood yet reassuring) existence of bank reserves.

Well, the "money base" is defined as reserves + cash & coin. However, this seems to me to be the same definition as "outside money". So I am still wondering if there is another difference between the definitions.

Certainly people think of gold & silver as money, but if that is the only difference between "monetary base" and "outside money", I think it would be easy to alter the definition of "currency" to include them.

pgl -> Lee A. Arnold ... , April 12, 2017 at 09:24 AM
Of course banks reserves are not backed by gold. Gold is outside money - reserves are different.

But the FED does record them as a liability. Are you saying the FED is made up of Martians or what?

Not sure why you are confusing what appears to be a very simple distinction.

Peter K. -> pgl... , April 12, 2017 at 09:52 AM
"Not sure why you are confusing what appears to be a very simple distinction."

Not everyone is as smart as the pompous PGL the Facile!

[Apr 09, 2017] As soon as regulators relax their vigilance banks start feckless expansion

Notable quotes:
"... Probably the biggest single factor was public employment was savagely cut during the Obama presidency which would have kept economic activity higher at a fairly cheap cost. ..."
"... the owning/lending class tends to dislike inflation for some reason... ..."
"... I think this is highly dependent on one's understanding of "equitable". Monetary policy can be used in a way that ensures safe income streams to those who already own many financial assets. Some people think that is how it should be and therefore "equitable". ..."
Apr 09, 2017 |
RGC -> RGC... April 08, 2017 at 07:17 AM

As John Kenneth Galbraith remarked:

"The central bank remains important for useful tasks - the clearing of checks, the replacement of worn and dirty banknotes, as a loan source of last resort. These tasks it performs well.

With other public agencies in the United States, it also supervises the subordinate commercial banks. This is a job which it can do well and needs to do better. In recent years the regulatory agencies, including the Federal reserve, have relaxed somewhat their vigilance. At the same time numerous of the banks have been involved in another of the age-old spasms of optimism and feckless expansion. The result could be a new round of failures. It is to such matters that the Federal Reserve needs to give its attention.

These tasks apart, the reputation of central bankers will be the greater, the less responsibility they assume. Perhaps they can lean against the wind - resist a little and increase rates when the demand for loans is persistently great, reverse themselves when the reverse situation holds.

But, in the main, control must be - as it was in the United States during the war years and the good years following - over the forces which cause firms and persons to seek loans and not over whether they are given or not given the loans."

-From "Money: Whence it came,Where it went" 1975 - pgs 305,6.

RGC -> RGC... , April 08, 2017 at 07:33 AM
[Mariner Eccles explained it way back in the 1930's:]

"Pushing on a String: An Origin Story

There's a long-standing metaphor in monetary policy that the central bank "can't push on a string." It means that while a central bank can certainly slow down an economy or even drive an economy into recession with an ill-timed or too-large increase interest rates, the power of monetary policy is not symmetric.

When a central bank reduces interest rates in an attempt to stimulate the economy, it may not make much difference if banks don't think it's a good time to lend or firms and consumers don't think it's a good time to borrow. In other words, monetary policy is like a string with which a central bank can "pull" back the economy, but pushing on a string just crumples the string.

The "can't push on a string" metaphor appears in many intro-level economics texts. It has also gotten a heavy work-out these last few years as people have sought to understand why either economic output or inflation wasn't stimulated more greatly by having the Federal Reserve's target interest rate (the "federal funds" rate) near zero percent for going on seven years now, especially when combined with "forward guidance" promises that this policy would continue into the future and a couple trillion dollars of direct Federal Reserve purchases of Treasury debt and mortgage-backed securities.

The first use of "pushing on a string" in a monetary policy context may have occurred in hearings before House Committee on Banking and Currency on March 18, 1935, concerning the proposed Banking Act of 1935. Marriner Eccles, who was appointed Chairman of the Fed in 1934 and served on the Board of Governors until 1951, was taking questions from Rep. Thomas Alan Goldsborough (D-MD) and Prentiss M. Brown (D-MI). The hearings are here; the relevant exchange is on p. 377, during a discussion of what the Fed might be able to do to end deflation."

Peter K. -> RGC... , April 08, 2017 at 08:05 AM
The Fed didn't try very hard with its unconventional monetary policy. It was always worried about inflation. Plus it had to overcome the unprecedented austerity which Congress pushed on the economy.

If you look at the recovery and say monetary policy didn't work, you are either insane or highly ideological.

Now, the recovery could have been much quicker and better with the help of fiscal policy and other policies.

RC AKA Darryl, Ron said in reply to RGC... , April 08, 2017 at 09:14 AM

OK, this is a joke =

We are all quantity of money theory people now.

Must be so, because the following certainly is not true =

"We are all Keynesians now"

OK, not all one way or the other but the Keynesians are under siege by monetarists including ones that do not know what a monetarist is or that they are one.

RC AKA Darryl, Ron said in reply to RC AKA Darryl, Ron... , April 08, 2017 at 09:28 AM
It is not that monetary policy is entirely ineffective at stimulating demand, but that its effects are very limited according to the very narrow channels in which its effects are most pronounced, intermediation risks, widening the term spread or yield curve, and making short term business loans and related prime rate small short term loans. It does next to nothing towards reducing credit rationing by financial institutions after a shock, which would be highly stimulative compared to just lowering the FFR. Purchase of the riskiest assets by the Fed was probably most effective at reducing credit rationing since it lowered the risk of bank loan portfolios. Just buying up safe assets had mixed results on lowering long term interest rates, but was more successful on that than reducing credit rationing.
RC AKA Darryl, Ron said in reply to RC AKA Darryl, Ron... , April 08, 2017 at 09:30 AM
Since the FFR was at the ZLB, further lowering long term interest rates also flattened the yield curve.
Peter K. -> RC AKA Darryl, Ron... , April 08, 2017 at 10:27 AM
All your jargon obscures the point that the Fed didn't really try that hard with its unconventional policy b/c of politics.

It's like arguing that the ARRA didn't work very well. It did work and could have been bigger and better but policymakers are too conservative when it comes to macro policy.

RGC -> RC AKA Darryl, Ron... , April 08, 2017 at 09:29 AM
Subtle..... I think.
Peter K. -> RC AKA Darryl, Ron... , April 08, 2017 at 10:29 AM
Again you're muddying the issue. It's not really monetarists versus Keynesians.

It's these know-nothing lefties who think that tight money doesn't matter.

RC AKA Darryl, Ron said in reply to Peter K.... , April 08, 2017 at 11:35 AM
Tight money means credit rationing. Cheap money does not necessarily get looser. Yes, widening the term spread helps loosen, but narrowing the term spread does not. Other forms of monetary policy such as government loan guarantees on small business loans loosen money more than QE.
Peter K. -> RGC... , April 08, 2017 at 08:01 AM
"Monetary policy has always been ineffective in stimulating demand"

Simply not true.

RGC -> Peter K.... , April 08, 2017 at 08:11 AM
As I've told you before, I see no point in arguing the issue with you.
Peter K. -> RGC... , April 08, 2017 at 08:28 AM
Because you're wrong and misleading. The Fed does the minimal amount of experimental unconventional policy - always paranoid over inflation - while Congress forces unprecedented fiscal austerity on the economy. I'd say monetary policy works. Doesn't mean fiscal policy doesn't work better.
Peter K. -> Peter K.... , April 08, 2017 at 08:41 AM
"Now here we are, in 2017, after the Obama Administration has brought the deficit down from $1.5 trillion in Fiscal Year 2009 to $621 billion in FY2016, "

Via Max Sawicky, below. $900 billion in austerity that monetary policy had to fight against.

Pinkybum -> Peter K.... , April 08, 2017 at 09:25 AM
I don't think it is as simple as you have outlined here. Debt as a percentage of GDP has doubled since 2009 so that has provided some relief. Probably the biggest single factor was public employment was savagely cut during the Obama presidency which would have kept economic activity higher at a fairly cheap cost.
Peter K. -> Pinkybum... , April 08, 2017 at 10:24 AM
"Debt as a percentage of GDP has doubled since 2009 so that has provided some relief."


The largest difference was there was little to no Federal aid to the states which had to run balanced budgets.

We can all agree after the ARRA ran its course, there was massive, unprecedented austerity forced on the economy by Republicans, just as in the UK and we see the results when central banks didn't do enough unconventional policy to fully offset it.

A crappy recovery and the election of Trump/Brexit.

RGC -> Peter K.... , April 08, 2017 at 09:18 AM
Because I know you won't change your mind and you can't resist getting personal.
Peter K. -> RGC... , April 08, 2017 at 10:24 AM
You just repeat the same quotes over and over again as if that will change anyone's minds.
RGC -> Peter K.... , April 08, 2017 at 10:36 AM
This is exactly why I don't want to discuss the issue with you. You never address the issue and you make a personal remark.
Peter K. -> RGC... , April 08, 2017 at 10:48 AM
I never address the issue? All you do is repeat quotes form men who have long since died.
RC AKA Darryl, Ron said in reply to Peter K.... , April 08, 2017 at 11:36 AM
Men rather than mice though.
yuan -> RGC... , April 08, 2017 at 09:58 AM
monetary policy can redistribute capital in a more equitable manner. are you opposed to this? do you think the rich deserve their gains?
RGC -> yuan... , April 08, 2017 at 10:41 AM
I think your statement is erroneous. Show me how "monetary policy can redistribute capital in a more equitable manner." and we could discuss it.
yuan -> RGC... , April 08, 2017 at 11:11 AM
the owning/lending class tends to dislike inflation for some reason...
Jerry Brown said in reply to RGC... , April 08, 2017 at 11:19 AM
I think this is highly dependent on one's understanding of "equitable". Monetary policy can be used in a way that ensures safe income streams to those who already own many financial assets. Some people think that is how it should be and therefore "equitable".

I have no idea how monetary policy with its currently defined policy tools can be used effectively, by itself, to redistribute wealth in the other direction, which is probably most people's understanding of "equitable".

If it was, by itself, able to cause large jumps in inflation, that might feed back into rapidly rising nominal wages and large losses to the current holders of financial assets like bonds and loan books. That might be considered more "equitable" to some, but current limitations on monetary policy prevent it from creating inflation all by itself.

RGC -> Jerry Brown... , April 08, 2017 at 11:34 AM
I like your understanding of "equitable" better.

[Apr 08, 2017] A new study suggests that near-zero interest rates - accompanied by a lackluster recovery - may become a common occurrence.

Notable quotes:
"... When the Federal Reserve lowered interest rates to close to zero during the financial crisis, it was an extraordinary move. The central bank had hit the limits of conventional monetary policy, leaving the recovery to sputter along with less help than it needed ..."
"... A new study suggests that near-zero interest rates - accompanied by a lackluster recovery - may become a common occurrence. ..."
Apr 08, 2017 |

Peter K., Saturday, April 08, 2017 at 08:21 AM

" When the Federal Reserve lowered interest rates to close to zero during the financial crisis, it was an extraordinary move. The central bank had hit the limits of conventional monetary policy, leaving the recovery to sputter along with less help than it needed ."

This is a huge lie. The Fed did not do what it could have done. It did the minimal amount possible, always afraid of setting off inflation. The Fed said it delivered the recovery it wanted. It gave the economy exactly the help the Fed thought it needed. Then why the dishonesty from Wulfers. It's the kind we get from PGL the Facile.

Why did the Fed deliver a lame recovery is the question Wolfers should be asking, but it's the kind of thing mainstream economists like him and PGL avoid. It's class war.

" A new study suggests that near-zero interest rates - accompanied by a lackluster recovery - may become a common occurrence.

That's troubling for many reasons. If the Fed can't cut rates as much as required to fight a slowing economy, then recessions will become more common and more painful. It suggests an urgent need to reconsider how we will counter the next bout of bad economic news, preferably before it arrives. If monetary policy won't be enough, perhaps fiscal policy will be. Certainly, this is no time for complacency."

Yes fiscal policy would help deliver a better recovery as the Fed has repeatedly said, but again Wolfers is misleading his readers. The Fed could do more. It's not out of bullets. It's raising rates. Wolfers is really doing a disservice to his readers in an apparent attempt to talk up fiscal policy in a dishonest way. WTF.

"But when normal interest rates are closer to 3 percent, the Fed can cut rates only a few times, because rates can only go so low - perhaps as low as zero, maybe a tad lower. This means that in even a typical downturn, the Fed may be unable to cut rates as much as it would like."

But then it turns to unconventional policy. Seriously. WTF.

"This dynamic can feed on itself. The less ammunition the Fed has to blast the economy out of its malaise, the weaker and slower will be the recovery, making it more likely that the next bad shock will require the Fed to cut rates more than is feasible."

It doesn't have less ammunition. Now Wolfers finally admits there's something called unconventional policy.

"The Fed has already been experimenting with monetary policy, but it hasn't been enough. In the wake of the financial crisis, for example, it bought bonds in a program known as quantitative easing, cutting long-term interest rates once short-term rates were near zero. The resulting stimulus was relatively small, reducing long-term rates by only a fraction of a percentage point, and the program was politically unpopular.

The authors suggest an alternative approach in which the Fed makes up for "missing stimulus" by promising to keep rates lower, for longer periods. In their view, the Fed needs to make up for the interest rate cuts that it wishes it could have made, but couldn't. Promising this in the depths of a downturn would offer businesses reason to be optimistic, they say, boosting the recovery. The Fed would need to keep rates low, even as inflation overshot its target.

It's a promising approach, but would people really believe the Fed's promises? I know a lot of central bankers, and I fear they are incapable of sitting still while inflation rises above their stated target."

Wolfers admits that central bankers haven't pushed very hard on unconventional policy, shattering his thesis. They're paranoid over inflation.

"Perhaps the answer lies outside the Fed. It may be time to revive a more active role for fiscal policy - government spending and taxation - so that the government fills in for the missing stimulus when the Fed can't cut rates any longer. Given political realities, this may be best achieved by building in stronger automatic stabilizers, mechanisms to increase spending in bad times, without requiring Congressional action."

That's a good idea no matter whether unconventional monetary policy works or not. But Republicans are blocking it, so monetary policy is all we have. It doesn't help to say it doesn't work and we must suffer long painful recoveries.

"The general distrust of fiscal policy may well have made sense; many economists are more likely to trust the technocrats at the Fed to manage the business cycle than the election-driven politicians on Capitol Hill. But in a world of low interest rates in which the Fed is frequently hamstrung, we may not have that choice."

No the sidelining of fiscal policy never made any sense. But that doesn't mean we should sideline monetary policy when fiscal policy isn't forthcoming.

Alt facts from Wolfers.

libezkova -> Peter K.... April 08, 2017 at 03:15 PM

"A new study suggests that near-zero interest rates - accompanied by a lackluster recovery - may become a common occurrence."

That's another way to spell "end of cheap oil"

[Apr 08, 2017] Reply

Apr 08, 2017 | onclick="TPConnect.blogside.reply('6a00d83451b33869e201b8d2758ec5970c'); return false;" href="javascript:void 0">
Saturday, April 08, 2017 at 09:58 AM RGC said in reply to yuan... I think your statement is erroneous. Show me how "monetary policy can redistribute capital in a more equitable manner." and we could discuss it. Reply Saturday, April 08, 2017 at 10:41 AM yuan said in reply to RGC... the owning/lending class tends to dislike inflation for some reason... Reply Saturday, April 08, 2017 at 11:11 AM Jerry Brown said in reply to RGC... I think this is highly dependent on one's understanding of "equitable". Monetary policy can be used in a way that ensures safe income streams to those who already own many financial assets. Some people think that is how it should be and therefore "equitable".

I have no idea how monetary policy with its currently defined policy tools can be used effectively, by itself, to redistribute wealth in the other direction, which is probably most people's understanding of "equitable".

If it was, by itself, able to cause large jumps in inflation, that might feed back into rapidly rising nominal wages and large losses to the current holders of financial assets like bonds and loan books. That might be considered more "equitable" to some, but current limitations on monetary policy prevent it from creating inflation all by itself. Reply Saturday, April 08, 2017 at 11:19 AM RGC said in reply to Jerry Brown... I like your understanding of "equitable" better. Reply Saturday, April 08, 2017 at 11:34 AM

[Apr 04, 2017] I am shocked, shocked to find that gambling is going on in here!

Notable quotes:
"... Casablanca, ..."
Apr 04, 2017 |

Rick: How can you close me up? On what grounds?

Captain Renault: I'm shocked, shocked to find that gambling is going on in here!

– From the classic scene in Casablanca, made in 1942


The latest scandal du jour seems to be about what is now called LIBORgate. But is it a scandal or is it really just business as usual?

And if we don't know which it is, what does that say about how we organize the financial world, in which $300-800 trillion, give or take, is based on LIBOR?

This is actually just the second verse of the old song about derivatives, which is a much larger market. Which of course is a problem that was not solved by Dodd-Frank and that has the potential to once again create true havoc with the markets, whereas LIBOR can only cost a few billion here and there. (Sarcasm intended.)

The problem is the lack of transparency. Why would banks want to reveal how much profit they are making? The last thing they want is transparency. This week I offer a different take on LIBOR, one which may annoy a few readers, but which I hope provokes some thinking about how we should organize our financial world.

There Is Gambling in the House? I Am Shocked...

Let's quickly look at what LIBOR is. The initials stand for London InterBank Offered Rate. It is the rate that is based on what 16 banks based in London (some are US banks) tell Thomson Reuters they expect to pay for overnight loans (and other longer loans). Thomson Reuters throws out the highest four numbers and the lowest four numbers and then gives us an average of the rest. Then that averaged number becomes about 150 other "rates," from overnight to one year and in different currencies. The key is that the number is not what the banks actually paid for loans, it's what they expect to pay. Also, please note that the British Banking Association, on its official website, calls this a price "fixing."

Most of the time the number is probably pretty close to real, or close enough for government work. But then, there are other times when it is at best a guess and at worst manipulated.

Back in the banking and credit crisis panic of 2008 the interbank market dried up. No bank was loaning other banks any money at any price. Thus there was clearly no way for the LIBOR number to be anything but fictitious. Anyone who was not aware of this was simply not paying attention.

The regulators certainly knew on both sides of the Atlantic. All along there were clear records, we now learn, that bankers were telling the FSA (the Financial Services Authority) that they had problems. Regulators were worried about what was happening but were pointing out that there was a large hole in the ship that was already admitting water, and they didn't want to make it any bigger. Timothy Geithner, then President of the New York Federal Reserve Bank (and now Secretary of the Treasury) wrote a rather pointed letter to the FSA, suggesting the need for better practices.

Some banks reported lower rates, to make it appear they were better off than they were (since no one was actually lending to them), and others might have given higher rates, for other reasons. Remember, this was a British Banking Association number. Whether you personally won or lost money on the probably wrong price information depends on whether you were lending or borrowing and whether you really wanted the entire market to appear worse than it already was.

This was the equivalent of an open-book test where you got to grade your own paper. And we are supposed to be shocked that there might have been a few bad "expectations" here and there by bankers acting in their own self-interest, with the knowledge of the regulators? The more amazing proposition would be that in a time of crisis the number had any close bearing on reality to begin with. Call me skeptical, but I fail to see how we should be surprised.

The larger question that really needs to be asked is how in the name of all that is holy did we get to a place where we base hundreds of trillions of dollars of transactions worldwide on a number whose provenance is not clearly transparent. Yes, I get that the methodology of the creation of the number after the banks call in their "expectations" is clear, but the process of getting to that number was evidently not well understood and looks to be even muddier than my rather cynical previous understanding of it.

It now seems that there will be a feeding frenzy as politicians and regulators hammer the various banks for improper practices. And they are pretty easy targets: there is just no way you can explain this that does not sound bad.

You're a big banker. The world is falling down before your eyes. No one trusts anyone. If you put out a bad number (whatever "bad" means in a time of sheer utter blind panic) the markets will kill you even more than they already are and you could lose your job. You have got to come up with a number in ten minutes.

"Hey, Nigel, what do you think we should tell Tommie [Thomson Reuters]?"

"I don't know, Winthorpe, maybe Mortimer has an idea; let's ask him."

Simply fining a few bankers is not going to fix the larger problem: the lack of transparency for arguably the most important number in financial markets. A very clear methodology needs to be developed, along with guidelines for what to do in times of crisis when the interbank market is frozen and there really is no number. Having no number might be worse than having a number that is a guess. But having a number that can be fudged by banks for their benefit is also clearly not in the public's interest.

The point of the rule of law is that it is supposed to level the playing field. But the rule of law means having a very transparent process with very clear rules and guidelines and penalties for breaking the rules.

I had dinner with Dr. Woody Brock this evening in Rockport. We were discussing this issue and he mentioned that he had done a study based on analysis by an institution that looks at all sorts of "fuzzy" data, like how easy it is to start a business in a country, corporate taxes and business structures, levels of free trade and free markets, and the legal system. It turned out that the trait that was most positively correlated with GDP growth was strength of the rule of law. It is also one of the major factors that Niall Ferguson cites in his book Civilization as a reason for the ascendency of the West in the last 500 years, and a factor that helps explain why China is rising again as it emerges from chaos.

One of the very real problems we face is the growing feeling that the system is rigged against regular people in favor of "the bankers" or the 1%. And if we are honest with ourselves, we have to admit there is reason for that feeling. Things like LIBOR are structured with a very real potential for manipulation. When the facts come out, there is just one more reason not to trust the system. And if there is no trust, there is no system.

Opacity and Credit Default Swaps

Which brings me to my next point. We just went through a crisis where derivatives were a major part of the problem, and specifically the counterparty risk of over-the counter (OTC) derivatives.

Taxpayers had to back-stop derivatives sold by banks (and specifically AIG ) that were clearly undercapitalized. That cost tens of billions. Yet the commissions and bonuses paid for selling those bad derivatives went on being paid. Congress held hearings and expressed outrage, but in the end Dodd-Frank sold out.

"Efforts to create an exchange-traded futures contract tied to credit-default swaps haven't yet gained traction after 18 months of talks, but banks dealing in the private multitrillion-dollar market for credit derivatives believe such contracts will eventually appear for a simple reason: They should attract new players.

"Credit-default swaps function like insurance for bonds and loans. Investors use them to hedge or speculate against changes in a borrower's creditworthiness. If a borrower defaults, sellers of the protection compensate buyers.

"The swaps – traded over the phone or on-screen, with prices known only to trading partners – are the domain of asset managers and hedge funds with the sophistication and financial wherewithal to take on complex risks.

"Futures, by contrast, are more routine instruments used by institutions and individual or "retail" investors. Futures prices are displayed publicly on exchanges, and customers can trade them directly with other customers – unlike in the swaps market, where a dealer is on one side of every trade.

"Dealers have long been fiercely protective of keeping the status quo in credit-default swaps or 'CDS' because they have booked fat profits from customers not being able to see where other customers are trading." (Market Watch)

And that is the issue. Bankers do not want transparency, because it will seriously cut into their profits. And while I like everyone to make a profit, the implicit partner in every trade is the taxpayer and, last time I looked, we do not get a piece of that trade. Derivatives traded on an exchange were not part of the problem during the last credit crisis; OTC derivatives were.

An exchange makes it very clear where the counterparty risk is and what the price mechanism is. It creates a transparent rule of law and places the risk on the backs of those buying and selling derivatives and not on the taxpayer. Exchange-traded derivatives do not pose a potential threat to the economies of the world, while we don't know the extent of the threat posed by OTC trades. JPMorgan has lost around $6 billion on the trading of their "London Whale." If Jamie Dimon and the JPM board couldn't guarantee reasonable corporate governance, then why should we assume that in another crisis we won't find another AIG?

Dodd-Frank needs to be repealed and replaced. The last time, the process was too clearly in the hands of those being regulated and has contributed to their profits. Enough already.

Credit default swaps and any other derivative large enough to put the system at risk must be moved to an exchange, to make clear the counterparty risks.

[Apr 04, 2017] The Production of Money

This FT -- the most deep neoliberal swamp among mainstream newspaper. So they do not like any critique of thier beloved neloneral world order with the dominance of reckless financial oligarchy as one of the key components.
Notable quotes:
"... She argues that under our deregulated financial system "commercial bankers can create credit . . . effectively without limit, and with few regulatory constraints." She says that because the government and central banks impose no restrictions on what credit is used for, banks increasingly lend for speculative activities, rather than "sound, productive investment". ..."
"... The collateral for this borrowing is in the form of "promises to pay", which can "evaporate" and be defaulted upon - which risks dragging down the rest of the system. ..."
"... many of the remedies Pettifor recommends are, as she acknowledges, fairly mainstream: monitoring the evolution of credit relative to national income, limiting loan-to-value mortgage ratios more strictly, imposing stronger regulation on banks and issuing government debt at low interest rates across the maturity spectrum. ..."
"... Less mainstream are her calls for controls on international capital flows through a Tobin tax on financial transactions, and for central banks to "manage exchange rates over a specified range by buying and selling currency". ..."
"... its confrontational style - criticising financial market players, most economists, politicians and ideas from other left-leaning economists ..."
Apr 04, 2017 |
Peter K. , April 03, 2017 at 01:38 PM

'The Production of Money', by Ann Pettifor - a financial education

16 HOURS AGO by: Review by Gemma Tetlow

Ann Pettifor's The Production of Money, is a work in three parts. It provides an explanation of how money and credit are created in modern economies and of some of the problems that helped foment the financial crisis. The author, an economist, then sets out her views on how these problems should be fixed, including introducing controls on international capital flows. Finally, and less obviously from the title, the book strays into a critique of fiscal austerity.

"Citizens," Pettifor argues, "were unprepared for the [financial] crisis, and remain on the whole ignorant of the workings of the financial system." This is one reason why policymakers have failed to address its failings. One of her objectives is to "simplify key concepts in relation to money, finance and economics, and to make them accessible to a much wider audience".

Chapter two provides a clear, intuitive explanation of how money is created and how this can facilitate economic growth. Money creation is a complex and intangible concept in a world where it is no longer backed by gold bars held by the central bank, and Pettifor provides the most accessible and thorough explanation I have seen.

In the rest of the book, the author sets out her diagnosis of the problems afflicting the world's monetary system and her prescription for how they should be fixed. She argues that under our deregulated financial system "commercial bankers can create credit . . . effectively without limit, and with few regulatory constraints." She says that because the government and central banks impose no restrictions on what credit is used for, banks increasingly lend for speculative activities, rather than "sound, productive investment".

The collateral for this borrowing is in the form of "promises to pay", which can "evaporate" and be defaulted upon - which risks dragging down the rest of the system.

The description is informative as far as it goes. However, it does not provide the sort of compelling, insightful account of the problems before the crisis that is provided by, for example, Michael Lewis in The Big Short.

She strikes a revolutionary tone when setting out the problem. But many of the remedies Pettifor recommends are, as she acknowledges, fairly mainstream: monitoring the evolution of credit relative to national income, limiting loan-to-value mortgage ratios more strictly, imposing stronger regulation on banks and issuing government debt at low interest rates across the maturity spectrum.

Less mainstream are her calls for controls on international capital flows through a Tobin tax on financial transactions, and for central banks to "manage exchange rates over a specified range by buying and selling currency".

Her support for these measures is consistent with her belief - expressed throughout the book - that everything was well until the global financial system began to liberalise following the breakdown of the Bretton Woods system in 1971.

The evidence she provides to support her belief that policies in place during the Bretton Woods era were superior to those operating now appears rather selective. She cites data presented in Carmen Reinhart and Kenneth Rogoff's book, This Time is Different, as evidence that "financial crises proliferated" after the 1970s. However, Reinhart and Rogoff's thesis was that we have been here before in centuries past - and will be again.

The Production of Money presents one view of issues afflicting the world's financial systems and how they should be dealt with, and will be useful to readers unfamiliar with these issues. But in other places it provides a partial or rather confusing descriptions of aspects of the monetary system. Saying the global economy "is once again at risk of slipping into recession" and faces "deflation" are statements that have aged badly.

This book will help the public "develop a much greater understanding" of how banking and financial systems work. However, its confrontational style - criticising financial market players, most economists, politicians and ideas from other left-leaning economists - may put some readers off before they get to the meat of the argument. The characterisations of these groups' views are selective and her criticisms are at times not well supported by the evidence she presents.

[Mar 23, 2017] The Credit Theory of Money

Mar 23, 2017 |
tjfxh :

Reply Tuesday, March 21, 2017 at 04:15 PM , March 21, 2017 at 04:15 PM
David Graeber, Debt: The First 5000 Years. Melville House; Updated Expanded edition (2014).

Michael Hudson and Marc Van De Mieroop, Debt and Economic Renewal in the Ancient Near East. Capital Decisions Ltd (2002).

Geoffrey Ingham, The Nature of Money. Polity (2004).

A. Mitchell Innes, "The Credit Theory of Money," The Banking Law Journal, Vol. 31 (1914), Dec./Jan., 151-168.

_____________, "What is Money?," The Banking Law Journal, Vol. 30 (1913), May. 377-409

L. Randall Wray, Theories of Money and Banking. Edward Elgar (2012)

______________, Understanding Modern Money:The Key to Full Employment and Price Stability. Edward Elgar (1998)

anne -> tjfxh ... , March 21, 2017 at 04:34 PM


The Credit Theory of Money
By A. Mitchell Innes


What Is Money?

[ I do appreciate these references. ]

[Mar 22, 2017] Economist's View How Money Made Us Modern

Mar 22, 2017 |
How Money Made Us Modern Patrick Kiger at National Geographic:
How Money Made Us Modern : About 9,500 years ago in the Mesopotamian region of Sumer, ancient accountants kept track of farmers' crops and livestock by stacking small pieces of baked clay, almost like the tokens used in board games today. One piece might signify a bushel of grain, while another with a different shape might represent a farm animal or a jar of olive oil.
Those humble little ceramic shapes might not seem have much in common with today's $100 bill, whose high-tech anti-counterfeiting features include a special security thread designed to turn pink when illuminated by ultraviolet light, let alone with credit-card swipes and online transactions that for many Americans are rapidly taking the place of cash.
But the roots of those modern modes of payment may lie in the Sumerians' tokens. ...

Posted by Mark Thoma on Tuesday, March 21, 2017 at 10:06 AM in Economics | Permalink Comments (10)

View blog reactions

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Comments Feed You can follow this conversation by subscribing to the comment feed for this post. Shah of Bratpuhr : , March 21, 2017 at 11:08 AM

Article ended with Bitcoin... otherwise, great story.
Shah of Bratpuhr -> Shah of Bratpuhr... , March 21, 2017 at 11:09 AM
Bitcoin is quite volatile vs USD.

tjfxh : , March 21, 2017 at 12:34 PM
The article is poorly researched. The author needs to read Innes, Graeber, Ingham, Wray and Hudson on the history of money from the perspective of credit instead of relying on Davies, who emphasizes commodity money and doesn't distinguish between bullion and chartal.
kthomas -> tjfxh ... , March 21, 2017 at 01:03 PM Was there nothing you agreed with?
tjfxh : , March 21, 2017 at 02:09 PM
I was speaking specifically of the early history in my comment, but the entire article was rather one-sided. The debated on the history and nature of money is nuanced and the author made it seem as through the article presents a definitive version. The audience to which it is addressed would not glean that from the article and would likely come away with a one-sided and simplistic perspective on the history and nature of money.
anne -> tjfxh ... , March 21, 2017 at 02:32 PM
Do set down any specific references when possible.
JohnH : , March 21, 2017 at 02:32 PM
Michael Hudson offers a wonderful piece on the ancient middle east, how they handled oppressive debt, and how, in the Anglo-Saxon word, the biblical word for debt got translated into 'sin.'

"From the actual people who study cuneiform records, 90% of which are economic, what we have surviving from Sumer and Babylonia, from about 2500 BC to the time of Jesus, are mainly marriage contracts, dowries, legal contracts, economic contracts, and loan contracts. Above all, loans....

The rulers had what we would call an economic model. They realized that every economy tended to become unstable as a result of compound interest. We have the training tablets that they trained scribal students with, around 1800 or 1900 BC. They had to calculate: How long does it take debt to double its size, at what we'd call 20% interest? The answer is 5 years. How does long it take to multiply four-fold? The answer is 10 years. How much to multiply 64 times? The answer is 30 years. Well you can imagine how fast the debts grew.

So they knew how the tendency of every society was that people would run up debts. Now when they ran up debts in Sumer and Babylonia, and even in in Judea in Jesus' time, they didn't borrow money from money lenders. People owed debts because they were in arrears: They couldn't pay the fees owed to the palace. We might call them taxes, but they actually were fees for public services. And for beer, for instance. The palace would supply beer and you would run up a tab over the year, to be paid at harvest time on the threshing floor. You also would pay for the boatmen, if you needed to get your harvest delivered by boat. You would pay for draught cattle if you needed them. You'd pay for water. Cornelia Wunsch did one study and found that 75% of the debts, even in neo-Babylonian times around the 5th or 4th century BC, were arrears.

Sometimes the harvest failed. And when the harvest failed, obviously they couldn't pay their fees and other debts. Hammurabi canceled debts four or five times during his reign. He did this because either the harvest failed or there was a war and people couldn't pay.

What do you do if you're a ruler and people can't pay? One reason they would cancel debts is that most debts were owed to the palace or to the temples, which were under the control of the palace. So you're canceling debts that are owed to yourself.

Rulers had a good reason for doing this. If they didn't cancel the debts, then people who owed money would become bondservants to the tax collector or the wealthy creditors, or whoever they owed money to. If they were bondservants, they couldn't serve in the army. They couldn't provide the corvée labor duties – the kind of tax that people had to pay in the form of labor. Or they would defect. If you wanted to win a war you had to have a citizenry that had its own land, its own means of support."

pgl -> JohnH... , March 21, 2017 at 03:26 PM
"The focus of my talk today will be Jesus' first sermon and the long background behind it that helps explain what he was talking about and what he sought to bring about."

Glad you are researching the ancient history of monetary regimes. Especially since your research into monetary history over the past 150 years is so incredibly wrong.

tjfxh : , March 21, 2017 at 04:15 PM
David Graeber, Debt: The First 5000 Years. Melville House; Updated Expanded edition (2014).

Michael Hudson and Marc Van De Mieroop, Debt and Economic Renewal in the Ancient Near East. Capital Decisions Ltd (2002).

Geoffrey Ingham, The Nature of Money. Polity (2004).

A. Mitchell Innes, "The Credit Theory of Money," The Banking Law Journal, Vol. 31 (1914), Dec./Jan., 151-168.

_____________, "What is Money?," The Banking Law Journal, Vol. 30 (1913), May. 377-409

L. Randall Wray, Theories of Money and Banking. Edward Elgar (2012)

______________, Understanding Modern Money:The Key to Full Employment and Price Stability. Edward Elgar (1998)

anne -> tjfxh ... , March 21, 2017 at 04:34 PM


The Credit Theory of Money
By A. Mitchell Innes


What Is Money?

[ I do appreciate these references. ]

[Feb 19, 2017] Privilege: still exorbitant. An analysis of the international role of the dollar.

Notable quotes:
"... Privilege: still exorbitant. Here's a nice analysis of the international role of the dollar. This is the same argument I tried to make in my Roosevelt Institute piece on trade policy last summer. The Economist* says it better: ..."
"... "Unlike other aspects of American hegemony, the dollar has grown more important as the world has globalised, not less. As economies opened their capital markets in the 1980s and 1990s, global capital flows surged. Yet most governments sought exchange-rate stability amid the sloshing tides of money. They managed their exchange rates using massive piles of foreign-exchange reserves Global reserves have grown from under $1trn in the 1980s to more than $10trn today. ..."
"... Dollar-denominated assets account for much of those reserves. Governments worry more about big swings in the dollar than in other currencies; trade is often conducted in dollar terms; and firms and governments owe roughly $10trn in dollar-denominated debt. the dollar is, on some measures, more central to the global system now than it was immediately after the second world war. ..."
"... America wields enormous financial power as a result. It can wreak havoc by withholding supplies of dollars in a crisis. When the Federal Reserve tweaks monetary policy, the effects ripple across the global economy. Hélène Rey of the London Business School argues that, despite their reserve holdings, many economies have lost full control over their domestic monetary policy, because of the effect of Fed policy on global appetite for risk. ..."
"... America's return on its foreign assets is markedly higher than the return foreign investors earn on their American assets That flow of investment income allows America to run persistent current-account deficits -- to buy more than it produces year after year, decade after decade." ..."
Feb 19, 2017 |
Peter K. : February 18, 2017 at 06:50 AM
J.W. Mason has some interesting links at his blog:

Privilege: still exorbitant. Here's a nice analysis of the international role of the dollar. This is the same argument I tried to make in my Roosevelt Institute piece on trade policy last summer. The Economist* says it better:

"Unlike other aspects of American hegemony, the dollar has grown more important as the world has globalised, not less. As economies opened their capital markets in the 1980s and 1990s, global capital flows surged. Yet most governments sought exchange-rate stability amid the sloshing tides of money. They managed their exchange rates using massive piles of foreign-exchange reserves Global reserves have grown from under $1trn in the 1980s to more than $10trn today.

Dollar-denominated assets account for much of those reserves. Governments worry more about big swings in the dollar than in other currencies; trade is often conducted in dollar terms; and firms and governments owe roughly $10trn in dollar-denominated debt. the dollar is, on some measures, more central to the global system now than it was immediately after the second world war.

America wields enormous financial power as a result. It can wreak havoc by withholding supplies of dollars in a crisis. When the Federal Reserve tweaks monetary policy, the effects ripple across the global economy. Hélène Rey of the London Business School argues that, despite their reserve holdings, many economies have lost full control over their domestic monetary policy, because of the effect of Fed policy on global appetite for risk.

During the heyday of Bretton Woods, Valéry Giscard d'Estaing, a French finance minister (later president), complained about the "exorbitant privilege" enjoyed by the issuer of the world's reserve currency. America's return on its foreign assets is markedly higher than the return foreign investors earn on their American assets That flow of investment income allows America to run persistent current-account deficits -- to buy more than it produces year after year, decade after decade."

Exactly right. You can have free capital mobility, or you can have a balanced trade for the US. But you can't have both, as long as the world depends on dollar reserves."

Darryl noted Keynes's Bancor.

[Jan 23, 2017] re F@ck Work naked capitalism

Jan 23, 2017 |
By Scott Ferguson, Assistant Professor, University of South Florida. He is also a Research Scholar at the Binzagr Institute for Sustainable Prosperity. His current research and pedagogy focus on Modern Monetary Theory and critiques of neoliberalism, aesthetic theory; the history of digital animation and visual effects; and essayistic writing across media platforms. Originally published at Arcade

James Livingston has responded to my critique of his Aeon essay, " Fuck Work ." His response was published in the Spanish magazine Contexto y Accion . One can find an English translation here . What follows is my reply:

... ... ...

This brings me to Modern Monetary Theory (MMT). Far from an "obscure intellectual trend," MMT is a prominent heterodox school of political economy that emerged from post-Keynesian economics and has lately influenced the economic platforms of Bernie Sanders , Jeremy Corbyn , and Spain's United Left . For MMT, money is not a private token that states amass and hemorrhage. Rather, it is a boundless government instrument that can easily serve the needs of the entire community. International monetary agreements such the Eurozone's Maastricht Treaty may impose artificial limits on fiscal spending, but these are, MMT argues, political constraints. They are not economically inevitable and can immediately be dissolved. In truth, every sovereign polity can afford to take care of its people; most governments simply choose not to provide for everyone and feign that their hands are tied.

To be sure, Liberalism has debated the "designation and distribution of rival goods," as Livingston explains. In doing so, however, it has overlooked how macroeconomic governance conditions the production of these goods in the first place. MMT, by contrast, stresses money's creative role in enabling productive activity and places government's limitless spending powers at the heart of this process.

In lieu of Liberal "redistribution" via taxation, MMT calls for a politics of " predistribution ." Redistributive politics mitigate wealth disparity by purportedly transferring money from rich to poor. This is a false and deeply metaphysical gesture, however, since it mistakes the monetary relation for a finite resource instead of embracing government's actual spending capacities. MMT's predistributive politics, meanwhile, insist that government can never run out of money and that meaningful transformation requires intervening directly in the institutions and laws that structure economic activity. MMT does not imply a crude determinism in which government immediately commands production and distribution. Rather, it politicizes fiscal spending and the banking system, which together underwrite the supposedly autonomous civil society that Livingston celebrates.

MMT maintains, moreover, that because UBI is not sufficiently productive, it is a passive and ultimately inflationary means to remedy our social and environmental problems. It thus recommends a proactive and politicized commitment to public employment through a voluntary Job Guarantee . Federally funded yet operated by local governments and nonprofits , such a system would fund communal and ecological projects that the private sector refuses to pursue. It would stabilize prices by maintaining aggregate purchasing power and productive activity during market downturns. What is more, by eliminating forced unemployment, it would eradicate systemic poverty, increase labor's bargaining power, and improve everyone's working conditions. In this way, a Job Guarantee would function as a form of targeted universalism : In improving the lives of particular groups, such a program would transform the whole of economic life from the bottom up.

Unlike the Job Guarantee, UBI carries no obligation to create or maintain public infrastructures. It relinquishes capital-intensive projects to the private sector. It banks on the hope that meager increases in purchasing power will solve the systemic crises associated with un- and underemployment.

Let us, then, abandon UBI's "end of work" hysteria and confront the problem of social provisioning head on. There is no escape from our broken reality. We do better to seize present power structures and transform collective participation, rather than to reduce politics to cartoonish oppositions between liberty and tyranny, leisure and toil. Technology is marvelous. It is no substitute, however, for governance. And while civil society may be a site of creativity and struggle, it has limited spending abilities and will always require external support.

It is essential, therefore, to construct an adequate welfare system. On this matter, Livingston and I agree. But Livingston's retreat from governance strikes me as both juvenile and self-sabotaging. Such thinking distracts the left from advancing an effective political program and building the robust public sector we need.

Carlos , January 23, 2017 at 2:31 am

I really need to be kicked out of the house, to go someplace and do something I don't really want to do for 8 hours a day.

I've already got too much time to fritter away. I'm fairly certain, giving me more time and money to make my own choices would not make the world a better place.

Dogstar , January 23, 2017 at 7:44 am

Hmm. No "sarc" tag Really?? More free time and money wouldn't be a benefit to you and your surroundings? That's hard to believe. To each their own I guess.

MtnLife , January 23, 2017 at 8:39 am

I can see it both ways. Most people see that as sarcasm but I have more than a few friends whose jobs are probably the only thing keeping them out of jail. Idle hands being the devil's plaything and all. For instance, the last thing you want to give a recovering addict is a lot of free time and money.

Jonathan Holland Becnel , January 23, 2017 at 11:51 am

As a recovering addict, I must vehemently disagree with ur statement.

I would love to have as much money and free time on my hands to work on the fun hobbies that keep me sober like Political Activism, Blogging, Film, etc.

Marco , January 23, 2017 at 1:22 pm

Many MANY folks take drugs and alcohol specially BECAUSE of their jobs

JohnnyGL , January 23, 2017 at 10:46 am

At no point in the "Job Guarantee" discussion did anyone advocate forcing you to go to work. However, if you decide to get ambitious and want a paid activity to do that helps make society a better place to live, wouldn't it be nice to know that there'd be work available for you to do?

Right now, that's not so easy to do without lots of effort searching for available jobs and going through a cumbersome and dispiriting application process that's designed to make you prove how much you REALLY, REALLY want the job.

For me, the real silver bullet is the moral/political argument of a Job Guarantee vs. Basic Income. Job Guarantee gives people a sense of pride and accomplishment and those employed and their loved ones will vigorously defend it against those who would attack them as 'moochers'. Also, defenders can point to the completed projects as added ammunition.

Basic income recipients have no such moral/political defense.

jrs , January 23, 2017 at 1:04 pm

The guaranteed jobs could be for a 20 or 30 hour week. I fear they won't be as most job guarantee advocates seem to be Calvinists who believe only work gets you into heaven though.

skippy , January 23, 2017 at 1:50 pm

Totally flippant and backhanded comment jrs, might help to substantiate your perspective with more than emotive slurs.

disheveled . Gezz Calvinists – ????? – how about thousands of years of Anthro or Psychology vs insinuations about AET or Neoclassical

jrs , January 23, 2017 at 1:01 pm

Don't forget commute another 2 hours because you can't afford anything close by!

Ruben , January 23, 2017 at 3:27 am

OMG, where to begin:

"MMT, by contrast, stresses money's creative role in enabling productive activity and places government's limitless spending powers at the heart of this process."

" [money] is a boundless government instrument "

Limitless spending power is identical to infinite spending powers. If this is a central tenet of MMT, the whole conceptual construct can easily be disproved by reductio ad absurdum.

"And while civil society may be a site of creativity and struggle, it has limited spending abilities and will always require external support."

Sure, the support of Nature, but I guess the author is referring to Big Brother, the all-knowing and benevolent government, source and creator of all money, indispensable provider of jobs, jobs, jobs.

Before there was nothing, then came the Government and the Government said: let there be money.

Hard to take it seriously.

Furzy , January 23, 2017 at 4:19 am

I would like to see you do that via "reductio ad absurdum" because I find you absolutely clueless regarding MMT's propositions. Maybe you just like to spout off?

tony , January 23, 2017 at 6:06 am

It's a common 'argument' by people defending status quo. They claim something is ridiculous and easily disproven and then leave it at that. They avoid making argument that are specific enought to be countered, because thay know they don't actually have a leg to stand on.

fresno dan , January 23, 2017 at 8:37 am

January 23, 2017 at 4:19 am

skippy , January 23, 2017 at 4:55 am

So where are your – laws – from Ruben . ??????

UserFriendly , January 23, 2017 at 6:57 am

Limitless may not have been the best word. Of course the government can print money till the cows come home; but MMT recommends stopping when you approach the real resource constraint.

skippy , January 23, 2017 at 7:39 am

Taxes to mop up . but that's theft in some ideological camps .

disheveled must have printing presses down in the basement .

Ruben , January 23, 2017 at 7:58 am

Sloppy language does not help so thank you. So the next question is how do constraints (natural or other) affect spending power under MMT, is it asymptotic, is there an optimum, discontinuities?

The other major issue is that although spending power is controlled by legislatures it must be recognized that wealth creation starts with the work of people and physical capital, not by the good graces of gov't. MMT makes it sound as if money exists just because gov't wills it to exist, which is true in the sense of printing pieces of paper but not in the sense of actual economic production and wealth creation. Taxes are not the manner in which gov't removes money but it really is the cost of gov't sitting on top of the economic production by people together with physical capital.

Jamie , January 23, 2017 at 9:55 am

Help me understand your last sentence. So, if I'm a farmer, the time I spend digging the field is economic production, but the time I spend sitting at my desk planing what to plant and deciding which stump to remove next and how best to do it, and the time I spend making deals with the bank etc, these are all unproductive hours that make no contribution to my economic production?

susan the other , January 23, 2017 at 1:48 pm

Yes, Jamie. And as you point out, Ferguson is giving us a better definition of "productive". He is not saying productivity produces profits – he is saying productive work fixes things and makes them better. But some people never get past that road bump called "productivity."

JohnnyGL , January 23, 2017 at 11:16 am

"MMT makes it sound as if money exists just because gov't wills it to exist "

No, this is inaccurate, MMT says that the government must SPEND money into existence, not just issue a legal fiat. Collecting taxes in the currency creates a need for the currency. This is historically accurate and can be traced from British colonial history. They imposed taxes on the colonies in pound sterling, that compelled the colonies to find something to export to Britain in order to generate the foreign exchange to pay the taxes.

The debate is over how to get the currency in people's hands. Should the govt just cut checks and let citizens spend as they see fit? Or should the government directly employ resources to improve society where the private sector isn't interested?

Regarding user Jamie's point, I hope I can add to it by saying that someone is going to do the planning, whether it's the public sector or the private sector, planning must be done. When government does the planning, then it's decided democratically (at least in theory). If the government doesn't do the planning, then the private sector is left to do it on its own. This gets chaotic if the private sector doesn't coordinate, or can get parasitic if the private sector colludes against public interest.

Jamie , January 23, 2017 at 10:05 am

I don't think there's anything wrong with calling money a "boundless government instrument". The problem here comes from confounding a potentially infinite resource (money) with the inherently limited application of that resource. Sovereign money really is limitless, what one can do with it is not. The distinction needs to be clarified and emphasized, not glossed over.

Jim Haygood , January 23, 2017 at 12:11 pm

" money is a boundless government instrument "

Restated: " Trees grow to the sky and beyond. "

During expansions, the economy is always operating at the real resource constraint. Attempts to goose it with MMT can only destabilize it.

Mel , January 23, 2017 at 12:46 pm

"Limitless" is a pretty good word for some arguments. Look what you get with "limited": every year congress up and says, "Hey dudes, dudettes, we know you expected some governing from us, but we've decided not to do that, because we've decided that the money we've spent has taken us past the Debt Limit. So we're gonna stop now." They're jerking you around. The rules of fiat money that they're using don't work that way. In fact, Richard Nixon took the U.S. into a full fiat money system so he could keep governing without having to worry about running out of money to do it with.

PKMKII , January 23, 2017 at 9:18 am

International monetary agreements such the Eurozone's Maastricht Treaty may impose artificial limits on fiscal spending, but these are, MMT argues, political constraints. They are not economically inevitable and can immediately be dissolved.

So no, not limitless. Rather, the limitations are political ones, not economic. As long as the sovereignty of the currency is not in threat, the money supply can be increased.

vlade , January 23, 2017 at 5:28 am

The author is making some assumptions, and then goes and takes them apart. It's possilble (I didn't read the article he refers to), that the assumptions he responds to directly are made by the article, but that doesn't make them universal assumptions about UBI.

UBI is not a single exact prescription – and in the same way, JG is not a single exact prescription. The devil, in both cases, is in details. In fact, there is not reason why JG and UBI should be mutually exclusive as a number of people are trying to tell us.

and if we talk about governance – well, the super-strong governance that JG requires to function properly is my reason why I'd prefer a strong UBI to most JG.

Now and then we get a failed UBI example study – I'm not going to look at that. But the socialist regimes of late 20th century are a prime example of failed JG. Unlike most visitor or writers here, I had the "privilege" to experience them first hand, and thanks but no thanks. Under the socialist regimes you had to have a job (IIRC, the consitutions stated you had "duty" to work). But that become an instrument of control. What job you could have was pretty tightly controlled. Or, even worse, you could be refused any job, which pretty much automatically sent you to prison as "not working parasite".

I don't expect that most people who support JG have anything even remotely similar in mind, but the governance problems still stay. That is, who decides what jobs should be created? Who decides who should get what job, especially if not all jobs are equal (and I don't mean just equal pay)? Can you be firedt from your JG job if you go there just to collect your salary? (The joke in the socialist block was "the government pretends to pay us, we pretend to work"). Etc. etc.

All of the above would have to be decided by people, and if we should know something, then we should know that any system run by people will be, sooner or later, corrupted. The more complex it is, the easier it is to corrupt it.

Which is why I support (meaningfull, meaning you can actually live on it, not just barely survive) Basic Income over JG. The question for me is more whether we can actually afford a meaningful one, because getting a "bare survival one" does more damage than good.

PKMKII , January 23, 2017 at 9:27 am

That's why any JG would have to be filtered through local governments or, more ideally, non-profit community organizations, and not a centralized government. New York City's Summer Youth Employment Program offers a good model for this. Block grants of money are delivered to a wide range of community organizations, thus ensuring no one group has a monopoly, and then individual businesses, other community groups, schools, non-profits, etc., apply to the community organizations for an "employee" who works for them, but the payment actually comes from the block grant. The government serves as the deliverer of funds, and provides regulatory oversight to make sure no abuses are taking place, but does not pick and choose the jobs/employers themselves.

Praedor , January 23, 2017 at 5:42 am

I don't see it as either/or. Provide a UBI and a job guarantee. The job would pay over and above the UBI bit, if for some reason, you don't want to work or cannot, you still have your Universal BASIC Income as the floor through which you cannot fall.

Private employers will have to offer better conditions and pay to convince people getting UBI to work for them. They wouldn't be able to mistreat workers because they could simply bolt because they will not fall into poverty if they quit. The dirtbags needing workers won't be able to overpay themselves at the expense of workers because they feel completely free to leave if you are a self worshipping douche.

Dblwmy , January 23, 2017 at 11:03 am

It seems that over time the "floor through which you cannot fall" becomes just that, the floor, as the effect of a UBI becomes the universal value, well floor.

jerry , January 23, 2017 at 11:12 am

Was going to be my response as well, why such absolute yes or no thinking? The benefit of the UBI is that is recognizes that we have been increasing productivity for oh the last couple millenia for a REASON! To have more leisure time! Giving everyone the opportunity to work more and slave away isn't much of a consolation. We basically have a jobs guarantee/floor right now, its called McDonalds, and no one wants it.

Labor needs a TON of leverage, to get us back to a reasonable Scandinavian/Aussie standard of living. Much more time off, much better benefits, higher wages in general. UBI provides this, it says screw you employers unless you are willing to offer reasonable conditions we are going to stay home.

Anti-Schmoo , January 23, 2017 at 6:02 am

Why the Job Guarantee versus Universal Basic Income is not about work, BUT ABOUT GOVERNANCE!
Yep, agree 100%.
We live in a capitalist society which is dependent on a (wage) slave population.
UBI? Are you mad?
I for one am mad, give me UBI!
Time to end the insanity of U.S. capitalism

Mrs Smith , January 23, 2017 at 6:08 am

I'm curious to know if either of these systems work if there is no guarantee of "free" access to healthcare through single-payer or a national insurance? I'm only marginally informed about UBI or MMT, and haven't found adequate information regarding either as to how healthcare is addressed. It seems clear that neither could work in the US, specifically for the reason that any UBI would have to be high enough to pay insane insurance premiums, and cover catastrophic illnesses without pushing someone into bankruptcy.

Can anyone clarify, or point me in the direction of useful information on this?

financial matters , January 23, 2017 at 6:35 am

I think they're basically separate issues although MMT provides a way of thinking that federal single payer is possible.

MMT is basically anti-austerity and in favor of 'smart' deficits ie not deficits for no reason but deficits that can improve the economy and the overall social structure such as single payer, affordable education, job guarantee program.

Stephanie Kelton has commented that MMT has no real problem with a UBI if it is done in conjunction with a good job guarantee program. She is well aware of the dangers of a UBI if it eliminates most other social programs.

I think that a job guarantee at a living wage would provide a much better standard for private employment than a UBI which could just work as a supplement allowing private industry to pay lower wages. As a supplement to a job guarantee a UBI could help address issues such as payment for reproductive type work.

UserFriendly , January 23, 2017 at 7:02 am

There are different flavors of UBI, most don't mention healthcare at all. Milton Friedman's UBI flavor prefers that it replace all government spending on social welfare to reduce the government's overall burden. MMT says there is no sense in not having single payer.

Stephanie , January 23, 2017 at 7:06 am

My thought on the last thread of this nature is that if UBI were ever enacted in the U.S., healthcare access would become restricted to those with jobs (and the self-employeed with enough spare income to pay for it). You don't have to be healthy to collect a subsistence payment from to the government.

HotFlash , January 23, 2017 at 11:18 am

Here in Canada we have universal healthcare, as well as a basic income guarantee for low income families with children and seniors. There is a movement to extend that as well, details of one plan here .

In theory, I think it could be possible for the JG to build and staff hospitals and clinics on a non-profit basis or at least price-controlled basis, if so directed (*huge* question, of course - by what agency? govt? local councils?). Ditto housing, schools, infrastructure, all kinds of socially useful and pleasant stuff. However, the way the US tends to do things, I would expect instead that a BIG or a JG would, as others have pointed out, simply enable employers to pay less, and furthermore, subsidize the consumption of overpriced goods and services. IOW, a repeat of the ACA, just a pump to get more $$ to the top.

The problem is not the money, but that the Americans govern themselves so poorly. No idea what the cure could be for that.

Praedor , January 23, 2017 at 12:28 pm

Fixing worker pay is actually VERY easy. It's purely a political issue. You tie corporate taxes to worker compensation. More specifically, you set the maximum compensation for CEOs at NO MORE than (say) 50x average worker pay in their corporation (INCLUDING temps AND off-shored workers IN US DOLLARS no passing the buck to Temp Agencies or claiming that $10/day in hellhole country x is equivalent to $50k in the US. NO, it is $10/day or $3650/yr, period). At 50x, corporate taxation is at the minimum (say something like 17%). The corporation is free to pay their top exec more than 50x but doing so will increase the corporate tax to 25%. You could make it step-wise: 51-60x average worker pay = 25% corporate tax, 61-80x = 33% corporate tax, etc.

It is time to recognize that CEO pay is NOT natural or earned at stratospheric levels. THE best economic times in the US were between the 50s to early 70s when top tax rates were much higher AND the average CEO took home maybe 30x their average worker pay. We CAN go back to something like that with policy. Also, REQUIRE that labor have reps on the Board of Directors, change the rules of incorporation so it is NOT mainly focused on "maximizing profit or shareholder value". It must include returning a social good to the local communities within which corporations reside. Profits and maximizing shareholder value must be last (after also minimizing social/environmental harm). Violate the rules and you lose your corporate charter.

There is no right to be a corporation. Incorporation is a privilege that is extended by government. The Founders barred any corporate interference in politics, and if a corporation broke the law, it lost its charter and the corporate officers were directly held responsible for THEIR actions. Corporations don't do anything, people in charge of corporations make the decisions and carry out the actions so NO MORE LLCs. If you kill people due to lax environmental protections or worker safety, etc, then the corporate officers are DIRECTLY and personally responsible for it. THEY made it happen, not some ethereal "corporation".

BeliTsari , January 23, 2017 at 6:32 am

Durned hippys imagine an IRON boot stamping on a once human face – forever. OK, now everybody back to the BIG house. Massa wanna reed yew sum Bible verses. We're going to be slaves to the machines, ya big silly!

PlutoniumKun , January 23, 2017 at 7:09 am

I'm sceptical whether a guaranteed job policy would actually work in reality. There are plenty of historical precedents – for example, during the Irish potato famine because of an ideological resistence to providing direct aid, there were many 'make work' schemes. You can still see the results all along the west coast of Ireland – little harbours that nobody has ever used, massive drainage schemes for tiny amounts of land, roads to nowhere. It certainly helped many families survive, but it also meant that those incapacitated by starvation died as they couldn't work. It was no panacea.

There are numerous practical issues with make work schemes. Do you create a sort of 2-layer public service – with one level permanent jobs, the other a variety of 'temporary' jobs according to need? And if so, how do you deal with issues like:

1. The person on a make work scheme who doesn't bother turning up till 11 am and goes home at 2.

2. Regional imbalances where propering region 1 is desperately short of workers while neighbouring region 2 has thousands of surplus people sweeping streets and planting trees.

3. What effect will this have on business and artistic innovation? Countries with strong welfare systems such as Sweden also tend to have a very high number of start ups because people can quit their jobs and devote themselves to a couple of years to develop that business idea they always had, or to start a band, or try to make a name as a painter.

4. How do you manage the transition from 'make-work' to permanent jobs when the economy is on the up, but people decide they prefer working in their local area sweeping the street?

I can see just as many practical problems with a job guarantee as with universal income. Neither solution is perfect – in reality, some sort of mix would be the only way I think it could be done effectively.

Torsten , January 23, 2017 at 7:33 am

Yes. Not either/or but both/and.

To provide some context for passers-by, this seemingly too-heated debate is occurring in the context of the upcoming Podemos policy meeting in Spain, Feb 10-12.. Podemos seems to have been unaware of MMT, and has subscribed to sovereign-economy-as-household policies. Ferguson, along with elements of the modern left, has been trying to win Podemos over to MMT-based policies like a Jobs Guarantee rather than the Basic Income scheme they have heretofore adopted rather uncritically.

(Of course Spain is far from "sovereign", but that's another matter :-(

aj , January 23, 2017 at 7:48 am

1) Fire them
2) Prospering region 1 isn't "short on workers" they just all have private jobs.
3) What a good argument to also have single payer healthcare and some sort of BIG as well as the JG
4) private companies must offer a better compensation package. One of the benefits of the JG is that it essentially sets the minimum wage.

Murph , January 23, 2017 at 9:08 am

Yeah, those are pretty good answers right off the bat. (Obviously I guess for #1 they can reapply in six months or something.)

Plutonium- I feel like true progress is trading shitty problems for less shitty ones. I can't see any of the major proponents like Kelton, Wray or Mitchell ever suggesting that the JG won't come with it's own new sets of challenges. On the overly optimistic side though: you could look at that as just necessitating more meaningful JG jobs addressing those issues.

aj , January 23, 2017 at 11:17 am

I was writing that on my phone this morning. Didn't have time to go into great detail. Still, I wanted to point out that just because there will be additional complexities with a JG, doesn't mean there aren't reasonable answers.

PlutoniumKun , January 23, 2017 at 10:42 am

1. If you fire them its not a jobs guarantee. Many people have psychological/social issues which make them unsuitable for regular hours jobs. If you don't have a universal basic income, and you don't have an absolute jobs guarantee, then you condemn them and their families to poverty.

2. The area is 'short on workers' if it is relying on a surplus public employee base for doing things like keeping the streets clean and helping out in old folks homes. It is implicit in the use of government as a source of jobs of last resort that if there is no spare labour, then you will have nobody to do all the non-basic works and you will have no justification for additional infrastructure spend.

3. You miss the point. A basic income allows people time and freedom to be creative if they choose. When the Conservatives in the early 1990's in the UK restricted social welfare to under 25's, Noel Gallagher of Oasis predicted that it would destroy working class rock n roll, and leave the future only to music made by rich kids. He was proven right, which is why we have to listen to Coldplay every time we switch on the radio.

4. This ignores the reality that jobs are never spread evenly across regions. One of the biggest problems in the US labour market is that the unemployed often just can't afford to move to where the jobs are available. A guaranteed job scheme organised on local govenment basis doesn't address this, if anything it can exacerbate the problem. And the simplest and easiest way to have a minimum wage is to have a minimum wage.

aj , January 23, 2017 at 11:39 am

1) Kelton always talks about a JG being for people "willing and able to work." If you are not willing I don't really have much sympathy for you. If you are not able due to psychological factors or disability, then we can talk about how you get on welfare or the BIG/UBI. The JG can't work in a vacuum. It can't be the only social program.

2) Seems unrealistic. You are just searching to find something wrong. If there is zero public employment, that means private employment is meeting all labor demands.

3) I have no idea what you are going on about. I'm in a band. I also have a full-time job. I go see local music acts all the time. There are a few that play music and don't work because they have rich parents, but that's the minority. Most artists I know manage to make art despite working full time. I give zero shits what corporate rock is these days. If you don't like what's on the radio turn it off. There are thousands of bands you've never heard of. Go find them.

4) Again, you are just searching for What-If reasons to crap on the JG. You try to keep the jobs local. Or you figure out free transportation. There are these large vehicles called busses which can transport many people at once.

Yes these are all valid logistical problems to solve, but you present them like there are no possible solutions. I can come up with several in less than 5 minutes.

oho , January 23, 2017 at 8:04 am

For a more practical first step--how about getting rid of/slashing regressive and non-federal income tax deductible sales taxes? shifting that tax burden to where income growth has been.

Democratic Party-run states/cities are the biggest offenders when it comes to high sales taxes.

universal basic income in the West + de facto open borders won't work. just making a reasonable hypothesis.

Dita , January 23, 2017 at 8:06 am

Make-work will set you free?

voteforno6 , January 23, 2017 at 8:32 am

There might be a psychological benefit to a jobs guarantee vs. UBI. There are a lot of people that would much rather "earn" their income rather than directly receiving it.

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Norb , January 23, 2017 at 9:15 am

A JG would begin to rebuild the trust and cooperation needed to have a society based on justice instead of might makes right. Human life is based on obligations- we are all responsible to one another for the social system to work. The problem is always about how to deal with cheaters and shirkers. This problem is best solved by peer pressure and shaming- along with a properly functioning legal system.

I get a kick out of the "make work" argument against a JG. With planned obsolescence as the foundation of our economic system, it's just a more sophisticated way of digging holes and filling them in again. Bring on robotic automation, and the capitalist utopia is reached. Soul crushing, pointless labor can be sidelined and replaced with an unthinking and unfeeling machine in order to generate profits. The one problem is people have no money to buy the cheep products. To solve that dilemma, use the sovereign governments power to provide spending credits in the form of a UBI. Capitalism is saved from is own contradictions- the can is kicked farther down the road.

The obligations we have to one another must be defined before any system organization can take place. Right now, the elite are trying to have their cake and eat it too.

jerry , January 23, 2017 at 11:23 am

Well said!

Jamie , January 23, 2017 at 9:25 am

I agree with those who see a need for both programs. I think the critique of UBI here is a good one, that raises many valid points. But I have trouble with a portion of it. For instance:

by eliminating forced unemployment, it would eradicate systemic poverty

treats 'poverty' as an absolute when it is a relative. No matter what programs are in place, there will always be a bottom tier in our hierarchical society and those who constitute it will always be 'impoverished' compared to those in higher tiers. This is the nature of the beast. Which is why I prefer to talk about subsistence level income and degrees above subsistence. The cost of living may not be absolutely fixed over time, but it seems to me to be more meaningful and stable than the term 'poverty'. On the other hand, in a rent seeking economy, giving people an income will not lift them out of poverty because rents will simply be adjusted to meet the rise in resources. So UBI without rent control is meaningless.

Another point is that swapping forced unemployment for forced employment seems to me to avoid some core issues surrounding how society provides for all its members. Proponents of the JG are always careful to stress that no one is forced to work under the JG. They say things like, "jobs for everyone who wants one". But this fails to address the element of coercion that underlies the system. If one has no means to provide for oneself (i.e. we are no longer a frontier with boundless land that anyone can have for cheap upon which they may strike out and choose the amount of labor they contribute to procure the quality of life they prefer-if ever was such the case), then jobs for "everyone who wants one" is simply disingenuous. There is a critical "needs" versus "wants" discussion that doesn't generally come up when discussing JG. It's in there, of course, but it is postponed until the idea is accepted to the point where setting an actual wage becomes an issue. But even then, the wage set will bear on the needs versus wants of the employed, but leaves out those foolish enough to not "want" a job. Whereas, in discussing UBI, that discussion is front and center (since even before accepting the proposal people will ask, how much?, and proper reasons must be given to support a particular amount-which again brings us to discussing subsistence and degrees above it-the discussion of subsistence or better is "baked in" to the discussion about UBI in a way that it is not when discussing the JG).

PKMKII , January 23, 2017 at 9:44 am

While UBI interests me as a possible route to a non-"means of production"-based economy, the problem I see with it is that it could easily reduce the populace to living to consume. Given enough funds to provide for the basics of living, but not enough to make any gains within society, or affect change. It's growth for growth's sake, not as to serve society. Something is needed to make sure people aren't just provided for, but have the ability to shape the direction of their society and communities.

Teacup , January 23, 2017 at 9:48 am

Where I work @3/4 of the staff already receives social security and yet it is not enough seems to me human satisfaction is boundless and providing a relative minimum paper floor for everyone is just. Yet the way our market is set up, this paper floor would be gobbled back up by the rentier class anyway. So unless there is a miraculous change in our economic rent capture policies, we are screwed

So yes, just describe to people precisely what it is – a 'paper' floor not something that has firm footing yet acknowledges inequities inherent in our current currency distribution methods. And of course couple this with a jobs guarantee. I have met way too many people in my life that 'fall through the cracks' .

Portia , January 23, 2017 at 10:24 am

why is no one bemoaning the rabid over-consumption of the complainers who suck up much more than they will ever need, hoarding and complaining about people who do not have enough? the real problem is rampant out of control parasites

Teacup , January 23, 2017 at 12:04 pm

Must be a capital gains 'earner' . and a professional projectionist

Portia , January 23, 2017 at 12:19 pm

both ends see the other as a parasite

Ignacio , January 23, 2017 at 11:21 am

But Ferguson should also adknowledge that Livingston has some points.

Why on earth we politically put limits to, for instance, public earning-spending while do not put any limit to the net amount that one person can earn, spend and own?

Upward redistribution is what occurs in the neoliberal framework. UBI is distribution. Bear in mind that even in the best employment conditions, not everybody can earn a salary. 100% employment is unrealistic.

LT , January 23, 2017 at 11:58 am

The people marketing UBI and MMT have hundreds of years of attempted social engineereing to overcome. I referring to the " why people want what they want and why do they believe what they believe." Why?

The only suggestion I have is that, since everybody has a different relationship to the concept of work, the populations involved need to be smaller. Not necessarily fewer people, but more regions or nation states that are actually allowed to try their ideas without being attacked by any existing "empire" or "wanna be empire" via sanctions or militarily.
It is going to take many differerent regions, operating a variety of economic systems (not the globalized private banking extraction method pushed down every one's throat whether they like it or not) that people can gravitate in and out of freely.
People would have the choice to settle in the region that has rules and regulations that work most for their lives and belief systems (which can change over time).

Looking at it from the perspective that there can be only one system that 300 million plus people (like the USA) or the world must be under is the MAIN problem of social engineering. There needs to be space carved out for these many experiments.

schultzzz , January 23, 2017 at 12:05 pm

First, congratulations to everyone who managed to read this all the way through. IMO both this (and the guy he's responding to), seem like someone making fun of academic writing. Perhaps with the aid of a program that spits out random long words.

FWIW, when I lived in Japan, they had a HUGE, construction-based make-work program there, and it was the worst of both worlds: hard physical labor which even the laborers knew served no purpose, PLUS constant street obstruction/noise for the people in the neighborhoods of these make-work projects. Not to mention entire beautiful mountains literally concreted over in the name of 'jawbs'.

Different thought: I'm not sold on UBI either, but wouldn't it mess up the prostitution/sex trafficking game, almost as a side effect? Has anyone heard UBI fans promote it on that basis?

Ben , January 23, 2017 at 12:31 pm

The sound and fury of disagreement is drowning out what both authors agree on: guaranteed material standards of living and reduced working time. If that's the true goal, we should say so explicitly and hammer out the details of the best way to attain it.

MIB , January 23, 2017 at 1:12 pm

Interesting read society has become so corrupt at every level from personal up through municipal, regional and federal governments that it cant even identify the problem, let alone a solution

all forms of government and their corresponding programs will fail until that government is free from the monetary influences of individuals / corporations and military establishments, whether it be from donations to a political establishment or kick backs to politicians and legislators or government spending directed to buddies and cohorts

I don't pretend to understand the arguments at the level to which they are written, but at the basic level of true governance it must but open and honest, this would allow the economy to function and be evaluated, and then at that point we could offer up some ideas on how to enhance areas as needed or scale back areas that were out of control or not adding value to society as a whole

We stand at a place that has hundreds of years of built in corruption into the model, capable so far of funneling money to the top regardless of the program implemented by the left or the right sides of society

first step is to remove all corruption and influence from governance at every level until then all the toils toward improvement are pointless as no person has witnessed a "free market " in a couple hundred years, all economic policy has been slanted by influence and corruption

we can not fix it until we actually observe it working, and it will never work until it is free of bias / influence

no idea how we get there . our justice system is the first step in repairing any society

[Jan 11, 2017] Central banks did stop deflation. Which was all they really cared about. Everything else was theater.

Notable quotes:
"... "instead they've had difficulty even getting inflation high enough to hit their inflation target. Maybe the problem is the way the FED is counting dollars." ..."
"... Debt the First 5000 Years ..."
"... looks like ..."
"... "but at some point this must and will end" ..."
"... personal, anecdotal, small-sample, and otherwise qualified observations ..."
Jan 11, 2017 |
djrichard , January 10, 2017 at 12:40 pm

"instead they've had difficulty even getting inflation high enough to hit their inflation target. Maybe the problem is the way the FED is counting dollars."

Ah, but they did stop deflation. Which was all they really cared about. Everything else was theater. Bottom line, Federal Reserve is the counterparty to all the private interests naked shorting the US dollar. Which always works unless that counterfeiting process starts to go into reverse. Just like naked shorting in the stock market can go into reverse and put a big deal of hurt on the naked shorters. But with naked shorting in the stock market, the party that is doing the counterfeiting of stock doesn't have a way to prevent the play from going into reverse. In contrast, the Federal Reserve does, through QE and whatever else they can do. Believe you me, if things got bad enough, they would have done a true helicopter drop. Whatever it takes to get their "liquidity pump" working again.

And they got their liquidity pump working again and stopped deflation. (So hey they were heros, yay! /sarc) And along the way, dollars (either newly borrowed or already in the economy) ended up in assets. And those assets keep going up through more inflation. So while they may not have "levitated the economy", they did levitate the demand for their liquidity pump. (What's not to love? /sarc)

It just hasn't reached high inflation because main street isn't a player. Otherwise, if main street was a player too, like they were for the dot com bubble and housing bubble, well then look out. But everybody on main street is just trying to survive. As far as the Federal Reserve is concerned that's a perfect "wall of worry" to provide them all the cover they need to make sure inflation doesn't get out of hand. To use the words of Adam Smith, "it's a virtuous cycle". Assets go up, the plebs aren't at the party yet, so no need to take away the punch bowl.

(And hey look at all the temp jobs that main street has now. Who says the magic of the Federal Reserve isn't doing good things? /sarc)

OpenThePodBayDoorsHAL , January 10, 2017 at 1:20 pm

Ah yes, "stopping deflation", what a disaster it would be if rent, food, health care cost less. The horror: people might be able to put a little away as "savings" and maybe even "invest". Can't have that now can we.
So we have a system where the Fed controls interest rates (domestic policy) and Treasury worries about exchange rates (trade and international). Their objectives align probably 20% of the time.
Meantime "bank underwriting" is a distant memory, just sign the deal, get your bonus, if/when it goes south Papa (Momma) CB will just smash the value of the scrip some more

craazyboy , January 10, 2017 at 2:07 pm

Post 2008 they decided banks had to securitize everything and sell it, then the financial system would be stable. Your portfolio – not so much.

RobertNYC , January 10, 2017 at 1:36 pm

yes djrichard that is a nice synopsis of how this all works but where does it end? How long can it go on? It is the world's biggest Ponzi scheme and it almost ended in 2008 when the plebes could no longer take on the increasing amounts of debt to keep it going. A normal Ponzi scheme ends when it runs out of fools to fleece but this one is different because it involves central banks which can step in to keep it all going once mainstream is tapped out. That's where we are now; they ginned up massive amounts of base money that was used to prop up asset prices on behalf of the elites. This whole thing has to be the biggest fraud and crime in human history but it is so esoteric that most people can't see it. The masses get buried under inflated costs associated with the asset bubble, inflation and interest payments while a small sliver at the top lives in a rentiers paradise.

They have added massive debt to the system since the 2008 debt crisis and things are now fine? Low interest rates mask the burden but at some point this must and will end. Once they stripped the gold out of the system in 1971 they set the groundwork for an explosion of debt. It's a very scary situation.

Yves Smith Post author , January 10, 2017 at 2:16 pm

1. What you should worry about is private debt to GDP, and that is below pre-crisis levels in the US:

However, there has been a lot of unproductive private debt issuance even so, such as companies issuing debt to buy back stock and student debt financing overpriced college costs.

This is a good explanation of why private debt, particularly unproductive household debt, is the danger:

QE is widely misunderstood as printing money when it isn't. It's a way to lower long term interest rates and spreads (as in lower the spread of prime mortgages relative to Treasuries).

2. China continues to have a massive debt bubble. And no major economy has made the transition from being investment and export led to consumption led without having a major financial crisis.

Robert NYC , January 10, 2017 at 3:10 pm

Are you suggesting that the U.S. monetary system is healthy and sound?

Completely agree that the creation of unproductive debt is the real problem in any economy. Michael Hudson has written brilliantly on that issue. Most debt/money creation should be closely tied to productive investment.

As for private debt to GDP, I have no basis to comment on whether it higher or lower than pre-crisis levels without doing a lot of work. Those types of figures are fraught with complexity based on source data, assumptions and methodology. Would love to see those figures by sector, student loan, credit card, auto loan, mortgage, corporate, municipal, etc. In any case it is unambiguous that government debt has increased by nearly $10,000,000,000,000.00 since 2008. Does anyone think that is a good thing? And that excludes retirement and medical costs which dwarf the funded debt. Federal deficit went up by $1.4 last year, 9/30/16 year-end, after a 7 year supposed recovery when tax revenues should be peaking. What's up with that?

The U.S. may be able to borrow in its own currency but because of its current account deficit it is dependent on foreigners to play along. How long is that going to last?

Any thoughts on the 1974 deal whereby the Saudis agreed to secretly support the dollar. What happens to dollar hegemony without those kinds of deals.

What is going on with Russia right now, why the new cold war? Russia runs a pipeline through Ukraine and is the leading supplier of natural gas to western Europe. It's not dollar based. Qatar sits on the world's largest supplies of natural gas and wants to run pipeline North through Syria. Asssad said no. U.S. then unleashed a proxy war to unseat Assad. Qatar is a U.S. client state, like Saudi Arabia, and they allowed U.S. to build massive air base outside of Doha. Qatar plays along with U.S. and in return the Al Thani family remains in power.

I am afraid this is all a bit more complicated and fragile than meets the eye.

What is your definition of printing money? Is there no such thing in your mind? Does a central bank ever print money in your view of the system other than when they ask the U.S. Treasury's Bureau of Engraving and Printing to create some federal reserve notes?

jsn , January 10, 2017 at 3:39 pm

This is a quick and informative read for 3 bucks, it addresses all your questions here:

Robert NYC , January 10, 2017 at 5:24 pm

I have read two of Randall Wray's books on MMT and Warren Mossler's Seven Deadly Innocent Frauds. I am fairly well acquainted with MMT. As for Mossler I wish he had a good editor because his stuff could read much better. As for Wray's TWINTOPT ("that which is needed to pay taxes") definition of money, you can also argue for TWINTOPP ("that which is needed to purchase petroleum") as a definition of money. Pricing the world's most important commodity in "something" is an even more effective of way of causing that something to be used as money.

As for MMT I like some of the ideas but it seems to suffer from the same fundamental problems that the current system does. If the government has a monopoly on producing money, it is a given that they will overdo it at some point just like what happens with the current private system where the banks over did it. You end up with the same rudimentary questions/problems under MMT or the current type system:

1) what are the rules governing its creation?
2) and who is in charge and gets to decide?

Either system can work if it is intelligently and honesty run but of course that is asking a lot. Unfortunately men can not be trusted to run an honest system for any length of time because creating money is the world's greatest privilege and it will always be abused at some point; war, greed, stupidity, it doesn't matter, at some point discipline is lost. That in summary is the entire history of money.

Mel , January 10, 2017 at 7:07 pm

There's a lot of history behind the MMT conception.

David Graeber, in Debt the First 5000 Years describes kings creating money in order to pay the army, and creating impersonal markets (pp. 226-227) where money was good in order to feed the army without
a) trundling huge convoys of grain all over the country all day, every day, or
b) letting the army feed itself, and stripping the country bare.

The way this had to be done without impersonal markets is described by Pierre Loti in Au Maroc (not sure where to find a version in English.) Loti was part of a French diplomatic mission to the depths of Morocco. To feed the mission, the Sultan sent word in advance to the people near each nightly stop, ordering them to provide a sufficiently larg feast. Without the modern features of civilisation, that was the only way.

One of Gandhi's early campaigns was against a move by the British governmennt in India to licence all mango trees. The situation had been that there were feral mango trees growing all over India, and anyone who was going by such a tree, and felt like a snack, could pick a mango and eat it. This scheme provided no role for the government. The plan was for each tree to be licenced, for a fee, and to destroy any un-owned, unlicenced tree. Then everybody would be obliged to pay rupees for their snacks. The government's control of society through the impersonal market would be strengthened. Pity that people would get less to eat. ISTR Gandhi won that one.

I could entertain the doubt that without pre-existing money and a global impersonal market there would even be petroleum to buy. Who would drill down to the petroleum, pump it out of the ground, and ship it halfway around the world to where you happen to be in the hope that you even exist, and, if you exist, that you even want petroleum and have something worthwhile to give in exchange? It takes a global impersonal market to aggregate personal whims and accidents into something that we call demand, and find we can count on in making far-reaching decisions on what to do. I wonder, could we even have industry without it? Hmmm

djrichard , January 10, 2017 at 7:13 pm

Check out History shows abuse of the money supply primarily comes from two places: 1) true illegal counterfeiting by outside parties, 2) true legal counterfeiting (ahem borrowing) by inside parties who are simply shorting the currency when the economy is publicly biased towards increased private debt (think Wiemar Republic or Venezuela).

In contrast, Fed Gov fiat (MMT) is not based on a fractional reserve system. At least not the ones I hear people talk about. So the magnitude of debasement/debauchery is a lot less compared to fractional-based currencies. Plus the monetary base can always be shrunk by issuing bonds if the will power to tax is weak.

Yves Smith Post author , January 10, 2017 at 7:14 pm

MMT is not "a system". It is an empirical description of how fiat currencies work.

Saying you don't like MMT is like saying you don't like gravity.

steelhead23 , January 10, 2017 at 6:27 pm

Thanks for stepping in, Yves. But I have a minor quibble with that Private Debt to GDP graphic you linked. Because the graph's Y-origin begins at 195%, the 7.5% reduction since 2008 looks like a 500% decrease. Bottom line – private debt to GDP remains very high and the economy is much weaker than it was in 08. Unless GDP picks up quickly (less the Ponzi-esque growth in equities), our financial future does not appear strong.

Is it OK if I hope (against my better judgement) that Trump is serious about improving U.S. infrastructure through deficit spending and the loony conservatives in Congress go along?

djrichard , January 10, 2017 at 3:03 pm

"but at some point this must and will end"

If this ends, the only way it does so is through deflation. But the Fed Reserve is always on hand to do "whatever it takes" to prevent deflation.

If the Federal Reserve loses that fight (and it's hard to think of a scenario where they could ostensibly lose), then deflation would take out everybody who is in debt. Which is pretty much everybody, except people who have no debt and are holding cash. The Fed Gov would certainly have to step in to provide 3 hots and a cot.

Instead, we have an outcome where the deflation monster is kept at bay, but everybody is up to their eyeballs in debt (I'm speaking private debt here. By the way, notice how private debt forgiveness never enters into the conversation). Except for the elite, they're not in debt to their eyeballs because the height of their eyeballs can keep getting higher and higher. The elite know if the wall-of-worry disappears, forcing the Fed Reserve to raise rates, they'll be caught with their pants down. But they also know they'll be rescued again (the ol deflation monster must be defeated once again. We do this for you little people don't you know). So that's where the economy is thriving – for the elite.

Robert NYC , January 10, 2017 at 3:19 pm

In aggregate terms the elites hold the other side of all the debt that was created, that is why they won't tolerate deflation, everything implodes under such a scenario. The masses are buried under the debt, while a small minority holds the asset side of it. Therefore everything will be done to stave off deflation. System is very fragile, teetering between deflation and potential hyper inflation. They have threaded a needle so far to keep it stable but things are not normal. It will be some time before we know how this resolves itself.

craazyboy , January 10, 2017 at 1:58 pm

The issue isn't monetary policy, i.e increasing or decreasing the supply of money, the issue is that the way we've decided to do it is by increasing and decreasing interests rates. So we end up in this bazzarro world where, .
Stop! I know the answer!

Fed Chief Mariner Eccles explained that long ago – "pushing on a string won't work"

Keynes explains it in English – This doesn't work when in a "liquidity trap"

Our current Fed are Monetary_keynesians working in the Mariner Eccles building.

Someone tell Ben and Janet!!!!!!!!!!!!!!!!!

TosTrader , January 10, 2017 at 2:21 pm

"If we accept that only the Federal Government, through spending and taxing, can increase or decrease the supply of dollars"

the vast majority of dollars in the economy are actually created by banks in the form of deposits generated by making loans. The central bank (Federal Govt.) seeks to control the level of reserves in the interbank market and has very limited control over the the supply of money in the economy as a whole. banks do not lend reserves, which is why there can be reserves sloshing all around the system without causing inflation. As long as there are idle resources in the economy the danger of inflation is overblown.

Ranger Rick , January 10, 2017 at 11:47 am

Just follow the money. How does monetary policy influence influence the average person's finances? They don't have access to the discount window. Business investment is at an all-time low. Just witness the famously large cash hoards currently collecting dust in the Fortune 500 and companies like Uber setting billions of dollars on fire trying to get into new markets instead of developing new products. Instead they're using cheap debt to buy competitors and fire all their employees. Small businesses are disappearing and there are fewer new ones to replace them - nobody has collateral.

Until financial policy starts seriously considering "helicopter money" the economy is just going to sit there spinning its wheels, going nowhere on the backs of a vast underclass with no money to spend. Government contracts are and remain the only way the average person might even catch a glimpse of the world of finance, a fact that must seem appalling to any financial conservative.

Ivy , January 10, 2017 at 12:08 pm

Inflation is hidden in plain sight for many consumers. Just take a trip to the grocery store, or a home improvement big box, or any number of other retailers. From personal, anecdotal, small-sample, and otherwise qualified observations , retailers held prices low until the election and then started to raise them. That will add some pop to their fourth quarter earnings, while people adjust budgets accordingly.

[Jan 11, 2017] A fiat currency issuer can deficit spend without creating debt instruments

Jan 11, 2017 |
Yves Smith Post author , January 10, 2017 at 7:23 pm

This is not correct and I hate to tell you but your comments on this topic are very confused, and worse, you are terribly self confident about your erroneous beliefs.

A fiat currency issuer can deficit spend without creating debt instruments. You do not take your dollar bills in a fiat regime to the Treasury and get them redeemed for something material. The only use you can make of currency with the Treasury is to extinguish your tax liabilities.

The Fed can only 'lend' fiat. They don't 'spend' fiat, unless Congress authorizes the purchase (e.g. Tarp). But note that even foreign currency purchases of the Fed have to be cleared by Treasury (which happens behind closed doors and no one notices). So no, the Fed does not bypass Congress.

And if you mean that Fed offers deposit insurance on deposits (created via private lending) but that's still an authority given to it by Congress when FDIC was created. And the FDIC has a 'line of credit' with the Treasury, not the Fed, so again Congress is not bypassed. In fact, the credibility of the FDIC only exists because of that line of credit from the Treasury, since it means they are de facto linked to the currency issuing entity directly.

The Fed NEVER creates fiat for the private sector. It exchanges green paper money for bank reserve balances–$ for $ exchange. There is no cost to the Fed or the govt. Not to mention that the Fed's overall operations are a cash cow for the federal govt (due to its profits via interest income on securities owned vs. costs of its liabilities and salaries, etc.), so it never needs Congressional appropriations. As an MMT expert said of your BTW "This question in the first place shows that this guy has no idea how any of this works."

[Jan 11, 2017] The chart from Citibank shows the eye-popping expansion of central bank balance sheets, from roughly $3 trillion in the year 2000 to $20 trillion today.

Jan 11, 2017 |
Jim Haygood , January 10, 2017 at 12:18 pm

This chart from Citibank shows the eye-popping expansion of central bank balance sheets, from roughly $3 trillion in the year 2000 to $20 trillion today.

Evidently the "EM" band in green is dominated by China, which accumulated over $4 trillion in forex (primarily US Treasuries) through 2013. Now it's having to sell Treasuries to prop up the yuan exchange rate.

But Haruhiko "Mad Dog" Kuroda at the Bank of Japan is picking up the slack from China with a ferocious buying binge, as Mario "Whatever It Takes" Draghi closely pursues him.

Common sense would tell you that expanding central bank assets at many multiples of economic growth is neither sustainable nor even sensible. Central banksters are giving ol' John Law a run for the money. With any luck they should be able to produce an epic calamity, since their bubble blowing is global rather than confined to one country.

jsn , January 10, 2017 at 1:22 pm

Actually, the Fed is just laundering crap from our TBTFs and supporting the purchasing power of the dollar:
The grey is crap being invisibly written down at taxpayers expense (actually holding a very small percentage of its face value, but embarrassing for Jamie and Lloyd if admitted in public), the baby blue is keeping the imports made abroad by our multinationals "affordable" without them having to re-patriate the cash.

craazyboy , January 10, 2017 at 1:46 pm

I'm pretty sure "grey" is the "good" MBS. They swore up and down it was Fannie&Freddie MBS they were buying as part of QE – these are supposed to be the high quality end of mortgage instruments and I think it really did turn out that way.

The drek mopped up from Bears and others is called "Maiden", and is the nearly imperceptible dark blue on this chart. If they properly wrote them down immediately, then they wouldn't show up on a current chart! This is why "audit" sounds cool. Then we could have a completely different chart showing how much they did give away to their buddies.

jsn , January 10, 2017 at 3:14 pm

No doubt they did say that, I guess I've just grown less trusting.

Given the proTBTF tilt of all else that transpired I just can't believe Timmy and The Fed really took possession of anything it would have pained Jamie and Lloyd to give up.

It would be interesting to see an audit!

RobertNYC , January 10, 2017 at 1:42 pm

"Common sense would tell you that expanding central bank assets at many multiples of economic growth is neither sustainable nor even sensible. Central banksters are giving ol' John Law a run for the money. With any luck they should be able to produce an epic calamity, since their bubble blowing is global rather than confined to one country."

It's inevitable and will make John Law look like a rank amateur when this thing comes apart.

jsn , January 10, 2017 at 3:17 pm

Personally, I'm looking forward to what happened next: the Regent toured France with a detachment Dragoons collecting gold from hoarders at bayonete point!

Tom Bradford , January 10, 2017 at 4:11 pm

Yay! This article and its comments exemplifies why I spend far longer on NC than on any other site on the Web. Not only had it never before occured to me that The Wizard of Oz was an allegory of anything – tho' it's obvious even to the dim-witted like me once pointed out – it helped me understand the concepts and relationships that underlie 'money'. In short, how a pound note can be, as it says, "worth one pound".

[Jan 11, 2017] Empire of chaos: by creating military mayhem all over the world we have attracted savings to the US economy for fear it might be lost any where else.

Jan 11, 2017 |
Robert NYC , January 10, 2017 at 5:58 pm

The author's critique of modern central banking seems dead on, the fallacy of pushing on a string etc, but he seems to think their response was a mistake because what we really lack is fiscal stimulus. Pardon me if I am confused but didn't the government just engage in the biggest fiscal stimulus in the history of the world as evidenced by its massive deficit spending to the tune of ten trillion dollars. Was that not a fiscal stimulus? What is the author's point? That we need even more of this! If Mr. Ferguson would clarify that would be great.

I happen to think everything they have done is mistake and that what we need is a debt jubilee which is what William White, one of the world's foremost monetary theorists and former chief economist of the BIS also thinks.

Yves Smith Post author , January 10, 2017 at 7:31 pm

No, the bailouts were not fiscal spending. They were done mainly by special facilities and those loans were paid back. QE is also not fiscal spending.

The US engaged in only about $800 billion of fiscal spending. China did the most, IIRC about $2 trillion.

William White was very good in the runup to the crisis in identifying the housing bubbles but is really clueless about the debt of fiat currency issuers v. that of non-fiat issuers, like US states and countries in the Eurozone.

RBHoughton , January 10, 2017 at 9:47 pm

There is a slight upside to the frightful monetary policy we have been obliged to pursue – by creating military mayhem all over the world we have attracted savings to the US economy for fear it might be lost any where else.

Even UK has proved unsafe and western media is making the EU look dodgy too.

So regardless of the reality of a dormant national economy the money keeps coming in.

Don't forget the tax havens either – they invest in New York.