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Wray: Krugman has shined the headlights on the crucial currency issuer-currency user difference

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Edward Harrison here.

The post by Randall Wray below is an interesting one because it points out how the world has changed since the end of the gold standard and why the sovereign debt crisis is centered in the euro zone.

While I have an Austrian bias overall, for me, MMT is the best way to think about nonconvertible floating exchange rate systems as distinct from fixed exchange rate, currency board, pegged and convertible systems. The difference is policy space and what I would call the bond vigilante relief valve. In the old gold convertible system, the Central Bank had to jack up rates to prevent an outflow of gold.

In the old days, only by adjusting the gold peg could countries under attack get away with low rates once the vigilantes were on to them. That’s what happened during the Great Depression. Once the conversion was broken, the currency depreciated and depression lessened immediately.

Today the release valve is the currency because there is no gold tether. So the currency gives way, not interest rates. And to the degree that interest rates would increase, the Central Bank can print. The currency revulsion question then is always currency depreciation, inflation and even hyperinflation (when and under what preconditions) not interest rate spikes.

Sovereigns with significant foreign currency liabilities face the same issues – as we saw in Iceland in 2008. In the Russia and Argentina defaults last decade, those countries had foreign currency liabilities and a currency peg. This was the problem. It’s different for nonconvertible floating exchange rate currencies issued by a sovereign with no foreign currency obligations.

Where the bond vigilante story is usually flawed is in thinking that the bond vigilantes have power. Shorting government bonds when the central bank is politically aligned with the Treasury is a sure-fire way to lose lots of money. The consolidated government’s balance sheet consists of IOU liabilities that it can manufacture in infinite quantities. Why would anyone think they can win that game? It’s like my writing Yves IOUs for blog points. Maybe I write more than I can ever cover her for. But I create the points. I can always create more. if I write too many, their value depreciates.

The Europeans are currency users with a Central Bank that is not politically aligned. This is a very different institutional arrangement to the US. The Fed can ‘financially repress’ all it wants. They control rates. Long-term, the result will be currency depreciation relative to other CB’s not repressing. But if everyone is engaged in financial repression i.e forcing negative real interest rates across the curve – and I think they all will be – then clearly its only hard currency that wins: gold, land, etc. After an initial bond vigilante run, Bill Gross has got religion on this too.

Paul Krugman gets it too. I didn’t always think this was the case. But now Krugman is way out in front on this one as Randy attests in the post below.

From an investing standpoint you have to get this one right. The bond vigilante paradigm has been false in Japan and now in the US as well. If you had seen rates in Japan at 2% and shorted them saying they would come up, you would have lost your shirt. Conversely, if one uses the currency sovereignty paradigm, the short-JGBs trade is one that one would have avoided.

What a cautious investors should do is shun repressed assets and seek next best alternatives in similar assets classes or in different currencies – corporate over government bonds, Canadian over US, etc. Indonesia, for example is an opportunity.

One last note: Bill Gross had a good piece in the FT about what I have dubbed ‘permanent zero’. He called it the ugly side of ultra-cheap money. I think he’s onto something that worries me as well. It’s the same sort of thing we saw in Japan and it means, critically, that when the economy hits recession, the yield curve flattens even more and banks get savaged by this while the asset side of their balance sheet falls apart. They are then forced to sell good assets to delever and that causes a negative spiral. For the US, the next recession will be like this – and it will be nasty for risk assets as a result.

That’s my piece. Randall Wray’s post is below.


This post first appeared at "Great Leap Forward”, Randall Wray’s EconoMonitor blog.

As Mae Moore says, “It’s a Funny World” (2002). Let’s try to make sense of two news reports. Help me if you can.

1. Republicans reject the payroll tax holiday because it does not go far enough. To complicate matters, the Senate has already gone on its Xmas holiday and is refusing to come back. That leaves the Republicans in a bit of a pickle—they are going to raise taxes on the average American by $1000 per year because they refuse to support a 2 month holiday extension.

Right. Congress wants its long holiday from work, but does not want to give Americans a holiday from paying a regressive tax—the payroll tax—that for the bottom 70% of American workers takes away more income than the Federal Income tax. It is a job killer, too—as it raises the cost of employing Americans over the cost of employing workers just about anywhere on earth (few other countries tax work and employment the way we do—our payroll tax makes American workers more than 12% more expensive). So Republicans want to take away the payroll tax holiday and kill jobs.

That is a rather nice election strategy. And it is bad enough that they’re mainly running clowns for President. With the exception of Ron Paul, is there any serious candidate in the running? No, I didn’t think so. What, they actually WANT President Obama for 4 more years? Why? To continue to bail-out Wall Street? To continue to look the other way while banksters trash the economy?

Apparently the Republicans are hold-outs because they want two noxious additions to the payroll tax holiday legislation. First, they want an environment-killing Keystone pipeline—so they want that linked to the extension of the payroll tax holiday. The wording they prefer forces the President to forego any reasoned analysis of the wisdom of the pipeline by rushing a decision within 60 days. Second, they want to end the extended unemployment compensation benefits—to kill any jobs that the payroll tax holiday created. Right. We’ve been too kind to the environment and to the workers who lost their jobs because of Wall Street’s excesses, so let’s take away the payroll tax holiday and kill as many jobs as we can.

The logic escapes me. Extending the payroll tax holiday while reducing the time unemployed workers can collect benefits is a zero sum game. Do Republicans really want to fiddle while the economy slips into Great Depression 2.0? Yes they do. They see that as a win-win. They’ll run some Bozo the Clown, lose the election, and then stick Obama with the coming depression. And they hope to also stick him with an environmental nightmare to hasten the end of life as we know it.

Oh, sure, there will be life after Keystone. You’ve seen some of the science fiction movies that attempt to divine it. I’d put my money on the dystopian Mad Max or A Boy and His Dog. I expect that is a future that many of the current Republican candidates would embrace: one with insignificant, ineffectual governmental constraint on unbridled pursuit of macho self-interest. Newt! It’s your party platform.

2. The World Discovers Modern Money Theory. Who wuddavthought? The problem with the Euro is that formerly sovereign nations gave up their currencies to adopt a foreign currency called the Euro. Now, MMT followers have been saying that since the Euro was proposed. It was a system designed to fail, and like all systems designed to fail the only question was when. We now know the “when” is January 2012—when the Euro banks fail and Italy leaves the union.

But we were ignored for a decade and a half, while economists and policymakers celebrated the glorious “Union”. Heck, the union was so great that the EMU invited every Tom, Dick, and Harry nation to join up. They added nations with wages and living standards that were barely above subsistence level—indeed, nations that were willing to reduce living standards below subsistence if only they could join and reap the supposed benefits of joining the most dysfunctional empire ever constructed.

And they let Germany add cheap workers within its eastern half and then extend its reach to those low cost new additions as it came to account for 75% to 80% of all European exports. There has never been any international arrangement, anywhere, at any time in human history, that so-favored a nation. And when things went predictably bad for all of Germany’s neighbors, Germany pointed its finger at its victims and insisted that they were at fault for Germany’s success. No more porridge for them!

As evidence that the world is coming around (finally) to the MMT view, take a look at Dean Baker’s excellent piece.

Now here’s the ironic thing. It seems to have been none other than Paul Krugman who made it safe for others to adopt MMT. He shined his headlights on the obvious: the reason why interest rates on government debt are not exploding in countries like Japan, the US, and the UK is because they issue their own currencies.

Japan is the champion nation in terms of budget deficits and government debt relative to GDP. Many have long argued (wrongly) that this is because holders happen to have addresses in Japan. Nonsense. A sovereign government that issues its own currency makes interest payments on its debt in exactly the same manner whether the holder has an address at the South Pole or on Mars: a keystroke to a savings deposit at the central bank. What matters is whether the country issues its own currency.

That is why the little spat between the UK and France—with France insisting that credit agencies ought to down-grade the UK before they downgrade France—is so silly. France can have a debt ratio under 15% of GDP and still be forced to default. The UK can have a debt ratio above Japan’s 200% and still face no chance of involuntary default. That is the beauty and utility of issuing your own currency. France is a currency user and its fate depends on Germany—which is busy sucking up every spare Euro it can lay its greedy hands on. France is no better off than the panhandler on the street corner begging for pocket change—a user of currency, not an issuer.

So, Krugman shined the headlights on the difference between a currency issuer and a currency user. It is now time for everyone to follow Dean Baker—to look for the car keys under those MMT headlights.

3. Olly Olly Oxen Free: it is safe to come out of the dark. A sovereign government faces no financial constraints. We can have payroll tax holiday extensions and unemployment benefit extension. Heck why don’t we go whole-hog and actually create jobs for the unemployed? We need 25 million of them. We can afford them. All we need to do is to find useful things for them to do. That ain’t hard.

“The Conservative belief that there is some law of nature which prevents men from being employed, that it is “rash” to employ men, and that it is financially ‘sound’ to maintain a tenth of the population in idleness for an indefinite period, is crazily improbable – the sort of thing which no man could believe who had not had his head fuddled with nonsense for years and years… Our main task, therefore, will be to confirm the reader’s instinct that what seems sensible is sensible, and what seems nonsense is nonsense. We shall try to show him that the conclusion, that if new forms of employment are offered more men will be employed, is as obvious as it sounds and contains no hidden snags; that to set unemployed men to work on useful tasks does what it appears to do, namely, increases the national wealth; and that the notion, that we shall, for intricate reasons, ruin ourselves financially if we use this means to increase our well-being, is what it looks like – a bogy.” –John Maynard Keynes 1972, 90-92

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This entry was posted in Credit markets, Currencies, Federal Reserve, Guest Post, Investment outlook, Japan, Macroeconomic policy, The dismal science on by .

About Edward Harrison

I am a banking and finance specialist at the economic consultancy Global Macro Advisors. Previously, I worked at Deutsche Bank, Bain, the Corporate Executive Board and Yahoo. I have a BA in Economics from Dartmouth College and an MBA in Finance from Columbia University. As to ideology, I would call myself a libertarian realist - believer in the primacy of markets over a statist approach. However, I am no ideologue who believes that markets can solve all problems. Having lived in a lot of different places, I tend to take a global approach to economics and politics. I started my career as a diplomat in the foreign service and speak German, Dutch, Swedish, Spanish and French as well as English and can read a number of other European languages. I enjoy a good debate on these issues and I hope you enjoy my blogs. Please do sign up for the Email and RSS feeds on my blog pages. Cheers. Edward

152 comments

    1. ambrit

      Dear Larry;
      As this half baked dilletante sees it, the big Italian bond sale goes South, the Italian Government faces either total ruin and or civil unrest, and takes the only feasable way out, decoupling from the Eurozone. Italy has always been a quite fractious country. Their politics is grade A fun to watch, and much more open and wiling to question than the duopoly we have here. If you think the Greeks were outrageous in their rioting and dissent, just wait until the Italians get their dander up.

      1. Yearning To Learn

        Do you think the ECB will really sit by and not intervene if Italy looks to be leaving the Euro?

        Although I think Euro and possibly EU breakup is a large possibility, I don’t know that it’ll happen in just 1 month!

        1. ambrit

          Dear YtL;
          I must agree with you there. Perhaps it is my inner Kroptkin speaking. Again though, with balance sheets so notoriously opaque nowadays, who can know just how serious the Eurobanks exposure to toxic assest really is? With finance being global today, a shock from literally anywhere in the world can set off a Depression. We live in interesting times indeed!

          1. Maju

            Have you even read Kropotkin at all? I doubt he has to do with anything you say. Whether we agree or not with his ideas, he was quite wise and well pondered thinker and not any hothead.

        2. James Cole

          If it happens, it will happen over a weekend without formal warning and will be followed by a bank holiday and capital controls while currency is exchanged inside Italy’s borders and capital flight is reduced to a minimum. It will also be unlawful since the EMU treaty does not contemplate unilateral withdrawal by a member state, and would likely be countered by the rest of the EMU with tariffs and other punitive measures. All of this, together with the legal and financial uncertainty that would ensue, would be fairly catastrophic to the global economy, on the order of 10 Lehman bankruptcies.

      2. Ray Phenicie

        I believe you are firing off a response that is not well thought out. Professor Wray is not a dilettante. For your edification you may wish to find the theory behind what is said in the article above a sovereign government that has the sole monopoly power for printing money-a somewhat subtle concept that is backed up by the ability of the FBI to come into your home and seize your printing press and place you in a single cell clad in orange if you decide to go into business for yourself on that one.

        Answer me this if you can-why does that matter? After all, I could mine gold all day in my backyard and turn that later into money; NO? As long as the goods and services produced in the country are in a reasonable relation to the amount of currency circulating everything is okay. And again, answer me this, what is the difference between currency and private debt held by households and businesses?

        The theory behind what Professor Wray is talking about is here Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth
        http://www.alibris.com/booksearch?qwork=16989800&binding=S&keyword=wynne+godley&qsort=p&cm_sp=works*listing*softcovers

        1. ambrit

          Mr. Phenicie;
          In what way did I traduce Prof. Wrays character? If I am ignorant about something, so be it until I learn better. I am no stranger to the need to improve ones self. So, thanks for the book link, I’ll get it and read.
          As for the nature of money, well, when you have a gold mine in your back yard, you’d better be on good terms with the local power structure lest they come along and expropriate it ‘for the national good.’

    2. Frank

      When one writes something so categorical like this post by Prof. Wray (January 2012 not something like sometimes in the future) there are just two possibilities 1) he is right 2) he is wrong and this is his last post because no one will never accept a writing of him without being deluged in the ridiculous himself.

      1. Ray Phenicie

        Your response is partially incomprehensible but I sense you are in disagreement with the overall truth of the posting because a prediction about when Italy will leave the Euro Zone might be off by a month or two?

        Italy would leave today if its leaders were not having their arms twisted into pretzels by the French and German bankers.

        1. SidFinster

          Capitalist lies.

          The Euroelite support for the Europroject goes beyond self-interest.

          So much of their credibility is tied up in the Europroject that it more resembles a suicide pact.

  1. Lew Glendenning

    More propaganda for government managing the economy.

    So far as I can see, there are no examples of this being successful. None.

    All of the countries that employ Keynesian policies end up in a long-term depression (Japan, now the US and the UK) or broke (Greece, …) All of the countries of the world with advanced economies (excepting the US, Norway, perhaps one or 2 others) have aging populations, declining ratios of workers / non-workers, rising social costs, declining economies.

    The US is temporarily a beneficiary of all of this, as money escapes China and the Euro. That won’t last.

    A rational country would abolish corporate and other business taxes, prohibit those businesses from influencing the political system, and eliminate their national currency. The simplification of their economic systems would provide a very large advantage to their national economy. The elimination of crony capitalism even larger.

    1. F. Beard

      and eliminate their national currency. Lew G

      Who else should create government money but government?

      But governments would be very wise to allow genuine private currencies too so as to abolish the stealth inflation tax.

    2. Yearning To Learn

      A rational country would abolish corporate and other business taxes, prohibit those businesses from influencing the political system, and eliminate their national currency

      You’ve lost me here. I’m not being snarky, but could you please give a rationale or at least an example of a place that abolished its national currency and then thrived? what is the mechanism of how abolishing a national currency leads to improved economic outcome? I can just think of the horrors of doing business if there were thousands of competing currencies out there… contracts would be a mess! this was one of the few benefits of the Euro with relation to having a european economy… made contracs and payment much simpler. obviously with some severe negative side effects.

      why/how does abolishing business taxes make us more stable?

      and lastly: of course we agree that we need to prohibit businesses from overpowering the political system, but it would seem that eliminating business taxes would go the OPPOSITE way of this… more $$$ = more control.

      1. Erick Muller

        It seems to me that the real problem it`s not so much the private sector(voluntary sector) as it is the public sector(coercive sector). The answer is obvious to me, get rid of politics and politicians, they are the ones that make the laws. Corporations don`t have millions of personal to use them as militia(army a policemen)to bully other people to impose theire will and prejudices on to the general population.

        1. Procopius

          “Corporations don`t have millions of personal to use them as militia(army a policemen)to bully other people to impose theire will and prejudices on to the general population.” Not millions, it’s true, but have you never heard of the Pennsylvania Coal & Iron Police? General Motors’ Black Legion? Ford’s notorious Service Department? And, of course, Pinkertons?

    3. ambrit

      Mr. G;
      “More propaganda for government managing the economy.” Absolutely right. Without someone managing the modern economy, we end up with the Age of the Robber Barons on Steroids.
      The function of legitimate governments is to mediate between competing interests in the society. Since modern “Democracy” purports to represent “the People,” it naturally follows that the Government should promote the interests of “the People” even if to the detriment of the Corporate interests. That’s theory, I understand that the “real world” is somewhat more complex.
      Without theoretical underpinings, even the most fiendishly clever scheme is bound to fail. A being without a transcendant goal ends up being futile and ephemeral in life. So, if the quasi mythical “Rational Person” is to have any sort of useful and satisfying life, he or she has to not only reject the hollow posturings of ‘rent seeking’ but to actively oppose them.
      This is the crux of the matter; does the government support the people it purports to represent, or is it beholden to the Rentier Class? All else flows from that. As a practical matter, either the corporate class pays a signifigant share of the governmental revenue burden, and thus helps the populace towards a better life in general, or it does not, and the populace sinks into misery and squalor.
      There’s your choice mate. Cheers and Merry Christmas.

    4. ambrit

      Mr. Lewis;
      Cut the man some slack. At least he’s using ‘organic’ fertilizer for his Garden of Delusions.

      1. ambrit

        Mr. Lewis;
        Some people here and on other blogs are agitating for the return of Dr. Guillotins Social Occams Razor. Talk about haircuts!

    5. Frank Speaking

      “All of the countries that employ Keynesian policies end up in a long-term depression…”

      more laffer curve propaganda…in case you missed the last 30 years Lew the US economic regime (as well as not-so-Great Britain) has been driven by Laffer Curve voodoo.

      More than 50 percent of our nation’s current debt was accumulated following the directives of the Laffer Curve from 2001 through the end of 2010.

      oh and perhaps you should spend sometime reading the history of the late 19th century and the first half of the 20th century.

    6. Ray Phenicie

      Another partially incomprehensible posting by an observer who failed to note that the current regime (from Truman to Obama-its all the same party controlling things) has been never been trying to be Keynesian-or follow any school of economics that I have ever been aware of. They mostly bungle along trying to find the keys to the system under any available light or lamp that happens to be around. So maybe terms should be defined before their use make fools of us all.

  2. F. Beard

    and I think they all will be – then clearly its only hard currency that wins: gold, land, etc. Edward Harrison

    What is gold but a shiny metal that in the past was accepted by governments as money? And unless gold is once more accepted by governments as money why should gold “win”?

    1. Yearning To Learn

      F. Beard;

      first: I do own gold, but I am not a gold bug.

      To answer your question, gold has a long history of being recognized as valuable.

      THere are a lot of “assets” out there right now that have either no obvious value, or a poor historical record of value, or contentious ownership.

      Many of these assets may become worth nothing. For instance, what is the value of a CDS on Italian Sovereign Debt now that the IDS tried to invalidate the value of the CDS on Greek debt despite a 50% haircut on Greek debt? Dodgy. What is the value of a MBS that holds securitized mortgages? what is the value of a CDO squared of the above MBS? What is the value of a JGB given that the BOJ supports it so… or a Bund? or a Treasury even?

      Gold may be worth $1 or $10,000, but it is recognized to have at least SOME value. No mattr what happens, it will be considered an asset, and it has no counterparty and no liability.
      Land also will always have at least some value, at least 1cent… although it has the liability of property taxes… but it can also be productive (shelter, food, water source, etc).

      To me, it’s not that gold “wins” anything. It’s that it may “lose” less.

      1. F. Beard

        Then why not buy a metal that is more useful than gold such as platinum? A great deal of gold’s value is merely political – the expectation that a gold standard will be reestablished.

        1. Yearning To Learn

          Then why not buy a metal that is more useful than gold such as platinum?

          two reasons
          1) liquidity. Gold is simply more accessible to the masses and is traded/exchanged more heavily.

          2) the fact that it is not useful may help to bolster its value. During economic collapse there will be less a need for platinum.

          Gold has reason for many of the same reasons as the dollar has value… belief.

          People believe gold and the dollar have value, and thus they do. Gold and the dollar really have no other purposes (for the most part) except a store as value. Thus, their value is based 100% on belief.
          I’m not saying that’s good or bad… it just is.

          Platinum is based on belief as well… but also utility. Today, Platinum is valued where it is based on supply and demand as well as belief. In economic collapse demand will drop… thus its value might drop more than Gold.

          Besides, if I want a prodcutive metal I’d probably look at Silver. It is even more accessible to the masses than gold, and it is also productive. The problem again is that in down economic times it loses the part of its value it derives form that Productivity, and this MIGHT be a partial explanation for why Silver has been more volatile than gold of late.

          Again: I’m not here to be a gold bug, because I am not a gold bug. I have extreme reservations about Gold.. but I hold it for diversification.

          but I think the article is spot on with the idea that going forward tangible assets may be a better strategy than paper assets… (Gold, Silver, Oil, Land, Water, Food).

        2. EH

          Platinum is about 1000% harder to mine and purify, has a shorter supply, and its uses are heavily concentrated in industrial process and products that may not survive the cataclysm you describe. I’m not sure where you get “more useful” for platinum, but whatever uses you’re thinking of may be more evolutionary than fundamental. Gold is much more democratic.

          1. F. Beard

            Gold is much more democratic. EH

            Than platinum? Sure I agree with that. But that is not to say that gold is democratic; it isn’t.

          2. EH

            I double-thought that sentence right after posting. Gold is more democratic than platinum in the number of ways that normal people can work with it.

          3. Crazy Horse

            Rifle cartridges are more democratic than Gold. In a Mad Max world what do you think will have the most exchange value?

            Point being that gold has no more intrinsic value than strings of beads or dead president’s images printed on rectangular pieces of paper. All money is contingent upon mutual acceptance of value in order that it can be used as a medium of exchange for things that have use value. The fact that gold was the accepted standard of value upon which the Ponzi scheme* of fractional reserve banking was originally constructed only weakly argues that it will be the survivor in societal collapse.

            *You don’t think that fractional reserve debt based money is a Ponzi scheme? I suggest you look at the slope of the debt curve in the US over the past 20 years, and then consider how the mathematical laws of exponential growth apply to the concept of interest.

      2. aet

        “Land also will always have at least some value, at least 1 cent…”

        That statement seems imho rather an article of faith, than an observation of fact. Or maybe it only betrays a confounding of “value” and “price” – a mistake common enough, nowadays.

        Perhaps you meant to say that productive land, that is, productive of some extractable and portable material resource, some examples of which you do set out (I’d exclude ‘shelter’, though, as that’s pretty much constructable on any land whatsoever – more a product of labour, than a resource of the land itself) will always have some value.

        But what would be a just price for land which produces no grain, no water, no vintage, no minerals, no rents? What’s the right price for such valueless land? Wouldn’t the right price be nothing at all?

        Often enough, if such otherwise unproductive land is located within a city or even within a specific country, that fact alone generates a price, a market, and that otherwise valueless land thus becomes an article of commerce, and an indirect generator of interest payments to lenders who take it as security, or of rents to those providing the site temporarily for facilities private and public or both: but that fact alone – of location – nevertheless does not mean therefore that that specific land is valuable as a productive or useful resource in itself – only that it has become an article of trade, and a more-or-less arbitrary store of value, based entirely upon its location within a political entity – the city or country where the land is situated.

        1. Lambert Strether

          Assuming the survival of private property, yes.

          The frackers seem to be doing their best to destroy this, I might add. If I sell rights to a fracker, and my sale destroys the groundwater for everybody, then there’s something wrong with the idea of rights.

          Your rights end when flames come out of my water faucet.

          Externalities? What externalities? The world is round….

  3. F. Beard

    Heck why don’t we go whole-hog and actually create jobs for the unemployed? Randall Wray

    Why not do better and bailout the entire population, including savers, from ALL credit debt? Credit creation, a form of counterfeiting, cheats everyone – borrowers, savers and those who are neither.

    Steve Keen has recently suggested a universal bailout so it is hardly a crack-pot idea.

    And if further credit creation were forbidden then the bailout could be metered to just replace existing credit as it is paid off with no change in the size of the money supply.

    And will the Republicans dare say, “We don’t want Americans to be debt-free. We don’t want savers to be compensated for a lifetime of suppressed interest rates. We don’t want to reduce unjust wealth disparity. We don’t want to end the Depression”?

    1. ambrit

      My Dear Mr. Beard;
      Alas, this phenomenon was known even to the Ancients.
      “Many influential men have been utterly disgraced, and prominent men have fallen into the power of others.” Ecclesiastes 11:6

      1. F. Beard

        Even honest usury causes problems which is why it is forbidden between fellow countrymen in Deuteronomy 23:19-20. But our system of money-for-debt is worse in that even the interest must be lent into existence.

          1. ambrit

            Folks;
            Yeah, even Jubilee was an ubiquitous feature of olden times. It made for a much more stable and civilized society.
            Merry Christmas Mr. Beard!

          2. mansoor h. khan

            F. Beard,

            “Deuteronomy was written around 1400 BC, 2000 years before Islam.”

            But Islam claims that it is a continuation and clarification of and additional details to Christianity.

            Mansoor H. Khan

          3. F. Beard

            Merry Christmas to you!

            P.S.
            I am running into a “comment quota” of some sort so a failure to respond is not indicative of anything necessarily.

          4. Crazy Horse

            Actually I prefer the NW coast Indian concept of prestige that predated Christian or Muslim moral standards. In those cultures the object of acquiring worldly goods was to be able to throw the biggest party and give away the most stuff.

            It might take a bit of re-education to convince somebody like Larry Ellison to understand this system of value, but think how much happier he would be if everybody loved him instead of hating him like they do now!

          5. BT

            Deutoronomy was written in 1400 BC? If anything a few of its concepts may have been floating around @ 700 BC, and mostly solidified around 600-400 BC during the Babylonian exile and only after introduced to Israelites by Ezra.

          1. F. Beard

            Nice link. Thanks!

            But the Austrian Economists will reply: “But I am morally entitled to usury since I have given up my use of the money for the time it is lent.” The solution then to usury is to abolish any unnecessary money monopoly so that people can create their own money supplies rather than have to borrow someone else’s.

            As for government money, a necessary monopoly so long as we have government, generous bankruptcy laws could discourage most usury.

          2. Piano Racer

            Beard, your constant near-panic about usury might be lessened somewhat by reading this:

            http://lewrockwell.com/north/north1075.html

            Usury is simply the price of time. It is not evil, it is the choice of the debtor.

            The real problem is that the well-connected are the first to receive the newly-printed money direct from the printing press, before it loses its value. THAT is wrong, but the problem is corruption, not usury.

          3. F. Beard

            Usury is simply the price of time. Piano Racer

            No it isn’t. If a bunch of people have real capital, including their labor, why should they have to borrow or save someone else’s money supply? Why not simply create their own? Common stock is an ethical and democratic means to do that.

            It is not evil, it is the choice of the debtor. Piano Racer

            It is evil because it is not the choice of the debtor. The banks have achieved a money monopoly via government privilege such as the capital gains tax on non-usury based money forms such as common stock.

          4. F. Beard

            The real problem is that the well-connected are the first to receive the newly-printed money direct from the printing press, before it loses its value. piano racer

            The real problem is that money is not created ethically. As far as private debts go, there should not be a “the money”, there should be any number of monies.

          5. Piano Racer

            Ah, so your problem isn’t usury, it’s legal tender laws. I agree, friend! But the problem is that they get to dictate what we use as money, not that they charge interest for it.

            My point is that in a free-market money system, which we obviously don’t have, usury is fine. The solution isn’t to get rid of usury, it’s to get rid of the legal tender laws and, as you advocate, let people decide what they want to use as money.

            I wish you had bothered to read the article, though…

          6. F. Beard

            The solution isn’t to get rid of usury, it’s to get rid of the legal tender laws and, as you advocate, let people decide what they want to use as money. piano racer

            Inexpensive fiat is the ONLY ethical legal tender for government debts – taxes and fees. As for private debts, there should be no legal tender laws nor any special advantages for fiat such as the capital gains tax (measured in fiat).

            I wish you had bothered to read the article, though… piano racer

            The Austrians Economists I have encountered (except perhaps Hayek) wish to replace government counterfeiting of private money with private counterfeiting of government money. That is no solution. What is needed is both inexpensive fiat that is only legal tender for government debts and any number and type of private currencies good only for private debts and free market exchange rates amongst them all. cf. Matthew 22:16-22 (“Render to Caesar …”).

    2. abelenkpe

      Jubilee is the only humane way out of this mess. Everything else will lead to conflict or oppression.

  4. RPL

    I am unclear how someone who sees the world through an MMT lens can find a hard money crank like Ron Paul a serious candidate. Serious about what? The fact that every economic forecast that he has made the past however many years has been wrong? Or perhaps his distinguished past as a racist homophobe that seeks to take away civil rights from people who differ from him? I like Mr. Wray’s economic analysis but that is just flat out a bizarre comment. The only serious thing about Ron Paul is the damage he would inflict on this country and the world if her were for some bizarre reason actually allowed to inhabit a job of influence and power.

    1. EH

      So, you’re saying he’s too honest? Every other candidate is economy-dumb, racist, and a liar to varying degrees, why should Paul be lambasted for not hiding it?

      1. F. Beard

        There is nothing honest about a government enforced gold standard. RP resents that the US Government can create its own money but who else should create that money?

          1. F. Beard

            If government shall decree that gold is acceptable for taxes then why not silver, copper, steel, common stock, store coupons, movie tickets and every other conceivable private money form?

            Do you see a problem with that?

          2. MyLessThanPrimeBeef

            They also want a separation of church and state but refuse to work on the 25th of December and every Sunday.

    2. Walter Wit Man

      What is “bizarre” is the selective outrage from liberals like you.

      Anyone that goes into a tirade against Ron Paul for being a “racist homophobe” and an economic terrorist–but does not similarly condemn Obama and the Democrats–is a fool or a hack.

      I’m going with a fool at this point. Far too many liberals have been suckered by Democratic propaganda painting Ron Paul as a “crazy” cook, when his *good* policies are far better than what the Democrats are offering. Just like the attacks on Dennis Kucinich, or liberal ideas in general, the Democratic attacks on Ron Paul are designed to justify the right-wing policies of the Democrats. You are running interference for the right-wing Democratic party that engages in the racist economic terrorism you claim to oppose.

      Ron Paul is more liberal than Obama on crucial issues therefore Democrats hacks have to rat fuck him.

      You want to talk about racism and civil rights? Let’s start with the racist death machine known as the police state and the permanent wars and anti-terrorism policies your party supports.

      Barack Obama is more of a bloodthirsty racist than Ron Paul is. Where is your tirade against him?

      1. scraping_by

        Dr. Paul is benefiting from the Halo Effect. His statements about the Fed and the immorality and insanity of the current anti-Islamic wars of conquest are spot on. We therefore give him a bigger benefit of the doubt.

        However, his views on welfare and business regulation are batshit crazy. If not evil in themselves, they’re certain to lead to evil if implemented.

        America under Paul would be nastier, more brutal, and shorter on dreams. But at least government would be out of our bedrooms.

        1. EH

          “If implemented” is a key phrase here. Think of the resistance from both Congress and the courts, which could really be a good thing overall.

        2. Erick Muller

          Compare to what?, I assume that you think that the current state of affairs inside the US is just fucking dandy. And it is evil for people to stop being force to getting the shaft from the state each and every year for 40-50%(this is including not just income tax, but also sales tax, cost of fiscal accounting, cost of regulations, etc.) of the hard work, hard-owned, honest earn wealth?. Since the “Great Society” by LBJ the poverty rate has remain stagnant, before the great society programs, the poverty rate was being reduce about 1% average per year. Even the goverment recognices this great blunder that they have inflicted upon the US population.

          You may not like RP, and you dont have to, but to actually call him evil?, if RP is evil by your standards, then I don`t know what term we would have to use or make up to describe what Obamer is.

        1. Walter Wit Man

          I’ve go issues here as well. As I do with Obama and the Democrats, who hasn’t been very helpful on the issue. Just recently Obama acted as a right-wing womb warrior by vetoing the scientists and not allowing plan b to be sold over the counter to girls. If Bush or Paul would have done this there would be a huge outcry from lefties–but b/c Obama did it there was a big yawn.

          I doubt Paul would be much worse than Obama even though Paul’s rhetoric is slightly worse than Obama on the issue.

          In my mind I would trust Paul to honor an agreement with the left in a way I can’t trust Obama. Paul flirted with an overt agreement with Matt Gonzalez and Nader. He hinted at an agreement whereby he would hold off privatizing Social Security and Medicare (which is dear to the Left) and would also not be active on abortion issues.

          I’m not saying I am going to vote for Paul or that I totally trust him. Even though I think he is the most sincere politician in either of the two legacy parties, I still have my doubts based on my disillusionment with almost all politicians (see e.g., Kucinich and health care).

      2. Anonymous Jones

        I’m sorry, but comments like these are insane.

        What, because someone else is worse, it’s not OK to discuss the deficiencies I find in Ron Paul’s actions, philosophies and policies?

        That’s really nuts. Just because someone else is worse doesn’t mean I agree with Ron Paul.

        I agree with some things Paul says, I disagree with some, and I’m completely and totally disgusted with others. What does that have to do with Obama or anyone else? I’ll clue you in. It does not. Your comment is devoid of logic and exposes your unstable psyche and your inability to think your way out of a paper bag, relying not on analysis but a childish adherence to labels like “liberal” “fool” and “hack.”

        And yes, I have read many things by the man. I think his logic is lacking, and my opinion is that it would be utter disaster to follow his domestic economic policies.

        I am not required to similarly condemn anyone else. You are clearly too smitten to be of any value to the conversation. Calm down.

        1. Walter Wit Man

          I’m not smitten with Paul. You called him a racist and I’m pointing out that his policies are less racist than Obama’s policies and that you aren’t yelling about Obama’s racist policies. When someone waves their arms around and points to a lessor crook while the real crook escapes then I’m suspicious.

          For instance, Obama cluster bombed a village in Yemen, killing dozens of children and other non combatants, and the entire Democratic party was silent because they are nothing but sand niggers to the Democrats. Same thing with the wars against Muslims and brown people across the world. Democrats support some of the most bloodthirsty racist actions going on this world. Obama looking like a tough guy is more important to the Democrats than justice. Democrats lock up 1 out of every 8 black men in this country– as a Jim Crow policy–and yet they will rant about some random newsletter from decades ago that Ron Paul denies writing.

          When Democrats yell racism it’s usually to cover for their own brutal racism. You should be yelling “racist” at Obama for his war crimes and police state actions. Instead, you yell at Ron Paul which as the effect of excusing Democrat liberal racism.

    3. Walter Wit Man

      Another way of putting it is that leftists will have to ally themselves with people they do not agree with 100%–whether it be Democrats or libertarians like Ron Paul. Leftists are not powerful enough to go it alone.

      Currently, lefties have aligned themselves with neoliberals, who are right-wingers with slightly liberal social policies. These are the Democrats. This alliance isn’t working and is very destructive.

      However, I think that an alliance with another group of right-wingers is more appropriate–the libertarians and Austrians, etc.. I totally disagree with them on currency issues and debt and even whether to have a central bank (not to mention Social Security, health care, etc.). But it makes more sense to ally with people that want to end our empire and the police state at home and to end some of the worst aspect of our economic fascism. That is far more important than the very slight social progress the Democrats promise to deliver.

      The Democrats will only deliver a slight bit of good (like DADT or Lily Ledbetter–which isn’t that good). An alliance with Ron Paul has the possibility of a bigger payoff in the end (and will do less harm because the left would no longer be penned in by the Democrats).

      And there is no reason other than tribal affiliation to reject an alliance with Ron Paul but to accept an alliance with the Democrats. The Democratic alliance is MORE evil.

      1. scraping_by

        The success of the liberals would begin with honest elections. It’s an odd fact that those representing the views of the largest number of voters have to accept minority status. But, so it goes.

        Second, the views of society between the two are far too separate. The dog eat dog, devil take the hindmost view of society is the exact opposite from the liberal insight that we’re all in this together, and we better figure out how to do it. No overlap between the world as arena and the world as it is.

        While both have some version of human/civil rights as an absolute good, there’s no way to protect them with an absence. In today’s world, protection requires active means. While some of those means have been, in the past, wrong headed and destructive, they’re still more effective than lack of regulation, or the free market, or any other negative. Wishing and hoping don’t make it so.

        Someday, someone with a badge and a gun is going to kick in the door at ES&S in Omaha and then the political success of the liberals will begin. Until then, dancing with the devil just gets you stomped toes.

      2. Mark Field

        rpl’s comment sounded to me like it could have been made by Milton Friedman, and you’re off railing against “liberals”. There’s nothing for anyone of any political stripe in Paul’s racism and homophobia.

        Hey, neoliberals suck. That’s not news. But it’s impossible to form a coalition with Paul’s supporters as long as they insist on things like Austrian economics and state’s rights.

        1. Walter Wit Man

          How is Paul racist? I don’t know what’s in his heart, more than I know what’s in Gingrich’s heart or Obama’s heart. Maybe he is personally racist. I don’t know–[I doubt it b/c the incident with his newsletter seems out of the blue and his denials seem legit to me]

          Policies are what matter though. Ron Paul’s policies ARE FAR LESS RACIST than Obama’s and the Democrats. The U.S. has 1/4 of the world’s prison population. ONE QUARTER! And black men are disproportionately locked up. This is a Jim Crow policy that the Democrats support.

          So it simply sounds like propaganda to say that Paul is racist when you don’t mention anything about Obama’s racism. Liberal propaganda. Who benefits from liberals ratfucking Ron Paul? Who benefits from the idea that it is “crazy” to end our wars or the police state or the war on drugs?

      3. Crazy Horse

        Ron Paul strikes me as being on target on about 40% of the issues and certifiably loony on the others. That puts him 40% ahead of the silver tongued criminal Obama and the escapees from mental institutions that populate the GOP field.

        Watching President Paul veto every defense bill that lands on his desk alone would be worth the cost of admission! Creative disorder is much preferable to marching over the cliff, shoulder to shoulder with all the other sheeple.

        1. Walter Wit Man

          Exactly! Even apart from an honest balancing of the ledger, as you are trying to do by putting hard numbers on the issues, there is value in breaking the cycle. Ron Paul could throw a very big kink into the standard good cop bad cop routine. I would love how he would disrupt the Democratic party. The Democratic party needs to be shaken up and if it takes a Republican to run to the LEFT of Obama, then so be it.

  5. Susan the other

    It looks like the ECB is going to save the day in spite of itself. I think we have Bernanke and the Fed to thank for this. Too bad we have such a love-hate relationship. If everybody who is so totally tweaked about the Fed’s largesse just thought about the alternative it would help to still the waters. The biggest question isn’t how much money to print, it’s how to employ all those people and put all those dollars and euros to the best use. It is a political question.

    1. F. Beard

      The biggest question isn’t how much money to print, it’s how to employ all those people … Susan the other

      If that money was given to the population, the victims, rather than to the villains, the banks, the jobs should take care of themselves.

  6. bill n

    Ah. Mr. Harrison, very bright guy, condescends to approve of Krugman. A while back, YS actually, if haltingly (given her many tracings of K, esp in Econned) approved of something Krugman said!

    What’s gotten in to you-all?

    1. ambrit

      Dear bill;
      It’s something on the order of; “There is more rejoicing in Heaven on the recovery of a lost sheep then on the 99 who strayed not.”
      Happy Bretton Woods Day, your brother in Keynes, ambrit

  7. Jim Haygood

    ‘The reason why interest rates on government debt are not exploding in countries like Japan, the US, and the UK is because they issue their own currencies.’

    MMTers were not making this claim in 1984. The US issued its own currency then, too, but T-notes yielded 14%.

    This assertion is a classic case of extrapolating a 30-year bull market in bonds … probably right at the top!

    A variety of factors — among them monetary policy lag time, weakening global GDP, slowed credit growth, and a flight to quality assets — are keeping interest rates on the soundest sovereign bonds abnormally low, despite vast expansions in central bank balance sheets.

    To assume that this virtuous circle will continue forever is to join the club of rosy-spectacled Nasdaq buyers in March 2000, or zero-down house buyers in 2006. A trend in asset prices does not constitute an economic proof.

    With his Austrian survival instincts, Ed Harrison refrains from climbing all the way out on a rotten tree limb with Randall Wray:

    Today the release valve is the currency because there is no gold tether. So the currency gives way, not interest rates.

    Despite the seeming paradox of Planet Japan (which is going to change pretty soon), long run you cannot print your way to prosperity, low interest rates and a strong currency.

    As Ed says, the currency eventually will give way. When it does, inflation will pop so hard it’ll knock your socks off (cuz you won’t be able to afford socks no more … shoes either!).

    1. Walter Wit Man

      Doesn’t the U.S. dollar have to “give way” more than other currencies? Isn’t it all relative? Isn’t this the very definition of a floating exchange rate? The U.S. has a crazy advantage in that it has a powerful currency. It just “printed” $30 Trillion for bankers with little inflation. If anyone can print a few trillion for its people it is the U.S.

      Also, wasn’t the 14% yield a reflection of future growth and inflation rather than a reflection of the likelihood of default?

      Austrians engage in outright lies when they pretend that a country like the U.S. or Japan can/should default on their bonds. It should be impossible to default and Austrians lose all credibility when they insist on this original lie.

      1. Fiver

        No inflation? Global commodity prices tracked QE1 and QE2 as if laser-guided. The fastest growing emerging market nations all immediately ran into inflation and hot-money troubles. Food and energy prices led to mass unrest from South Asia to Africa. And Bernanke himself said numerous times over the last 6 months that the “headwinds” from the higher oil prices he’d just caused were abating, and cited that as a significant driver of the “rebound” in H2 growth we’ve just seen.

        As the nation which set up this entire globalized system, it is incumbent on the US to provide a solution that does not cause far greater trouble elsewhere than it helps domestically.

        1. Ben Wolf

          Don’t be silly. Inflation has at no point exceeded the post-war average because the central bank has no way to spark inflation, period. It’s Congress’ sole perrogative to ruin the economy.

        2. Walter Wit Man

          I’m sure that $30 Trillion did have an effect. I wouldn’t be surprised if we did see excessive speculation and therefore inflation in commodities, etc., because of the U.S. “printing.”

          It would have totally been worth it if this money would have been distributed from the bottom up, rather than from the top down. As is, we got minimal inflation, but average people didn’t get any of the benefits–the oligarchs are the ones that benefited.

  8. Jill

    This is not true: “Apparently the Republicans…they want an environment-killing Keystone pipeline—so they want that linked to the extension of the payroll tax holiday. The wording they prefer forces the President to forego any reasoned analysis of the wisdom of the pipeline by rushing a decision within 60 days.” I do not mean you are lying, I mean this isn’t accurate.

    Obama said the decision about the pipeline was his to make and he would make it. He said this about two months ago. In the meantime I can tell you Marathon has been quietly buying out an entire neighborhood in Detroit to expand facilities for the oil from the pipeline. In other words, this decision has been made and Obama needs cover for it.

    His fellow Republicans are standing in the breech, so when he makes public the decision he’s already told the industry about, it will look like evil old Republicans “forced” him to make that decision. Obama does this a lot. If he didn’t have evil Republicans around, people would figure out he actually made his own horrific decisions.

    1. Walter Wit Man

      Exactly. We see this same pattern over and over and I don’t know why any self respecting Lefty play along anymore.

      Obama is a right wing jerk. He wants right wing policy. Look at the evidence . .. . for e.g Cass Sunstein and Obama overruling the scientists in the E.P.A. not protecting us from smog. Obama has been WORSE than Bush via his actions (like allowing deep water oil extraction) and yet Democrats keep falling for these games.

      Sure, Obama is “fighting” for the public option.

      Sure, Obama wants to end the Bush tax cuts for the rich.

      Sure, Obama wants to close Gitmo or veto the indefinite detention bill to protect our liberties.

      These games are so predictable too.

    2. Walter Wit Man

      As this post, and referenced paper show, the Obama administration has been the King of delaying regulatory decisions that would hurt industry profits: http://leftwingnutjob.net/2011/12/obama-has-weakened-regs-more-than-bush-you-dont-say/

      No reasonable lefty can trust a word from this administration. It is worse than Bush the way they have evaded their responsibility to protect our environment.

      You’re absolutely right that the above analysis misses the mark an unwittingly provides an excuse to Obama. He’s had plenty of time to come up with a response to Keystone and his claims of getting jammed by the 60 day deadline is bullshit. He is looking for an excuse and they often use the bad cop Republicans as their excuse.

      1. Walter Wit Man

        Here’s a summary of a couple of the findings from the report referred to above, which analyzes the role of OIRA, headed by Obama appointee Cass Sunstein, which is responsible for reviewing regulations like the ones regarding Keystone:

        “# The EPA is OIRA’s favorite punching bag. While EPA rules made up only 11 percent of all reviews by OIRA, 41 percent of all OIRA meetings targeted EPA rules. EPA rules were changed at a significantly higher rate—84 percent—than those of other agencies—65 percent—over the whole ten-year period.
        # OIRA routinely misses deadlines, stalling public health and safety protections. By executive order, OIRA has 90 days to review a rule, plus a possible 30-day extension. Of the 501 completed reviews in which outside parties lobbied OIRA, 59 (12 percent) lasted longer than 120 days.”

        As noted, Obama has BEEN WORSE THAN BUSH. There are many other bad findings in addition to the two mentioned here. He has continually delayed to help industry and I have no doubt industry will get everything they want and Obama will be able to blame it all on the Republicans because even those liberals who supposedly care have been bamboozled by Obama.

        1. Fiver

          He IS worse than Bush in that he essentially neutered minorities broadly as well as the most politically active and aware portion of the population politically (leftish) that normally would’ve spearheaded an enormous negative public reaction to exactly the same crap had it been done under McCain.

          Wall Street knew exactly what they were doing when they picked Obama over Clinton, and he’s delivered far beyond their hopes.

    3. don

      Any guess as to why Obama wants to wait till after the Nov. election to make a decision on Keystone?

      Anyone who thinks Obama isn’t going to OK Keystone isn’t paying attention.

      As for gold and land; is anyone paying attention whatsoever as to the environmental consequences of mining for gold, especially in the so-called Third World? I didn’t think so.

      As for buying up [farm] land; any idea why we’re seeing a bubble formation for farm land in places like Iowa, where the record for farm land ($2000/acre) was just established? Any guess as to what might be the consequence? Any relationship here to ethanol, yea think?

      Also, any thoughts on the consequences of speculators (oh, I meant investors) buying up land in places like Africa to export food production?

      As for buying gold and land, time to wake up.

    4. Lambert Strether

      If the Rs did not exist the Ds would have to invent them.

      Which is why it doesn’t matter which legacy party collapses, so long as it’s one of them. They prop each other up.

      1. Fiver

        Obama, had he been even a genuine “liberal” could’ve crushed Republicans and knee-capped Wall Street with full popular support in 2009. When you look at the collection of clowns Reps have forwarded as candidates, you know this was the price of letting them up off the ground. They (Reps) are not seriously contesting this, though they would of course not look a gift horse in the mouth if Obama somehow manages to blow it. Can’t see that happening though, with ECB cranking up and the Fed on deck. Some substantial negative surprise though, might just do it.

  9. Hugh

    The real number of unemployed in this country is around 20.5 million (that is the official number of unemployed plus the BLS undercount) giving an unemployment rate of 12.7%. If you take the underemployed, those in part time jobs because they can’t find full time employment, that is another 8.5 million. Combining these two gives us what we call the number of disemployed or 29 million and a disemployment rate of 18%.

    One never knows with Krugman. I don’t know how many times that the assertion has been made that he finally gets it. The truth is that one week he will show flashes of awareness and the next he will go back to pointing fingers only at Republicans and to his more general Establishmentarianism.

  10. VerySeriousSam

    “There has never been any international arrangement, anywhere, at any time in human history, that so-favored a nation”

    This is certainly supposed to be a joke. Because the export success of Germany is mainly thanks to the internal devaluation imposed by all political parties, the unions and the employers on her working class since some 14 years.

    And her succcess compared to other eurozone countries is on top of that due to the profligacy of the rest.

    To explain all this instead with ‘cheap workers in East Germany’ is expecially dumb since the west Germans shoveled over to the reunited brothers and sisters in East Germany about 2 trillion Euro so far.

    So please, Randall, write about the US, but not anymore about Germany since you have not the foggiest notion.

    1. Fiver

      Agree that the widespread portrayal of Germany as some sort of “villain” in this is unwarranted and often disingenuous. The last time the US had a bunch of foreign debtors blow up financially in Latin America and Africa in the ’80′s, it put the squeeze on them for 20 years of civil war, death squads, rebellions, mass murders, assassinations and pervasive, grinding poverty. I don’t imagine the same is coming for Europe as a result of this particular crisis.

  11. kevinearick

    currency is a derivative, wash and repeat …

    Tyranny of the Manufactured Majority

    What you want to do is turn (spin) the electron (string) into the proton (string), and turn the proton into the electron, to extend the string (relativity circuit). Electron and proton are words, perspectives.

    So, the Hippies became the Corporate Tyrants. Surprise, surprise. If you want to see the process in the shortest period of time, go to Mendocino County, where black market pot growing controls the economy. Because the individual may not lawfully grow, a drug culture/economy develops which attracts other drug cultures (AMA), and everyone is controlled by drug addiction, which is simply an ignorant frame of reference. Stupid is as stupid does.

    The Hippies seek freedom from the Corporate Tyrants, and the Corporate Tyrants seek freedom from planetary control. All seek to avoid healthy, symbiotic planetary adaptation, which they view as control even though there are a relatively infinite number of ways to adapt. In net, they all desperately seek to avoid change, digging their own graves day by day. If any of them truly believed in freedom, they would protect the freedom of others around them. All they do all day is fight for their spot at the trough, to which they believe they are entitled, collecting knowledge, which is a piss-poor foundation for an economy.

    Santa Barbara is another good example. It received millions and millions of dollars for the homeless, which the homeless never received (HPRP, homeless prevention rapid re-housing, to name one program), but it has money for a $6M skating rink. Government is, and always has been, a bait and switch embezzling scheme, where the participants embezzle from themselves, which is why it must behave as a viral ponzi scheme. That is History. Christmas is just more of the same bullsh**, a means to ensure that all the participants stay on track, which does not mean that you cannot enjoy it anyway.

    What is wealth if its currency has no value? If its property has no value? If you choose to think, the solution is pretty damn simple. They will always hunt you with your own technology, because they give themselves no other choice. At some threshold, the cost of learning exceeds the majority, but to survive it must have the resulting technology. Provide technology accordingly, depending upon the amount of gravity required.

    Their enterprise system is crashing because they made the enterprise architects non-persons. Gravity always repeats History. It’s the nature of the system. Tinkering with its laws now only accelerates time to detonation because it has reached ponzi demographic collapse. Physics is physics; everything else is misdirection, the interesting but unnecessary façade – busy work for gravity.

    Why must traffic have a roadway? Why must a vehicle weigh so much? Why must there be so many parts? What is the economic implication? Tesla was a bright guy, but he was out of time. Don’t get side-tracked. Creating time is the point of the system, the Tip of the Spear. To avoid planetary control, get off the planet, and don’t expect critters to be anything other than critters, human or otherwise.

    The universe is the boss. If you don’t like it, commit suicide, which is exactly what governments do. Just give them enough rope to get out of their way when they tumble. The “God” particle; crack me up. What is a photon? If you want to believe in the devil, good and evil, the devil is avoiding the unknown (work), in detail.

    Why is the rest of the world sending millions of dollars to Santa Barbara for the homeless? Keep laying that pipeline, and paving that road, at all cost.

    “States across the country are seeing growing backlogs of work, as shrinking staffs struggle to meet rising demand for some services. From public housing to crime labs, restaurant inspections to court systems, four years of layoffs, furloughs and hiring freezes are beginning to take a toll.”

    1. craazyman

      Maybe it’s the holidays and you’re just in a cynical mood, but you’re almost lucid. :)

      The Dead Sea Scrolls explains it all. The Testament of Amram. Manuscript B.

      Strange about the hippies. I”m watching them now on Youtube clips, like The Band’s Last Waltz with Neil Young and B. Dylan. All right they weren’t really hippies but they were close. Strange it’s the first generation that will live forever as unique individuals eternally in somebody’s consciousness. That’s kind of weird if you start thinking about it.

      1. Fiver

        Thought the book “Jesus and The Riddle of Dead Sea Scrolls” by Barbara Thiering was a great read many years ago. The book was so viciously attacked by established scholars it amounted to the sort of suppression by marginalization that now seems to greet anyone with a non-standard view – mocked, denounced, derided, trashed etc. far out of proportion to the apparent “crime” of putting some fresh thinking into a subject. I actually found the book gave the peoples of those times a lot more credit for sophisticated politics than we typically do. Got me Googling and found this. Might be of interest:

        http://www.peshertechnique.infinitesoulutions.com/index1.html

  12. Joe Rebholz

    ” … that to set unemployed men to work on useful tasks does what it appears to do, namely, increases the national wealth; and that the notion, that we shall, for intricate reasons, ruin ourselves financially if we use this means to increase our well-being, is what it looks like – a bogy.” –John Maynard Keynes 1972, 90-92″

    The fact that our present system cannot create jobs for all who want to work proves that this capitalistic system is a failure and thus must be modified or replaced.

  13. joebhed

    For the knowledgeable Mr. Wray with all due respect….
    Sorry, the currency issuers are the private bankers, members and non-members of the Fed….
    And the currency users are, colloquially – the Restofus.

    And, we want it back.

    As for Krugman’s take on our debt-based money reality….

    http://www.youtube.com/watch?v=m698xEYiP7A

    For the Money System Common

  14. scraping_by

    Many have long argued (wrongly) that this is because holders happen to have addresses in Japan. Nonsense.

    Exactly true. The address of the interest recipient can show no correlation with the interest rate.

    However, the money paid out in interest to nationals will more likely positively effect the national economy, multiplier effect and all that. So that’s another positive for having a national currency; having and taking care of multiple goals. The Euro is just banker’s money for bankers, and follows the banking trail away from the local economy.

  15. Jim

    Place your bets:

    Investment advice of Edward Harrison (Dec. 21,2011)

    “From an investing standpoint you have to get this one right. The bond viglante paradigm has been false in Japan and now the U.S. as well. If you had seen rates in Japan at 2% and shorted them, saying they would come up, you would have lost your shirt. Conversely if one uses the currency sovereignty paradigm, the short JGP trade is one that one would have avoided.

    Background assumptions:

    “Today the release valve is the currency because there is no gold tether. So the currency gives way: not the interest rates. And to the degree that interest rates would increase, the Central Bank can print. The currency revulsion question then is always currency depreciation, inflation and even hyperinflation…not interest rate spikes.”

    “Shorting government bonds when the central bank is politically aligned with the Treasury is a sure-fire way to lose lots of money.”

    OR

    Kyle Bass (Feb 14, 2011 and Nov. 30, 2011)

    Supposedly Mr. Bass has purchased protection on $12 billion of Japanes Bonds, a move that is costing him $6 million. If 10 year Japanese yields rise to 3% or so Mr. Bass won’t make that much but if they hit 4% he would make $125 million on his 6 million dollar investment. He would make at least $125 million on each subsequent 1% point rise.

    Background Assumptions:

    “We find that when debt gets to such levels that it eclipses revenue multiple times over…there is a non-linear relationship between revenues and expenses in that total expenditures increase faster than revenue, due to the rise in interest expanse from a higher debt load coupled with a higher weighted average cost of capital and the natural inflation of discretionary expenditures increases.”

    “X-day is the day the market will no longer purchase JGBs.
    Planning is in the very early stages but centers around having a set of serious fiscal changes that would be announced immediately with the intention of giving the Bank of Japan the cover they will need to purchase massive amounts of JGB’s.

    If the BOJ were to engage in this type of behavior, we believe the Yen would plummet against the basket of key world currencies which, would, in turn, drive Japanese interest rates higher…”

    1. F. Beard

      If the BOJ were to engage in this type of behavior, we believe the Yen would plummet against the basket of key world currencies which, would, in turn, drive Japanese interest rates higher…” Jim

      Japan can create Yen interest free. Why should it care about interest rates? National borrowing is the gift of a risk-free return to the banks and the rich. The Yen might well strengthen if Japan demonstrates that it is not at the mercy of the money lenders.

      1. MyLessThanPrimeBeef

        Doesn’t it depend on the nation? Would you have lent to Marie Antoinette’s empire as they stormed the Bastille?

        1. F. Beard

          A monetarily sovereign nation has no need to borrow in the first place:

          “If the Nation can issue a dollar bond it can issue a dollar bill. The element that makes the bond good makes the bill good also. The difference between the bond and the bill is that the bond lets the money broker collect twice the amount of the bond and an additional 20%. Whereas the currency, the honest sort provided by the Constitution pays nobody but those who contribute in some useful way. It is absurd to say our Country can issue bonds and cannot issue currency. Both are promises to pay, but one fattens the usurer and the other helps the People.” Thomas Edison from http://quotes.liberty-tree.ca/quote_blog/Thomas.Edison.Quote.6991

          1. Crazy Horse

            “The Bank is trying to kill me – but I will kill it!” and later “If the American people only understood the rank injustice of our money and banking system – there would be a revolution before morning…” President Andrew Jackson

          2. MyLessThanPrimeBeef

            Are you saying national borrowing in not necessary (I have no problem with that), but if a nation borrows, the debt is risk free (I am not so sure about that)?

          3. Ben Wolf

            @ MyLessThanPrimeBeef

            Issuing bonds is a holdover from the now-defunct gold standard. We continue to issue it only because the law requires government to issue debt in equal proportion to its deficits. In reality everything the U.S. government spends (and this applies to most governments around the world) is printed and spent into existence.

          4. F. Beard

            but if a nation borrows, the debt is risk free (I am not so sure about that)? MLTPB

            The only risk with lending to a monetarily sovereign nation is that the money repaid will have less purchasing power than the money lent. Which is why, I suppose, there is so much opposition to government spending even during a Depression – the usurers are trying to protect their “investment”.

    2. Edward Harrison Post author

      Bass is not short JGBs. He effectively has deep out of the money puts on Japanese bonds. While he talks about it as if it’s a certainty, it is really a black swan type of bet, an insurance policy against tail risk akin to buying puts on the S&P at 800. I see this as a very defensible play given Japan’s debt, loss of productive capacity in a world awash in debt. Shorting JGBs is another story.

      See Bass discuss here where I write:

      “Bass likes to make asymmetric bets to hedge his long portfolio of financial assets against black swan events and has made a considerable amount betting on the subprime mortgage and sovereign debt crises. His next bet is on Japan, based on demographics, interest rates, and its ability to service debt. People have been waiting for this bet to come due for over a decade, but Bass believes the time is now.”
      http://www.creditwritedowns.com/2011/11/kyle-bass-on-hardtalk-about-europe-japan-and-hedge-funds.html

      1. Fiver

        Japan does not import raw materials for free. Its deteriorating competitive position before the crisis hit was masked – but for the US and Chinese bubbles, they were in real trouble. One bubble is gone, the other is going, commodities prices are going to take off again even as competition becomes more intense in the face of deep structural problems largely beyond Japan’s control (its own, and global).

        If you believe another GLOBAL bubble can somehow be blown fairly quickly, it’s a bad bet in Bass’s time frame. If you believe it’s going to get progressively tougher globally, and that Japan and Europe are the periphery with respect to the US core and will be treated as such, it’s another story. Japan’s money “miracle” is not taking place in a vacuum. Germany has just been hobbled no matter which way you cut it. Note Japan has not yet received the “get your trade balance in order you neighbour-begging moral cretin” treatment which seems to greet someone else’s success, and that has been aimed at Germany and China, though all 3 are highly resource-challenged relative to the US. Not yet, that is. So far, the only “re-balancing” taking place that seems a clear trend is expanding US exports. Who is eating that?

        Japan may accidentally be on their way to figuring out a steady-state economy, which would be a very good thing in the coming world of scarcity. But the idea of no “growth” in wealthy countries is of course deemed unthinkable by economists, virtually un-American in the US – though in fact the country could’ve stopped “growing” in the sense of ever-increasing consumption long ago and been happy as a clam with a different cultural bias.

        I would not bet against a serious crisis in Japan inside of 3 years.

  16. Lambert Strether

    FWIW, my theory today on “What, they actually WANT President Obama for the next four years?” is a qualified Yes, for some definition of “they.” The Rs don’t, but the owners of both legacy parties are quite happy with Obama, despite some grouchiness for public consumption. Why wouldn’t they be?

    Plan B on the right, should opportunity present itself, would then be not the gang of second-raters and motor-mouthed retreads running as Rs — who knew the R bench was this weak? –but the new gaggle various of 1% front organizations like Americans Select (now on the ballot in CA), No Labels (yeah, right) and Ruck.us. (Plan C on the left would be Warren and plants like Van Jones.)

    It would be irresponsible not to speculate….

    NOTE This was true in 2008 as well. If you compare the McCain 2008 campaign with the vicious onslaught of the 2004 Bush campaign, you’ll see immediately that McCain was hardly trying, despite the fact (if facts mattered) that Obama was far more vulnerable to swiftboating than Kerry ever was, having virtually no resume, and, young though Obama is, a long trail of people he’d already thrown under the bus, who were all perfectly willing to talk…

  17. BT

    Maybe someone can clear up an issue I’m having with this article…I follow the Gold Standard vs MMT model well enough, and can see how a nation (under MMT) can have a huge debt burden, but because they print there own fiat currency can keep interest rates low by buying there own bonds (using private banks as a middle man or in direct market operations). The example used is Japan. The thing I don’t get is once debt load is high enough this would require significant money printing, QE, through market operations correct? Japan is not currently doing this on any appreciable scale. Even the US isn’t. So how is the mechanism described effected? If there is no appreciable effort by the central bank to hold down rates by buying bonds, there must be some other reason rates stay low. It isn’t enough to say just because a country prints its own fiat currency rates will be low. It still requires an effort by the central bank, and Japan’s is simply not doing that. What am I missing?

    1. Edward Harrison Post author

      Long rates are a representation of a chain of expected future short rates plus a risk premium. Any CB that credibly commits to keeping rates near zero and buying bonds to make its backstop on longer term debt credible can force rates down by forcing down interest rate expectations. The private sector does the CB’s work and it doesn’t have to buy to defend. This is what happens for overnight money and happens to long rates eventually when the policy rate is stuck at zero.

      1. Fiver

        Perhaps, unlike the Chicago School and IMF did with a number of experiments on a country-size scale, MMT should be run in a selected guinea pig country for a decade minimum prior to wider implementation, so unlike the aforementioned experiments, there is no need to inflict a succession of disasters should the first experiments fail. Do we wish to volunteer anyone for instant destruction by Mr. Market, or if that fails, regime change? How about Greece? If the 1% (really about 20%, but let’s not quibble) agreed to MMT, would MMT make any practical difference at all? If the 1% reject MMT, how on earth to implement?

        I in any case find myself in an odd position. As a life-long socialist, I would like to believe that MMT is a partial answer. But as an environmentalist, I fail to see how it can be anything other than worse than what we have now in terms of mind-boggling levels of waste.

        Apart from the issue of what it does to existing ordinary savers’ savings (including pensions, seniors, insurance etc) what is the mechanism that replaces the other socio-economic and evolutionary adaptation functions of savings, i.e., a willingness to forego immediate gratification, serious consideration of real future possibilities or just simple prudence? And please, I am NOT engaged in some sort of “Calvinist” moral bullshit. It is a simple question with respect to which is more sound from an adaptive standpoint. Which stands up better to a single, or multiple shock? Which is more durable over time?

        In the “old days” before the explosion of credit one saved toward a substantial purchase. This meant that one was pretty clear as to the match between that purchase and one’s “desire” or “want” or “need” by the time enough had been saved – it also meant that anywhere along the way, an alternate, perhaps better, decision was possible. You had plenty of time to consider, or re-consider. Both systems, savings based or debt based, can run afoul of war, or some external shock, political stupidity etc. But crucially, in the savings based system, you don’t suddenly end up with millions of surplus houses, or cars, or mountains of “excess inventory”, collapsed production, and a mad scramble to re-boot and repeat.

        That delay mechanism has been all but destroyed. Does anyone actually believe we make wiser, more efficient, less wasteful, better decisions either individual or societal now than we did previously? Care to offer me some evidence? Does anyone believe the “average” American was poor in the ’60′s? Cripes, to my mind it was already clear by the ‘80’s that at minimum a third of the population had more stuff than could possibly be used, levels already impossible to justify even if there wasn’t a grotesque level of unmet NEED domestically, not to mention globally. With the explosion of debt from the ‘80’s on, the “solution” was not to re-balance existing galloping consumption and technological change, but to toss an accelerant on the fire. Now nearly half of us could go completely nuts and spend our brains out! How does MMT not lead to even larger binges of complete and total waste if there is no discernable check at all on credit expansion, if “growth” is the only Good, if half the population is deemed to be “productively employed” and “happy” if they’re lucky enough to be flipping burgers, because, after all, they have a “job”? The “savings” system was far more tuned to the speed of human existence, human wisdom and judgment, human relations of all kinds, as opposed to the Digital/Virtual/Global/Instant just-in-time-everything perpetual crisis, make a mistake and we are all completely screwed world of unlimited debt.

  18. Ray Phenicie

    The folks on the comment section here who have taken Professor Wray to task -i.e. that he is just a hack-fail to note that his contributions to the field of Monetary theory are very valuable.
    http://www.levyinstitute.org/scholars/?auth=287

    The fears expressed about hyper-inflation are themselves hyper-inflated. Remember, we have moved off the gold standard so comparisons with Germany in the 1920′s will not hold up to the situation before us.

    To get another view on why government deficits are needed when employment figures are sagging consistently and precipitously, when banks are unable to find creditable customers to loan to, when businesses are finding fewer and fewer customers for their goods and services, when any sane observer would realize what severe recession means, that we stand in the hallway to the cavernous area of depression, –when all of that is taken into consideration, the only entity with pockets big enough to carry the load -that is the time for the federal government to employ deficit spending to jump start the economy.

    http://www.levyinstitute.org/pubs/ppb_114.pdf

  19. Maximilien

    @Jim: “Supposedly Mr. Bass has purchased protection on $12 billion of Japanes Bonds, a move that is costing him $6 million.”

    Surely this is not accurate? CDS on Japanese sovereign debt are trading slightly south of 100 bps (best of my knowledge). That is, to insure $10M of debt for a year costs $100,000. That’s a ratio of 100:1. 1% a year.

    But you’re saying Bass bought protection at a ratio of 2000:1. An unbelievably tiny .05% a year! Either you’re mistaken, or I’m missing something.

  20. Ray Phenicie

    Now that it is time to fold over the comforter, here is one final post by the guy behind Modern Money Theory -who by the way, found Keynes had failed to really take into account the full impact of what would happen to economic theory if stock flows were analyzed closely- Wynne Godley recognized that Stock-flow consistency was not just limited to the link between real investment and tangible capital.

    http://www.levyinstitute.org/conferences/godley2011/presentations/Lavoieppt.pdf

    For those commentators above who talked about a theory of government without giving us one-here’s Godley’s. The last bit below, written 20 years ago, predicted Greece’s fall into the abyss.

    I think that the central government of any sovereign state ought to be striving all the time to determine the optimum overall level of public provision, the correct overall burden of taxation, the correct allocation of total expenditures between competing requirements and the just distribution of the tax burden. It must also determine the extent to which any gap between expenditure and taxation is financed by making a draft on the central bank and how much it is financed by borrowing and on what terms. The way in which governments decide all these (and some other) issues, and the quality of leadership which they can deploy, will, in interaction with the decisions of individuals, corporations and foreigners, determine such things as interest rates, the exchange rate, the inflation rate, the growth rate and the unemployment rate. It will also profoundly influence the distribution of income and wealth not only between individuals but between whole regions, assisting, one hopes, those adversely affected by structural change.

    What happens if a whole country – a potential ‘region’ in a fully integrated community – suffers a structural setback? So long as it is a sovereign state, it can devalue its currency. It can then trade successfully at full employment provided its people accept the necessary cut in their real incomes. With an economic and monetary union, this recourse is obviously barred, and its prospect is grave indeed unless federal budgeting arrangements are made which fulfil a redistributive role. As was clearly recognized in the MacDougall Report which was published in 1977, there has to be a quid pro quo for giving up the devaluation option in the form of fiscal redistribution. Some writers (such as Samuel Brittan and Sir Douglas Hague) have seriously suggested that EMU, by abolishing the balance of payments problem in its present form, would indeed abolish the problem, where it exists, of persistent failure to compete successfully in world markets. But as Professor Martin Feldstein pointed out in a major article in the Economist (13 June), this argument is very dangerously mistaken. If a country or region has no power to devalue, and if it is not the beneficiary of a system of fiscal equalisation, then there is nothing to stop it suffering a process of cumulative and terminal decline leading, in the end, to emigration as the only alternative to poverty or starvation.
    http://www.lrb.co.uk/v14/n19/wynne-godley/maastricht-and-all-that

    1. reason

      Yes.

      But European integration, and the gradual linguistic victory of English does make emigration easier.

  21. reason

    I find this funny, economics is normally at each others throats, and here we have a poster with “an Austrian bias” highlighting an article by an MMT supporter praising a new Keynesian. Wonders never cease.

    But hey its Christmas.

  22. Max424

    The more I read of Keynes the more I think he was MMT guy; and not a Keynesian.

    It’s almost like the sons of Keynes didn’t listen to a word Pappa said. Papa said, “If you hand over all your money to criminal psychopaths who do nothing but GAMBLE for a living; now son, that would be dumb.”

    But economists like Paul Krugman believe this is precisely what we should do. He calls that this handing over, of our money, in ever increasing bales, to crazy people:

    Sound Monetary Policy.

    Kruger, I love ya, but if you run with the insane, and think with the insane, your insane, dude.

    We’re past Peak Oil (Peak Coal too, probably), the world is heating up fast, the world is filling up fast (exponentially fast), with people, quite probably in the status quo future, mostly starving people, and the idea is to give our most precious –and abundant– resource, money, to a criminal sliver of the population, so that they can GAMBLE.

    Paul, believing that Monetary Policy is beneficial to mankind –unless it is directly benefiting you (which it isn’t, I hope)– is the definition of insanity.

    Come back to Keynes, kid, and sanity. Come back to the fiscal –and only the fiscal.

  23. Brick

    I find myself largely agreeing with most of the concepts argued here. If you have your own currency then debt yields are within your control and the risk gets transferred to potential currency depreciation. What I would argue is that although the US, UK and Japan are in a better position to the Eurozone area in this respect there are differences between the 3 which would make the onset of currency depreciation more or less imminent. These factors include whether the currency is a reserve currency, the domestic savings levels and availability of certain assets. By availability of assets I am hinting at housing spare inventory which can put a floor under asset prices. Assuming that what Japan can do others can do as well may be limited in quantity and size by other factors.

    Some will argue that a little currency depreciation would be welcome, and here again it depends on the size and quickness of change. To quick and to large a change can give hedging headaches for firms, leave manufacturing unable to enlarge its capcaity quickly enough to take advantage, and put a squeeze on consumers through rising imported goods prices.My argument here is that although you could defend your debt interest rates with printing, it needs to be callibrated such that the economy can adapt, so its not quite the simple story always suggested in my view.

    Arguing that the a sovereign government faces no financial constraints whilst in a literal sense may be true, there are practicalities which mean that you probably have a limit through the amount of volatility in your currency that your economy can cope with. In a way the US is currently in a fairly unique position where that volatility of currency is unlikely to materialise much, but that is not to say in the future there will be a creeping change in that ability as some other economies grow in size.

    Now Randall Wray proposes fiscal spending to curtail unemployment and as a pro-cylical policy I would have no argument as i am sure we could all think of infrastructure projects and the like which would ultimately enhance the economy. You do have to take into account the multiplier effect, in that ideally you would like the economic activity created to exceed that of the fiscal expenditure. While I think creating employment does fit that category, I am not quite so sure about some benefits and even more unsure about some of the fiscal expenditure that has been done recently.Structural fiscal deficits are also problematical in that if no other sovereign has a structural deficit then all things being equal you should expect a slow decline in your currency value as a result. Even thats not a straight forward given since again it depends on the multiplier effect and amount of economic activity created.

    If I was foolish I would suggest that MMT proponents have not thought about these aspects, I don’t think that is true and from what I have seen have mechanisms to address these issues. What I would ask about is whether the multiplier effect really will be as they suggest or will the financial industry and rich skim so much that it does not have the desired effect. The other query would be around whether you run the risk of having yoyo effects with hot money flows into other sovereigns. Now china may be able to cope with 1 trillion hot money inflows one year and -1 trillion the next but not all economies would be able to. For me those flows can be influenced by fluctuations in currency and whilst debt yield and inflation may be stable this would worry me. Maybe I have not understood correctly or its an aspect not explained well yet. Part of me wants all existing spending to be refocused to provide real benefits for society, not to fill a minority of peoples pockets first before you look at further fiscal spending, and that because I worry about unintended consequences and feedbacks through external transmission mechanisms.

      1. Ignim Brites

        Yep. Which raises an interesting question. How does MMT deal with the set of ideas around the notion of an Optimal Currency Area?

        1. F. Beard

          Not only could individual areas have their own currencies but individual companies could have their own currencies too. I read that private money creation was once considered a fundamental human right by Americans. It should be.

  24. Vicky

    I totally get what Ed, Dean, and Randall Wray are saying, and am completely convinced. But they are all ignoring the violence wrought by MMT on the small saver. The problem is not that MMT doesn’t work, it’s whether or not it works for ordinary savers like me. 0% interest creates massive print-your-own-money profits for banksters and is squeezing my retirement savings down to little coal pellets. Hell, as a saver I might be better off with a gold standard, because at least I can actually possess the gold. Remember the hyper inflation of the 70s? There’s a reason why the voters turned anti-Keynesian. Until your theories can deal with the need of real people to actually save money, you haven’t found a magic bullet. Far from it.

    1. Piano Racer

      “Hell, as a saver I might be better off with a gold standard, because at least I can actually possess the gold.”

      Vicky, you don’t need a gold standard to hold physical gold in your possession! Do not allow your lifetime’s worth of accumulated surplus value wrought by your hard labor to be siphoned off by these evildoers!

      Take it away from them. Take control of your wealth. Pay the penalty, make them cut you a check, and put your wealth into tangible assets within your personal possession.

      “Possession is 9/10 of the law”
      “A bird in the hand is better than two in the bush”

      http://www.gainesvillecoins.com/
      http://www.apmex.com

      Stepping off the beaten path is scary, I know. People will tell you that you are crazy, based solely on the fact that you are doing something different, but they will have no actual compelling arguments for you to stay in the broken system, other than the fact that it’s what everyone else is doing.

      Do not let yourself be a victim. Life is not static; what worked yesterday may not work tomorrow. If you cede the control of the product of your labor to another, you are asking to be made a victim.

    2. Ray Phenicie

      Here’s an idea-build an infrastructure that provides ‘soft’ landings for people who are no longer able to work, or have not been able to save. MMT allows the society to designate what resources can be given over to building mass transit (obviating the need for spending on a car), subsidized housing (minimal or no contribution to rent if you can’t afford it) and enough food at the local soup kitchen for three meals a day if you should be so needy as to have to line up. Oh, and by the way, Landlordism could be done away with as they burden us all as much if not more than the financial sector. Pay the water bill, keep the place up and mow the grass once in a while-create a co-op managerial situation to run housing. Mentioning the financial sector, if it was functioning the way it should, banks might even be willing to pay you a healthy percentage for the extra money held there.

      We deserve much better and the idea that poverty in old age has to be staved off by individuals forcing massive curtailment of present spending to avoid the terrors of old age-another bogey man needs to be slain there.

  25. F. Beard

    Until your theories can deal with the need of real people to actually save money, you haven’t found a magic bullet. Vicky

    Common stock as a private money form allows people to save but without counterfeiting (so-called “fractional reserves”) or usury. The “savings” are in the appreciation of the stock and/or “dividends” that are paid in the stock itself and not in some “foreign” money.

    1. Ransome

      Find “Capitalism without capitalists” a critique of our corporate system with a three month management worldview. Stockholders are simply gambling. Not a money substitute.

  26. Piano Racer

    “While I have an Austrian bias overall”

    HE’S A WITCH! BURN HIM!

    Where is Phil Plinkington when we need him to lambast those evil Austrians…

  27. steelhead23

    If we posit that modern monetary theory is correct, and logic suggest that it is, why do decision makers cling to classical monetary theory? Actually, my question is how does clinging to antiquated monetary theory serve the interest of the decision makers or the monied elite they work for? How would a stronger bent toward MMT-Keynes harm the elite? Those who wield power foolishly, should lose it.

  28. Jim

    Response to Edward Harrison (Dec. 21, 9:36 P.M.)

    I didn’t mean to imply that Bass was short JGBs. You are certainly correct that he most likely has some sort of option/swaption hedge.

    What was of interest to me were the contrasting suppositions and predictions about the future movement/nonmovement of Japanese interest rates based on the one hand on MMT theory and on the other, on Bass and his non-linearity relationship between expenses and revenue theory.

    This was the basis for me saying–”place your bets”–on either one theory or the other

    I find both arguments persuasive.

    I would love to see a discussion between some MMT folks and Kyle Bass on the future of Japanese interest rates.

    1. Tim

      I agree with the poster that commented that this post is eerilee similar to the kind of article that classically is written near the end of a long Bull/bear market where people say “see this will work forever”. The correct response is it will work perfectly until it approaches the maximum possible limitation and then it fails spectacularly.

      Yes, a government can print all the money it wants (by buying the issuance of it’s one bonds) and hold rates at zero, even to the point that all nongovernment owned bonds are rolled over into new bonds bought by the government until the government is the whole market for new bonds and it owns all of it’s existing bonds. But then what happens at that point?

      What happens is the tax base/revenue of the country MUST equal expendetures RIGHT THEN. Period.

      If it doesn’t? Then you get the same hyperinflation as if you were on a gold standard, because you don’t get something for nothing in this universe.

      So the real question is the tipping point of MMT right at 100% government ownership and purchase of all of it’s existing and new debts?

      Or do non-originating-government-owners of the government debt see the end (no government discipline resulting in hyperinflation) coming earlier at which point they react and the system breaks down earlier with a two tier market, the bond sale where all the primary dealers flip to the central bank buyer at a super low rates and the secondary market where nobody wants to buy the bond at a rate lower than the prevailing inflation rate plus some margin for anticipated further inflation increases…and you end up with a disorderly collapse of the bond prices that looks a lot like a default, and since the goverment has become the entire bond market must fund itself 100% off of it’s revenues ore else it results in hyperinflation.

      That’s the end games of MMT, which match the end game of a country that defaults: no more debt to pay, no more debt to be given. It will just look different, take longer to get there, with the added guarantee of all non real-asset savings being destroyed.

  29. Rodger Malcolm Mitchell

    While Randy knows MMT better than almost anyone, I’m not sure he clarified it for non-believers with his “because they issue their own currencies” comment.

    The U.S. has issued its own currency for many decades, but only since August 15, 1971, did it become Monetarily Sovereign (www.nofica.com) — and therein lies all the difference.

    The problem with the PIIGS is not just that they don’t issue their own currency. It that their hands are not bound by something not their currency.

    In effect, the PIIGS are on a euro standard. It’s exactly like a gold standard in that the PIIGS have no control over it.

    Rodger Malcolm Mitchell

  30. Fiver

    Posted in the wrong spot (above). Re-posting here:

    Perhaps, unlike the Chicago School and IMF did with a number of experiments on a country-size scale, MMT should be run in a selected guinea pig country for a decade minimum prior to wider implementation, so unlike the aforementioned experiments, there is no need to inflict a succession of disasters should the first experiments fail. Do we wish to volunteer anyone for instant destruction by Mr. Market, or if that fails, regime change? How about Greece? If the 1% (really about 20%, but let’s not quibble) agreed to MMT, would MMT make any practical difference at all? If the 1% reject MMT, how on earth to implement?

    I in any case find myself in an odd position. As a life-long socialist, I would like to believe that MMT is a partial answer. But as an environmentalist, I fail to see how it can be anything other than worse than what we have now in terms of mind-boggling levels of waste.

    Apart from the issue of what it does to existing ordinary savers’ savings (including pensions, seniors, insurance etc) what is the mechanism that replaces the other socio-economic and evolutionary adaptation functions of savings, i.e., a willingness to forego immediate gratification, serious consideration of real future possibilities or just simple prudence? And please, I am NOT engaged in some sort of “Calvinist” moral bullshit. It is a simple question with respect to which is more sound from an adaptive standpoint. Which stands up better to a single, or multiple shock? Which is more durable over time?

    In the “old days” before the explosion of credit one saved toward a substantial purchase. This meant that one was pretty clear as to the match between that purchase and one’s “desire” or “want” or “need” by the time enough had been saved – it also meant that anywhere along the way, an alternate, perhaps better, decision was possible. You had plenty of time to consider, or re-consider. Both systems, savings based or debt based, can run afoul of war, or some external shock, political stupidity etc. But crucially, in the savings based system, you don’t suddenly end up with millions of surplus houses, or cars, or mountains of “excess inventory”, collapsed production, and a mad scramble to re-boot and repeat.

    That delay mechanism has been all but destroyed. Does anyone actually believe we make wiser, more efficient, less wasteful, better decisions either individual or societal now than we did previously? Care to offer me some evidence? Does anyone believe the “average” American was poor in the ’60′s? Cripes, to my mind it was already clear by the ‘80’s that at minimum a third of the population had more stuff than could possibly be used, levels already impossible to justify even if there wasn’t a grotesque level of unmet NEED domestically, not to mention globally. With the explosion of debt from the ‘80’s on, the “solution” was not to re-balance existing galloping consumption and technological change, but to toss an accelerant on the fire. Now nearly half of us could go completely nuts and spend our brains out! How does MMT not lead to even larger binges of complete and total waste if there is no discernable check at all on credit expansion, if “growth” is the only Good, if half the population is deemed to be “productively employed” and “happy” if they’re lucky enough to be flipping burgers, because, after all, they have a “job”? The “savings” system was far more tuned to the speed of human existence, human wisdom and judgment, human relations of all kinds, as opposed to the Digital/Virtual/Global/Instant just-in-time-everything perpetual crisis, make a mistake and we are all completely screwed world of unlimited debt.

  31. Tim

    Reposting as this was not intended to be a reply where first posted:
    I agree with the poster that commented that this post is eerilee similar to the kind of article that classically is written near the end of a long Bull/bear market where people say “see this will work forever”. The correct response is it will work perfectly until it approaches the maximum possible limitation and then it fails spectacularly.

    Yes, a government can print all the money it wants (by buying the issuance of it’s one bonds) and hold rates at zero, even to the point that all nongovernment owned bonds are rolled over into new bonds bought by the government until the government is the whole market for new bonds and it owns all of it’s existing bonds. But then what happens at that point?

    What happens is the tax base/revenue of the country MUST equal expendetures RIGHT THEN. Period.

    If it doesn’t? Then you get the same hyperinflation as if you were on a gold standard, because you don’t get something for nothing in this universe.

    So the real question is the tipping point of MMT right at 100% government ownership and purchase of all of it’s existing and new debts?

    Or do non-originating-government-owners of the government debt see the end (no government discipline resulting in hyperinflation) coming earlier at which point they react and the system breaks down earlier with a two tier market, the bond sale where all the primary dealers flip to the central bank buyer at a super low rates and the secondary market where nobody wants to buy the bond at a rate lower than the prevailing inflation rate plus some margin for anticipated further inflation increases…and you end up with a disorderly collapse of the bond prices that looks a lot like a default, and since the goverment has become the entire bond market must fund itself 100% off of it’s revenues ore else it results in hyperinflation.

    That’s the end games of MMT, which match the end game of a country that defaults: no more debt to pay, no more debt to be given. It will just look different, take longer to get there, with the added guarantee of all non real-asset savings being destroyed.

    1. F. Beard

      If it doesn’t? Then you get the same hyperinflation as if you were on a gold standard, because you don’t get something for nothing in this universe. Tim

      Money creation is not “something for nothing”. To the extent it does not cause price inflation, money creation is merely reaping previously created wealth.

    2. F. Beard

      and since the goverment has become the entire bond market must fund itself 100% off of it’s revenues ore else it results in hyperinflation. Tim

      That does not follow. Assuming the real economy grew at 5%/yr and government printing was 3% of GDP/yr then the money would appreciate at 2%/yr. Or if the government printed 7%/yr then its money would lose 2%/yr. That is not hyperinflation. But what about inflationary expectations? Those are irrelevant if there is no source of money or credit to act on them with. Banks are thus likely culprits for severe price inflation.

  32. Piano Racer

    There is nothing ‘modern’ at all in Modern Monetary Theory. It is the same old fish wrapped in slightly different paper. The godfathers of Modern Monetary Theory are John Law, G.F. Knapp, J.M. Keynes, and most lately Alan Greenspan. But its roots go back to any ruling group that ever debased a currency or seized private property by fraud.

    It is in the nature of a Ponzi scheme. As long as its sphere of influence can keep expanding, and the force by which people are compelled to accept it is maintained, a fiat currency will ‘work.’ But as its expansion slows, as outlying regions begin to resist it, the currency begins a slow but deadly spiral of collapse that accelerates into a final reckoning and reissuance.

    Fiat currencies *can* work well in theory, but in reality they require the indefatigable dedication of people of extraordinary virtue, courage, and wisdom. And so they have failed. Always.

    And it most certainly will not work with the craven and self-serving leadership which the Anglo-Americans have today. It is almost a cruel joke to promote such a system. And yet there it is and here we are. What comes next will be interesting.

    1. F. Beard

      Fiat currencies *can* work well in theory, Piano Racer

      Not only is inexpensive fiat sound in theory it is a moral NECESSITY so long as we have government.

      but in reality they require the indefatigable dedication of people of extraordinary virtue, courage, and wisdom. PR

      Not necessarily. What is needed is to abolish the “stealth inflation tax” so that overprinting would be self-defeating. Note that common stock companies are loath to issue more common stock (a private money form) since it dilutes existing shareholder value.

      And so they have failed. Always. PR

      Not so. The Tally Stick survived 726 years in England. I suspect it did so because it was only legal tender for government debts, not private ones. Even the BoE’s money was not legal tender for private debts till 1826, if I recall properly.

  33. Ray Phenicie

    At the end of the day, I don’t see anyone who offered criticisms here has really offered anything that is creative, original or well thought out in the way of a replacement theory. Web space is cheap, if someone really has a whole lot of material in the way of a counter theory, I would really like to see it. The Levy Institute has a whole lot of material that shows how MMT would work, I don’t see that many of the critics of MMT here have actually read it-or understood what was said in the original article here about MMT.

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