Auerback/Parenteau: Operation Twist, Part Deux?

By Marshall Auerback, a fund manager and investment strategist and Rob Parenteau, CFA, sole proprietor of MacroStrategy Edge, editor of The Richebacher Letter, and a research associate of The Levy Economics Institute

Who funds our budget deficit? It is a question taking on increasing significance, given the recent back up on longer-dated bond yields, which has been explained by many as a “buyers’ strike” in response to growing government profligacy. We think this argument displays a seriously lagging understanding of how much modern money has changed since Nixon changed finance forever by closing the gold window in 1973. Now that we’re off the gold standard, neither our international creditors, nor the so-called “bond market vigilantes”, “fund” anything, contrary to the completely false & misguided scare stories one reads almost daily in the press.

In his usually effective fashion, Bill Mitchell debunks the notion that “the markets” determine our interest rate structure, as opposed to the central banks. Mitchell discusses this in the context of his analysis of a BIS paper, “The Future of Public Debt: Prospects and Implications”, which raises the old canard about a potential “bond market buyers’ strike” as a consequence of rising public debt.” “[T]he debt ratio will explode in the absence of a sufficiently large primary surplus”, argues the author of the BIS paper.

From which – Mitchell deduces- “the governments [should] either stop allowing the bond markets to determine yields – that is, use their capacity to control the yield curve or, better still, abandon the practice of issuing debt.”

Mitchell then poses the question: “Why will yields spike dangerously so that real interest rates exceed real output growth rates? There is no answer to this question provided.”

There is no answer provided because, as a point of economic logic, Bill’s critique of the BIS is (as usual) unassailable. BUT as any regular observer of the markets can tell you, bonds have begun to rise again over the past few weeks, notably in the US. This might have occurred for the dumbest reasons imaginable (one person foolishly tried to link the rise in US yields to Portugal’s downgrade by the benighted ratings agencies).

On the other hand, one of the great insights of George Soros was the notion that markets could act on incorrect or imperfect information and thereby create a new kind of economic reality. It might well be that very few understand MMT or basic public reserve accounting, but that doesn’t alter the reality that bond yields have risen 20 basis points in the past week or so. And a central bank which is underpinned by a market fundamentalist ideology, coupled with a bunch of “big swinging dicks” in the trading pits is a potentially toxic combination. The Fed follows the price action at the long end of bond market. Long bond investors often try to force Fed’s hand. Around and around they go,dog chasing tail style.

There’s a power dynamic here – who’s really in control: Big Swinging Dick Finanzkapital (BSDF) or policy geeks who understand basic public reserve accounting?

The Fed clearly has a dilemma. It needs to finesse expectations management for BOTH Treasury bond and equity investors. Bond investors need to know they are not going to get screwed by inflation, so they want the fed funds rate renormalized. Equity investors want the “extended period” of ZIRP to last for, well, an extended period. Free money is good for specs.

So what’s a central banker like Bernanke to do?

How about a modern version of “Operation Twist”, which was implemented originally by the Fed in 1961 to flatten the yield curve in order to promote capital inflows and strengthen the dollar. The Fed utilized open market operations to shorten the maturity of public debt in the open market. It was only marginally successful back then.

So why should it work better today?

Well, the Fed has more tools in its policy box, thanks in part to its policy of paying interest on excess reserves (IOER). Scott Fullwiler has an excellent paper on this (“Paying Interest on Reserve Balances: It’s More Significant than You Think”), in which he demonstrates that this change in Fed policy has severed the relationship between the policy rate target and the level of reserves outstanding (if there ever was one – some indications in recent years were that all Fed had to do was announce new fed funds rate target, and primary dealers would take it there, knowing Fed had capacity to change reserves outstanding – all of which meant Fed did not have to change reserves, since they had a credible threat they could, making the textbook story about Fed ops even more outdated and incorrect).

So the Fed can tell everybody that they are renormalizing the fed funds rate and take the IOER up to 100bps. Note, the Fed does not need to remove any reserves to do this – they can just do it administratively. That’s how the IOER works – it severs the link between reserves in the system and the target policy rate, right?

Then, if the bond gods don’t rally Treasuries on the Fed’s efforts to renormalize the policy rate, Mr Bernanke calls up Bill Dudley (President at the NY Fed) and gives him instruction to buy all the 10 year UST on offer until the 10 year UST yield is down to, oh, say 3.5%. It is an open market operation, which the Fed performs all the time. They won’t have to call it QE, but it is in effect the same thing.

Then, every time some big swinging dick bond trader tries to push it above 3.5% by shorting Treasuries, the Fed slams their face into the concrete by having the open market desk buy the hell out of UST until the 10 year yield is back to 3.5%. Burn Fido enough times, yank his chain enough times, and like the Dog Whisperer, he gets it and stops.

No less than one of the leading “bond market vigilantes” has conceded this point. In his October 2003 Fed Focus, PIMCO’s Paul McCulley has acknowledged that “any market induced—foreign or domestic-driven—upward pressure on U. S. intermediate or long-term interest rates would/will be limited by the leash of the Fed’s . . . anchoring of the Fed funds rate . . . . Put differently, there is a limit to how steep the yield curve can get, if the Fed just says no—again and again!—to the tightening path implicit in a steep yield curve”.

What happens if the 10 year bond breaks out of the 3.5% to 4% range significantly even with no changes in expectations regarding the Fed? Could that happen, or is there some arbitrage mechanism that brings it back? Of course, there will always be smart bond traders (such as our friend, Warren Mosler), who will understand the potential arbitrage opportunity at hand and react accordingly, but a signal from the Fed that it desires a certain rate level or term structure for rates will facilitate the process.

Operation Twist, Part Deux, then? It strikes us as the optimal way to finesse the expectations management dilemma.

It seems to us that we are now approaching a very critical juncture in terms of potentially settling the debate between those who think that central banks establish the rate structure versus those who believe that this is done by the markets (such as the usual band of deficit hawks, and the writer of the BIS report critiqued by Bill Mitchell). Of course, like most MMT adherents, we feel that the whole debate would become less relevant if the US Treasury responded to today’s environment through sensible proactive fiscal expenditure, but it’s hard to sustain political support for that amidst sock puppet politicians who dole out goodies to their corporate contributors, and an Administration which genuinely believes we’re “running out of money”.

That places an unnecessarily large burden on the Fed, hardly an appealing prospect, given Mr Bernanke’s own neo-classical economics framework. Keynes himself was quite explicit about the importance of investor portfolio preferences in determining interest rates specifically. Indeed, Ch. 12 of “The General Theory” is all about the beauty contest aspect of asset price determination in the face of fundamental uncertainty and asset markets organized to optimize liquidity for existing holders. Does the Fed understand this? It may well not happen, but no question an aggressive move to counter short term portfolio preference shifts on the part of private investors could do much to resolve this “who determines rates” question once and for all.

There’s a power dimension here. Does the Fed really want to be led around by the nose by the very same people who created today’s economic disaster?

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    1. Yves Smith Post author

      I suggest you bone up on the topic. Sovereign defaults occur when an entity either does not control its currency (Greece, California, countries operating under the gold standard, as in the sovereigns that defaulted in the Great Depression) or have significant liabilities in currencies they do not control (Iceland, Latin American countries with dollarized economies and dollar denominated debts). The one exception was the Russian default of 1998, which if you read up on it stunned the markets because it was completely elective, Russian had low debt to GDP. I’m not a Russia maven, but they chose to screw their creditors.

      The reason the UK is at risk is it has an outsized banking sector relative to its economy and that banking sector has significant non-pound liabilities.

      None of these factors are operative with the US. If we start accumulating large non dollar liabilities, that would change, but that does not appear to be on the radar right now.

      And what they are discussing here is not “Keyneianism” it’s modern monetary theory, which was developed AFTER the US went off Bretton Woods (the early 1970s), long after Keynes was dead. It describes how monetary operations work in a non-gold-standard world.

      1. Peripheral Visionary

        Yves, I generally agree, but the key concept here is when countries “have significant liabilities in currencies they do not control”. That does not happen by accident–it most often is the result of continuing need for external financing, the result of a combination of profligate deficit spending and a weak local currency. Ultimately, nations need to buy goods and services produced elsewhere, and when there is a perception in the international markets that their domestic currencies are weak, they will be forced to borrow in foreign currencies to fund imports.

        Auerback’s analysis rests upon the assumption that the U.S. is able to maintain its “strong dollar” policy, wherein both the government and U.S. corporations are able to borrow most of what they need in U.S. dollars. As long as that situation continues, the Federal Reserve is in fact in control of the situation. But as soon as the international markets no longer accept dollar-denominated debt, and begin to demand that the U.S.’s trade deficit be funded in foreign currencies (e.g., if oil-exporting countries begin to demand oil payments in currencies other than USD), the “bond vigilantes” will be firmly in control, and there will be nothing that Bernanke and company can do about it.

      2. Greg


        Thanks again for broadening the economic horizons here. This is why yours is the best broad view econ site on the web. You give voice to lots of views but your commentary shows what you find palateble about each. The truth is all the schools have something positive to add to the discussion but one must also decipher that which is pure drivel masked as fact. Your book Econned does a magnificent job at that.

        To the MMT doubters on here. I really sugest you do more exploration and find what the paradigm is about. Many here are criticizing things which have NEVER been stated by any of the MMT scholars (we can spend limitlessly, the Fed should dictate profits in the markets)

        Here are some FACTS of MMT;

        1)Currency issuer cannot run out of money- anyone dispute that?

        2)Real goods are not limitless and therefor dictate what can be bought.- any problems?

        3)Bond markets are NOT for financing govt projects.

        4)The govt CAN control the yield curve if it desires. A theory now- the yield curve should only be controlled in tenous times (some might say it should ALWAYS be controlled, thats a matter of ideology)

        5)A job guarantee program presents no financial limitations.
        How its set up is not under the purview of MMT, that is a matter of preference

        6)Reserve positions of banks have no effect on the amount of lending

        These are only a few but if you study MMT enough you will soon realize;

        1)Fractional reserve banking is a MYTH

        2)Loanable funds doctrine is complete and utter bull$hit

        3)crowding out is a crock

        Essentially most everything you ever thought you knew about macro is totally irrelevant to the real world so the question becomes; what do we do with this knowledge?

        We cant ignore it and continue pretending the previous myths are at all relevant. We must use the new knowledge and apply it in a satisfactory way.

        MMT does not give us ALL the answers but it certainly dismisses some of the old questions as irrelevant. It wont be easy making the economic/political decisions we must make but we must make them and we need to know which information to ignore.

    2. Andrew Bissell

      Here’s a hint David: it’s not *technically* a sovereign default if you dilute the value of the currency outstanding to reduce the real debt burden. See? Magic!

      1. MacroStrategy Edge


        The money you use to pay taxes or buy bonds – where do you suppose that comes from?

        You cannot produce it.

        Your employer, unless it is a bank or the federal government, cannot produce it.

        Those would be acts of counterfeiting under existing monetary arrangements.

        So I implore you to think again: where does the money come from that you use to pay taxes or buy bonds?

        Yes, that’s right, from the government itself, either as it deficit spends, or as the central bank expands its balance sheet buying assets from the private sector.

        Now we could always return to the gold standard itself, which served a number of nations mighty well during the Great Depression, now didn’ it?

        1. Andrew Bissell

          Now we could always return to the gold standard itself, which served a number of nations mighty well during the Great Depression, now didn’ it?

          Setting aside the post hoc ergo propter hoc reasoning of the Bernanke-ites, I notice that none of those nations got themselves into the sort of credit bubble that we saw in the 1980s-2000s. In fact, the largest debt bubble ever blown in history was blown under exactly the kind of monetary regime one would expect to produce it: one based on a fiat currency backed by the government’s promise to pay nothing (and tacit promise to [occasionally] restrict its supply).

          What did not serve anyone well was trade protectionism, government cartelization of industry, attempts to prop up asset prices, and (ultimately) war.

          We only assume such collapses are not possible under a fiat regime because we haven’t yet suffered one. We also already know that an unmoored currency produces a far larger bubble — what should we conclude about the ensuing bust? I will wait until all the cyclical returns are in.

          1. MacroStrategy Edge

            Check your history. There was a little problem with war debts left over from WWI, at least for a few nations, like, oh, say Germany. And there is at least some evidence, in the US at least, that the roaring 20s involved heavy use of margin debt and some build up of private sector debt as well, including the advent of consumer financing of the consumer durable goods then being offered.

            So yeah, we could go back a monetary system based on digging holes in the ground to find shiny yellow metal. Then, every time there is a drought in India and farmers are committing suicide instead of trying to marry their daughters off with huge purchases of gold jewelry, nutty things can happen to the purchasing power of our money.

            Go for it.

          2. Andrew Bissell

            Nutty things could happen to the purchasing power of our money?

            Wow, what a world to live in that would be!

          3. Andrew Bissell

            More to the point, the 20s did indeed experience a mighty credit bubble, helped along by a newfangled central bank providing an “elastic currency” and liquidity backstop to the banking system. The war debts were a self-defeating punitive measure … they were not particular to the gold standard and could be adopted under any monetary regime by simply requiring payment in any specie the debtor is unable to print without limit.

            The bubble which peaked in 2007 dwarfs the 20s bubble in every respect, in part because the liquidity backstop the Fed was able (though, as it turns out, not entirely willing) to offer after the gold window was closed was effectively infinite.

          4. MacroStrategy Edge

            Andrew –

            We have no quarrel that excess credit growth can be very dangerous and damaging. We would be careful attributing asset bubbles and credit booms all to the Fed, since the balance sheets of Wall Street broker dealers became a multiple of the Fed’s before the last bubble popped. At a minimum, please recognize Reinhart and Rogoff have documented 8 centuries of asset bubbles. Central banks have only been around fro 3 of those centuries.

            Moreover, take this challenge up for me. Show me a 100% commodity money/100% reserve banking system, and I’ll show you the Dark Ages…no, make that the Stone Ages.

            As Jim Grant said at last year’s Minsky conference in NYC held by the Levy Institute and the Ford Foundation (don’t miss the next one in April coming up – stellar line up, Billy Bob says check it out at, maybe people just are not quite ready to handle monetary systems yet. Of any kind. Including gold based ones. Which also fail, right?

          5. Andrew Bissell

            As Jim Grant said at last year’s Minsky conference in NYC held by the Levy Institute and the Ford Foundation (don’t miss the next one in April coming up – stellar line up, Billy Bob says check it out at, maybe people just are not quite ready to handle monetary systems yet. Of any kind. Including gold based ones. Which also fail, right?

            Yes, of course! In fact, my perspective is basically the same as Jim Grant’s. I don’t mean to suggest, as some neo-Austrians do, that bubbles would not exist without the Fed. It is possible that they would not exist without fractional reserve banking — but for one I don’t think banning FRB is practicable, and two, from a socionomic perspective, I think the desire to speculate would find ways to flow around even an FRB ban to create excess credit.

            What I am suggesting is that the Fed, and fiat currency administrators more generally, do not smooth out or tame these boom/bust cycles, but instead aggravate and perpetuate them to a degree that would not exist in a monetary system with natural brakes on liquidity like the gold standard. The best that they appear to do, so far, is to exchange the nineteenth century’s frequent, sharp panics for periods of fairly smooth, more tempered, consistent growth (during which we are assured that a combination of wise central bank stewardship and effective regulation has produced a “Great Moderation”), punctuated every few decades by raging inflation or unstoppable deflationary collapses (the latter of which are often worse than anything that the gold standard era produced). Whatever else can be said for the financial upheavals and panics of the nineteenth century, they did a good job dispensing of the losers before they got too big to fail, and there was never a point (as far as I am aware) at which the system reached a state of such overleveraged fragility that Treasury Secretary was threatening the Congress with systemic collapse, martial law, and tanks in the street. (Maybe Nicholas Biddle tried something like this, and we know what it got him …)

            I don’t believe in the gold standard, but I do find legal tender laws and forcing a citizenry to accept its nation’s debt as money to be terribly unjust. So when it comes to money, just let the market decide … repeal legal tender laws and enforce contracts stipulated in whatever currency the parties specify. If the U.S. government still wants to insist on Federal Reserve Notes, taxpayers can exchange whatever private currencies they have for it at the going market rate.

            No, the gold standard is not a perfect monetary system, but it does have the appeal of a certain degree of immunity to mass human stupidity. If I believed that political bodies and central banks could ever be trusted not to participate in and encourage bubbles as enthusiastically as the voters which elect them, I might think that a system of administered fiat currencies backed only by the state’s taxing power would be workable.

            Given the experience of the past few decades, I don’t see how one can reach that conclusion … and now, since our government and the Fed are fully captured by Wall Street, the immense power of our monetary system is being turned into a tool for rent-seeking besides.

            Some people think they can perfect that system, they can do it better, they can get it right next time. I think the solution is to strip it of its power.

        2. jake chase

          Look, it isn’t really so complicated. Money is supposed to be a medium of exchange and a store of value. These days, one out of two isn’t so bad.

          For those of you hoping to live on the earnings of capital, how about a nice CDO of ABS?

    3. MacroStrategy Edge

      David –

      Yves is right. If you think a nation with its debt denominated in its own sovereign currency (that is, not convertible on demand into a fixed number of units of another currency or a commodity) can default on anything other than voluntary grounds, take a closer look.

      The fact is the creator of money cannot run out of the money required to pay the interest or the principal on the debt of a such a government with a sovereign currency.

      Face it, your existing President is dead wrong – he can never “run out of money” to pay for anything, including government debt service, unless for political reasons he decides that is his best option.

      1. cas127

        “Can’t run out of money…”

        Literally true, but essentially and criminally blind in its myopia – a disease which has gotten us into this mess.

        First, if a currency’s value is habitually and continually diluted (the bottom line fact of your policy prescription) due to the long-term manipulation of interest rates (again, the core of your prescription) then the holders of that currency (both foreign and domestic) eventually become utterly disgusted with that currency and move away from it – *forcing* the debaser to issue debt in a foreign currency and finally stripping the debaser of the power to debase.

        In short, disgusted lenders eventually *refuse* to roll over your mountain of debt because they have ceased to believe that you are anything other than irresponsible.

        Your answer – we’ll mend our ways when that day comes.

        Which it won’t. (Because we don’t *want* it to.)

        My answer – By that time it is too f***ing late, because you will have s**t on and shredded the trust that underlies any economic transaction.

        You will bear the mark of Keynes.

        (heh, unfair to Keynes – who was a countercyclical adult, unlike his degenerate neo-Keynesian progeny – you – but simply too good linguistically to pass up…).

        *That* is what the dollar-based savings community (foreign and domestic) is telling you – we are getting terminally pissed off about a decade worth of near ZIRP and we have been spending every waking moment thinking about how to bring the debased-dollar’s rule to an end.

        We are not bond vigilantes – we are bond *executioners*.

        And you only have your endless personal irresponsibility to blame.

        Why do you think that oil soared in the first half of 2008 as the DC kleptocracy returned to ZIRP-based debasement?

        Why do you think that Chinese savers are hoarding precious metals?

        Because the saving class around the world are on to your game (which you so smugly proclaim as a feature not a bug) and is gradually feeling its way to a post-dollar world (as you keep rocking back and forth in a dark corner, crying out for your happy place, where responsibility never has to be taken and consequences never hold).

        The great counterexample is of course Japan, which has been ZIRPing along for two decades without surging interest rates.

        But some questions…

        1) Do you believe that the dollar saving class is subject to nearly as much control as the yen savings class? Do you believe that the *current* dollar saver can be made to accept what the yen saver can be made to accept?

        2) How much do you believe in government macroeconomic statistics (a la Greece and Japan)? How much do you believe that the *worldwide saving class* believes in government macroeconomic statistics.

        We are witnessing the slow suicide of fiat based monies, made inevitable by the addictions of kleptocratic “First World” governments.

        Commodity-based monies (gold and everything else under the sun) will be relatively inefficient *except* when viewed in light of the fact that fiat inevitably finds its only and ultimate value in the trustworthiness of “First World” governments.

        So much for that.

        So sneer on, as the floodwaters rise.

        1. MacroStrategy Edge

          Yes, it would be utterly irresponsible of us to suggest we should use the tools already at hand, plus a few new ones like ELR/JG to guide an economy to a full employment growth path with price stability – something which notably, markets left to their own devices, seem historically have a hard time generating the correct price signals to do on their own, spontaneously.

          The horror, the horror.

          1. Edward Lowe

            What exactly do you mean by employment. Are you really describing a simple system of cash transfer from the government to its citizens (a sort of reverse tax)? When government “employs” people either to sit at home and wait for a check or to tear up a perfectly serviceable street corner to replace it with another perfectly serviceable street corner, your “employment” is by no means productive. What sort of economic “theory” guides your notion of “full employment,” if it is not productive labor tied to the production of new capital, you are essentially describing a system that will debase the currency and slowly starve the population. You are describing the slow decline of Rome after the republican era. What will people do? Walk away to more productive locales.

          2. MacroStrategy Edge

            Edward –

            Take a look at what was produced during the Great Depression under CCC etc. You’d be surprised at what can be done. Some of the tangible capital they created is still standing 70+ years later. Next time you are in SF, go visit Coit Tower, or the Berkeley Rose Garden. Know your history. It helps immeasurably.

            As for the market always allocating resources to their highest marginal productivity use, you might want to read Yves book, or simply reflect on the marginal productivity of the financial professionals who routinely looted Wall Street firms and defrauded shareholders. That was a nice piece of work by the invisible hand, wasn’t it? You’ve been ECONned. Lose your illusions.

        2. Jeff65

          Why does nearly everyone miss the part of MMT that directly extinguishes the money they are so worried about hyper-inflating to nothing: taxation? I realize taxes are a highly political issue, but so is recognizing the spending side of MMT. You’re not going to get one without the other.

          There would not be hyperinflation if the full concepts of MMT are applied.

          1. carol

            Could you give us at least one example of MMT being fully applied?

            The spending part of MMT can be done very quickly (like Paulson/Bernanke/Geithner’s 700 billion in a weekend).

            But what about the tax increases? What income tax brackets? A wealth tax (e.g. 1% of a person’s net wealth taxed per annum)? Estate tax (like 50% of everything above 100k)?
            How quickly can all that and more be made into policy and those tax increase collected?

          2. Jeff65

            Easy: One could alter the taxation system to automatically scale based on an inflation figure without additional legislation required.

            A better alternative would be to arrange most of the government spending to be counter-cyclical, like the govt as Employer Of Last Resort program advocated by many MMTers.

      2. Dan Duncan

        Rob’s concept of money has a certain Unbearable Lightness of Being about it.

        Sure, the eternal recurrence of something like the gold standard imposes a “heaviness” on our lives and on the decisions we make (it gives them weight, to borrow from Nietzsche’s metaphor), a heaviness that Nietzsche thought could be either a tremendous burden or great benefit depending on one’s perspective.

        The German expression Einmal ist keinmal encapsulates “lightness” so: “what happens but once, might as well not have happened at all.

        Since money is created each time the government deficit spends or buys an asset from the private sector, money is created on the fly. No need to use that which was already created, when we can just create some more. So the government just goes about its business spewing money.

        Thus, a dollar created today is a dime tomorrow. Dollars are fleeting and Modern Money has no weight and no bearings.

        Nevertheless, despite its fiat underpinnings, money is subject to the laws of nature…and that which is easily created and ultimately fleeting is always rendered insignificant.

        The use of such insignificance as a store of value will become unbearable.

        As a result, our government is deluded into thinking that decisions do not really matter. These decisions (Wars, unrealistic entitlements, etc., etc) are rendered light, because they do not cause personal suffering (just print more!). Yet, simultaneously, the insignificance of decisions ultimately is doomed to cause us great suffering and this is perceived as the Unbearable Lightness of Being…and Modern Money. This insignificance is existentially unbearable when it is considered that people want their labor, assets and savings to have credible sense of meaning.

        Imposing a standard on our money is a burden and a heavy one at that. But at least the the heaviness is bearable.

        1. MacroStrategy Edge

          As it turns out, most monetary arrangements humans have devised through time turn out to be unbearable at one point or another. This includes gold based monetary systems. It includes, if they every existed outside the Stone Age, 100% reserve/100% commodity money systems.

          I am all ears if you’ve got a better monetary arrangement than the current one. But first figure out why the prior ones to the current one failed before you state your case. Otherwise, we’ll just repeat old mistakes.

          Gold based monetary arrangements fall for a reason. So too commodity based monetary arrangements. And currency boards. And currency unions. So do share what you come up with when you are ready to do so.

          1. Kevin de Bruxelles

            I found Dan’s metaphor to be quite a useful tool for understanding the problem of monetary arrangements for the non-specialists among us! It conjured up in my mind the image of an hot air balloon to represent the overall monetary machine. The goal is to keep the system afloat within a reasonable range of altitude (inflation). Failure occurs when the balloon gets dangerously close to the ground (deflation) or when it sails off into the stratosphere (hyper inflation). There is also a political dimension to this; wealth will naturally want the balloon to fly closer to the ground (inflation rate 1-2%) while the masses prefer it to soar a little higher (5-7%). Among the variables that control the height of the balloon would be monetary policies (a sort of ballast), fiscal policies (the temperature or composition of the gas), as well as the overall productivity of the economy (the open flame burner). These policies could either tend towards giving lift to the balloon (fiscal spending) or adding weight (tight control of the supply, cost, or availability of money). For example tying a monetary arrangement to a gold standard is easily visualized as adding ballast to the balloon. When this ballast overloads the balloon due to decreases in economies’ buoyancy (fall in overall productivity, fall in fiscal spending) this gold standard must start to be jettisoned to compensate.

            In reading more and more about MMT (thanks for the link Rob) the penny is slowing starting to drop that in fact one of the main tenets of this way of thinking is that there is no actual link between taxes collected and money spent by a government; in other words that the concept of a government deficit is a false analogy to household and business deficits. To go back to the balloon metaphor, the application off MMT ideas would be similar to finding a lighter gas to fill the balloon. Clearly increased fiscal spending will add buoyancy to the overall system, which up to a limit, is a good thing. And in reading the comments of the critics one possible defence of the concept of government deficits is that while the concept is ultimately false, this lie is noble in the sense that it serves the purpose of controlling the buoyancy of the system. Critics would respond that the control this noble lie gives comes at the cost of unemployment for the masses.

            I think one limit that the critics of MMT are searching for is how will the added buoyancy ultimately be checked in case our balloon starts soaring upwards out of control; especially considering that Nixon long ago jettisoned the gold ballast? Are monetary tools sufficient to lower the open flame of production? Can we trust policy makers to cut back the fiscal spending in times of an inflationary crisis?

    4. carol

      in addition to what the MMT can not see:

      It was instructive to first read the Alford summary of the many, many severe mistakes by the FED on today’s blog (posted above this one), and then read this Auerback article with the finishing line:
      “Does the Fed really want to be led around by the nose by the very same people who created today’s economic disaster? ”

      Apparently Auerback had not yet read Alford’s summation of the FED co-creating this economic disaster (nor many of Yves posts about the flagrant FED errors).

      1. joebhed

        I think the main difference would be the actual joining of the government’s Treasury functions with the Central Bank’s operational functions, both working together toward mutually agreed goals.
        The private Fed of today working for the benefit of the member bankers who are its Board of directors would be gone. And Alford’s piece is a good reason why.

  1. Alexandra Hamilton

    Interesting argument. Auerback presuposes a few things, though, that may or may not be correct.
    Most importantly, he presuposes that a difference between the goals of the Fed and goals of the “market” really exists.
    I think that is a wrong assumption.
    If Auerback’s assumption is wrong, his argument falls apart.

    1. Kevin de Bruxelles

      if Auerback’s assumption is wrong, his argument falls apart.

      I wouldn’t go that far; I would instead say that while Auerback is giving the correct tactical advise he may indeed be missing the strategic point of these rate rises. While his MMT sure helps on the tactical level, only a Phd in pure unadulterated cynicism will get you anywhere on the strategic level :)

      The jaded view of all this is that indeed Mr. Market, Mr. Fed, and Mr. Obama do have a strong interest in rates going up. They need these rate hikes to breed deficit hysteria which will provide vital support to Obama’s upcoming Operation Change, where he will attempt to yank the social security blanket off the huddled American masses. With his recently concluded Operation Hope, he has successfully set in place Obamacare as private alternative that should soon set off a chain reaction of events that ultimately destroys Medicare. But Operation Change is a much more ambitious undertaking. Social Security has been around a long time and many Americans have grown fond of it. So for an undertaking of such ambition, a crisis must be created. And what better way to create a crisis atmosphere than to pump up bond market rates.

      Only after Social Security is eviscerated will Mr. Fed consider any Operation Twist type moves to bring rates back down.

      1. Andrew Bissell

        Social Security has been around a long time and many Americans have grown fond of it. So for an undertaking of such ambition, a crisis must be created.

        The politics of the matter are irrelevant … the only thing that’s necessary to produce Social Security’s implosion is exactly the sort of demographic imbalances that undo all such pay-as-you-go schemes, and which are bearing down on us now.

        The resources needed to pay the upcoming liabilities were not saved during prosperous times, and it will not be possible to marshall them as they come due by taxation or money printing. Ergo, they will not (all) be paid. Whether the voters can be made to approve or disapprove of that is beside the point.

        1. MacroStrategy Edge

          Those resources that needed to be saved, Andrew…by that do you mean the money the government itself creates?

          Think about that statement for a moment, and you will see the absurdity of your stated position?

          If you are talking about the real resources that need to be consumed and utilized by retirees, how does a near 9% unemployment rate and a near 70% capacity utilization rate grab you?

          Still think we are short of resources, real or monetary, for retirees to survive? Please think again.

      2. MacroStrategy Edge

        Kevin – It is not Obama’s call. It is Ben Bernanke’s call to execute an Operation Twist, Part Deux. We’re saying he can play that card at any point in time now if he wants to, and he has shown you, with over $1tr in GSE debt and Treasury purchase already under Quantitative Easing operations, that he can play that card. So the Fed needs to stop making believe otherwise – the bond gods are playing for keeps, and the Fed needs to be prepared to read them the riot act if it comes down to it. Otherwise, as we wrote in “Let a Dozen Latvias Bloom?”, whole nations will be consigned to licking the jackboots of finanzkapital. Enough is enough.

        1. Kevin de Bruxelles


          I know Obama doesn’t directly influence this but what I am suggesting is that the Fed are concerned enough about Social Security that they will intentionally allow rates to go higher in order to create the conditions that allow an Obama attack on SS. It is helpful that you are pointing out that the Fed does indeed have a tool to lower rates. I am just trying to answer the question as to why they are not using this tool. Only time will tell though.

          In any case the idea that we have $2.5 trillion that has been “saved” for future SS payouts will need to be addressed very soon. Many are predicting that the US will “default” on these “savings”. Undoubtedly this is the course of action Bernanke would prefer. Step two of the assault would be to say that now that the government has proven itself incapable of being a guardian of the people’s funds, we better send any future flows for SS straight into the private sector. I’m going to go way out on a limb here and state that Bernanke would support that too, along with some other very powerful players.

          Which leads me to a question, what is the MMT take on the idea of government “saving” in order to prepare for future demographic changes. In other words was the SS Trust Fund a good idea and just poorly executed (fake bonds instead of T-bills)or was the theory wrong from the get go?

          1. carol

            “Undoubtedly this is the course of action Bernanke would prefer. ”

            Remember a couple of months ago, in a hearing for Congress, Bernanke said out of the blue (i.e. not in answer to a direct question): “A bank robber once said that he robbed a bank, because that’s were the money is, well Congress, I urge you to look at Social Security cuts, because that’s were the money is”.

            While Bernanke did not want to tell the counterparties of AIG’s bailout, nor tell the maiden lane items etc., he seems all too fond to tell about cutting SS. Oh, and he said this well before Obama phoned all kinds of doubters for Bernanke’s confirmation hearing, so Obama knew the SS preference of his pick for FED chair!

      3. Alexandra Hamilton

        Agreed. It is indeed possible to reach the right conclusion with making false assumptions.
        A bit like doing the right thing for all the wrong reasons.
        I think it is worthwile to question – or to inquire into – the assumptions we make or take for granted.
        Sometimes you have surprising results when doing that.

    2. MacroStrategy Edge


      The Fed is not just a tool of the finanzkapital elite. It is a contested terrain. The work of Gerald Epstein in the ’80s and ’90s makes this very clear, as does a close reading of the Fed transcripts over the years. Go look for yourself. The world is just not that simple. Even within the Fed, the splits within the financial sector itself are played out. See, for example, my account of the divide Volcker discovered between his traditional commercial banking constituency that backed the Fed and investment banker (see section starting on p. 59 in my 2001 manuscript, The Economics of Euphoria, which is linked here –

      1. Alexandra Hamilton

        Thanks for the reply.
        It would be interesting to compare the (public and recorded) discussions with the actual decisions made and policies followed by the Fed.
        These are bankers, so maybe they say one thing on the record and discuss something else off the record. Like the public posturing going on in Congress, where you’d think there is a debate, when in reality decisions have already been made behind closed doors.
        Or, in other words, can you trust these paper trails?

        1. MacroStrategy Edge

          There are scholars who have done this work. I am too busy to reference them right now. But I would encourage you to investigate this. I believe Christina Romer is one of the academics who has compared transcripts and actions of Fed.

  2. Toby

    The article starts with the very important question: “Who funds our budget deficit?”, but proceeds to answer a different question, implicit in the text: who determines our interest rate structure? I do not claim to be an expert on these matters, but they seem like very different questions to me.

    Yes, gold no longer “backs up” money-value. So what does? Labour? Taxes? Surely only those two things — which are of course one thing — can do so. I saw nothing in the article addressing this.

    David Merkel poses the important question related to the general thrust of the article; why do sovereign defaults happen? My sense from the article is that the authors would answer; because the head of the country’s central bank wasn’t up to the job. It is as if the economy itself were froth, or the sheen from the bubbles of that froth, while complex battles between large phalluses and wily central bankers over bond rates is whence ultimate value comes. It makes for weird reading.

    1. MacroStrategy Edge

      Toby –

      We’ve had this out in previous posts with other readers in the past two weeks. To summarize, in a fiat currency system, taxes drive money value, and then beneath that, there may also be another layer of value determination as citizens must sacrifice time, labor, resources to produce the goods and services to get money from the government that is used to pay taxes to government, and these things too have value. Randall Wray’s book Understanding Modern Money may be of vast assistance in clarify this for you.

    2. MacroStrategy Edge


      Who funds our budget deficit? As we have pointed out in several articles and reader responses in recent weeks here and elswhere, the answer is ultimately, the government that creates money itself funds the budget deficit.

      The value of money is in part driven by taxes in a fiat money system, and at a deeper level, by the value of the time, labor effort, and resources that have to be given up by citizens in order to earn the money the government creates that they then use to discharge tax obligations.

      Randall Wray’s Understanding Modern Money will take you deeper into this question if you wish to pursue it further.

      1. Psittakos

        But we don’t actually have a monolithic government that simply creates the money it needs. The Fed has a veto power over everything you want the “government” to do, and as the need for monetization of debt increases, the relative power of the Fed will only increase. Even if the Fed is “contested ground” as you say, what form of government is this? That seems like the $64 trillion question.

        1. MacroStrategy Edge

          The Fed has veto power in what sense (not entirely disagreeing with you Psittakos, just trying to understand your point of view better)?

          Remember, the Fed’s “independence” is in no small degree dependent upon the will of Congress. As with the movement that led to the requirement for Humphrey Hawkins testimony in the ’70s, there are ways of getting at the Fed.

          But of course, all of this presupposes that people will be willing to get up from behind their flat screens, educate themselves to the real alternatives, engage each other, and sweep the sock puppets of finanzkapital out of power.

          Let’s simply allow that such things are possible without imagininig they are effortless and tidy. The Wall did fall, after all.

      2. Toby

        This is the sentence that bothers me:

        “the government that creates money itself funds the budget deficit.”

        According to Steve Keen’s (and other’s) research, it is not government that creates money, but private banks (see his “The Roving Cavalier’s of Credit” posted last year at this blog). Also, creating does not = funding. Surely funding, if it is to be effective, comes from money’s value, and if that value is derived from labour and taxes, then more important than “creating” money is creating value in the economy. Unless you have that, you have nothing. If money is anything, at least functionally speaking, it is an abstraction of value. No magic, whether of the printing or quantitive easing or of the base rate tuning variety can create value.

        1. stf


          Reread Steve’s paper—he completely left out the government sector. Completely inapplicable to understanding govt money and in no way a valid counterpoint to Rob/Marshall here.

          1. Toby


            I disagree. Not only does Keen’s article mention the government, which is the supposed leader or instigator of money creation, this very supposition being criticized in the article, money creation, to be properly understood, needs to be addressed as a whole, and not looked at from some narrow perspective. Furthermore, my main point is about the value of money and more generally where value comes from, which is very relevant to the discussion. As I hinted at, money in and of itself has no value, it merely represents the value of other things. Without those other things it is useless.

  3. charles

    Mitchell is right… up to a point. If too much currency is issued as a replacement to term debt, two things can happen :
    – inflation (in the sense of general augmentation of prices)
    – depreciation of the currency.

    When these twin effects become too strong, currency issuance looses its policy power, and the monetary weapon must be reloaded by a period of expensive money and curtailed spending (as Volcker did).
    Considering its excessive leverage and pending price deflation, the US would actually welcome both of the outcomes above, so bond vigilantes may be indeed punished very hard in the months to come. The Chinese are a paper tiger because massively selling Treasuries is equivalent to massively revaluing the Yuan, which would crush their economy and simultaneously revive the industrial infrastructure in the US. Again a positive outcome for the US.

    The only threat is if the oil producing countries don’t want to play ball (after all, this is how the 70’s stagflation started right ?) and refuse to exchange their oil against dollars (or worse, are satisfied to receive yuans for it). Well… Now you know why there are so many troops in Irak, AfPak and the Middle East !

  4. Andrew Bissell

    While Auerback/Parenteau’s hatred for them is palpable, I had no idea Treasury bond traders “created the economic disaster.” In fact, they certainly played a much smaller role than the selfsame Federal Reserve which they are now telling to deploy massive monetary force (MMF) and begin carpet-bombing the bond market with printed-money bids.

    I won’t make too much comment on the assertion that the Federal Reserve can make a drawing of a yield curve at their morning meetings and make it go there, except to say that there is no empirical evidence that the Fed even sets rates on the short end of the curve. The fed funds rate always follows the movement in 3-month bill yields. They could set rates in this fashion by becoming the market and buying up the entire Treasury float, but if that’s the idea then why not just pen an article advocating outright nationalization of the Fed? (As long as we’re willing to endure putting it under the control of “sock puppet politicians who dole out goodies to their corporate contributors, and an Administration which genuinely believes we’re ‘running out of money’ “).

    how much modern money has changed since Nixon changed finance forever by closing the gold window …

    The only thing more constant about monetary arrangements than their propensity for upheaval and change every 40 or 50 years is the willingness of those living under each regime to presume it is perfect, unassailable, and everlasting. The Sun Never Sets on the Federal Reserve ….

    1. Andrew Bissell

      One final comment I suppose, but printing money and buying bonds with it constitutes a massive transfer of wealth to the bond holders (that is, assuming it does not precipitate a crack-up). And it would also have the salutary effect of destroying another source of yield for safety-seeking investors.

      Rather than pushing grandma into making her rent for the year in junk bonds and high-flying retail stocks, we should just default this debt if it becomes un-payable. It was actually one of the gold standard’s strengths that this was the only option open to governments in its day.

      1. MacroStrategy Edge

        Yes, Grandma would be much better off if we just wiped out her entire principal with a default. Let’s ask Grandma how she feels about that possibility.

        Entirely agree there is a real problem facing baby boomer retirees who need safety of principal and a high income yielding investment. They may have to take on currency risk to get the high yields, or otherwise be creative in searching out master limited partnerships, high dividend yield stocks, ownership shares in apartment buildings selling cheap now, etc.

        1. Andrew Bissell

          Entirely agree there is a real problem facing baby boomer retirees who need safety of principal and a high income yielding investment.

          If this is what they need I’d say they’re already screwed, as your menu of investment possibilities demonstrates.

          1. MacroStrategy Edge

            Beg to differ. There are plenty of people with sharp investment managers or financial advisors that are finding ways to skin the yield cat. You just have to be willing to ask the waiter what’s not offered on the menu tonight, but available in the kitchen, if the chef wants to get creative.

            Alternatively, if you want, the government could at any point offer a fixed yield of say 6% or more on the money in your social security account once you’ve retired. Yes they can.

          2. PP Mazzini


            This assertion is ridiculous. The markets were you are observing these imperfections are so small, that the smallest amount of capital allocated thereto will drive prices there into the same overvaluation territory that we are witnessing elsewhere.

            On top of everything else, do you honestly believe that complex financial products are accessible to the vast majority of retirees? This opens up yet another opportunity for redistribution of wealth from the common citizen to those who happen to find themselves working in the financial industry.

            Your comment highlights the lack or realism that accompanies all of your recommendations. Works well in the shadow boxing world of academia, but not so well in the ring of the real world.


    2. MacroStrategy Edge

      Andrew –

      Some of our best friends are bond traders and gold bugs.No hatred whatsoever. You just need to keep in mind the culture of Wall Street is one of raw power. Read Sorkin’s accounts of the last crisis, you’ll see for yourself.

      I also would encourage you take a look at the long Treasury bond yield during WWII. It was pegged by the Fed quite steadily near 2%. This practice was dissolved voluntarily with the Treasury Accord of 1951.

      It has been done. It can be done. If the bond gods want to play for keeps, as they are in the eurozone, it may need to be done again.

      1. Andrew Bissell

        You just need to keep in mind the culture of Wall Street is one of raw power.

        You’ll get no argument from me on this point. It’s just that Washington’s and the Fed’s culture is even more focused on power and quite intertwined with that of Wall Street, and I don’t see any real solution to that problem besides electing the first guy who promises to cut the banks loose and let their bondholders drown.

        1. MacroStrategy Edge

          Andrew we have no quarrel on this. The state can be and has been captured by very powerful groups of people. Read Galbraith’s Predator State – we concur. At the same time, we are not prepared to give up on the possibility that in a democracy, the people can rule, not just the sociopathic wing of finanzkapital and their sock puppet sycophants installed in positions of power. Of course, we could be wrong.

    3. Marshall Auerback


      Sorry for the late arrival to this discussion (flight to London where I can meet more of my bond trader friends). Anyway, I see that Rob has admirably handled most of the salient points. I’ll just add one more: Rob and I have both worked in finance for over 25 years (50 years collectively). We have nothing against individual bond traders, bankers, per se, and aren’t attempting to demonise anybody individually (well, maybe, Robert Rubin in my case). But the main issue is that we have a perverse institutional structure which effectively rewards bad behaviour. Whether you approach this problem from the left or the right, I’m sure the vast majority of us finds the notion of moral hazard, which has been ruthlessly exploited by several Wall Street firms to be reprehensible The problem is largely a product of poor financial regulation. Think of Thomas Hobbes’s “Leviathan”. Do we really want the Wrecking Crew to be allowed to roam free in the fond and naive hopes that somehow “the market” will work?

  5. IF

    Economists seem to be convinced that the world will follow their smooth functions. Keynesians are convinced to know the levers by which the (economic) world can be ruled. All this forgets people. Humans. In the last three years I got a rough idea of what is happening in the economy and also in the minds of economists. Now, 99 percent of the population does not see their life as a probability density function and money as fairly meaningless grease to keep the population in the hamster wheel. I am convinced that once a person gets changed, its hopes broken and confidence betrayed, it will not behave the same way, like a smooth function, anymore. I notice this in discussions with Germans in Germany. There is a reason why Angela made a political problem out of a simple economic problem, which could have been papered over by printing money. Read some Icelandic blogs and see that people change. I would expect the same from the Irish or Greek. How are the equations going to capture this? How are the equations capturing what Krugman calls polarization/disfunction of the political opponent? I think at some stage we are leaving economics and are entering the art of the possible.

    1. MacroStrategy Edge

      IF: we proposed no smooth functioning equations in the piece above. Having operated in asset markets in the real world, instead of in classrooms, we are pretty sure we both understand the limited capacity of mathematical models to describe more than the mere outlines of the world which we inhabit. And yes, we share your interest in exploring the art of the possible. The economics that describes the actual world we live in will have to be much more akin to biological evolution or ecological dynamics than physics, and unfortunately, too many of the most highly trained economists of our day suffer from a sever case of physics envy. There is a great passage, I think in a book called Complexity, where Nobel Prize winning economists meet with a group of top notch physicists at the Santa Fe Institute. The economists do their rain dance, scribbling away obscure formulas on the whiteboard to impress their guests. The physicists look at each other, scratch their heads, and say to the economists: “You don’t really believe this crap, do you?” I’m not doing the scene justice, but it is right on the money.

  6. KnotRP

    To the degree that the government uses QE to fund budget deficits, the real economy will be driven into shades of barter, gray, and black market. The budget will be met in the academic (read meaningless) sense, but it’ll be increasingly irrelevant to the citizenry, because the US will see the growth of a parallel economy ala mexico or greece or vietnam or pick your favorite jekyl-and-hyde corrupt-while-pretending-rule-of-law-applies economy. At some point, a US police officer will stop Silence Dogood on the street, and remark that they haven’t had eaten breakfast yet….then detain her until she greases their palm sufficiently. But the budget deficit will still be covered, so Hooray! Brought to you by the same dumb asses who though globalization wasn’t a race to the bottom.
    As always, academics chose to keep score in irrelevant ways,
    because there is no way to keep score of what ends up being most relevant.

    1. MacroStrategy Edge

      KnotRP –

      “To the extent…”

      That would be the extent to which they’ve been doing this all along?

      As in the money you have in your wallet – did you print that? Did your employer print that? Or does the govt create the money that you then have to acquire to pay taxes or buy govt bonds.

      Really, stop and think about it for 60 seconds. That should be about all it takes for you to lose your illusions. You’ve been ECONned.

      1. KnotRP

        > As in the money you have in your wallet – did you print that?
        > Did your employer print that? Or does the govt create the
        > money that you then have to acquire to pay taxes or buy govt
        > bonds.

        The government doesn’t create it.

        A private banking system creates it, and stamps
        the word Federal on it to make folks think it’s
        created by the government.

        > Really, stop and think about it for 60 seconds. That should
        > be about all it takes for you to lose your illusions. You’ve
        > been ECONned.

        Not sure what illusions you think I hold….I’m simply
        pointing out that an increase in dilution will have an
        equal and opposite reaction elsewhere.

  7. joebhed

    Houston, we have LIFTOFF !
    Yves, thanks for the ride.

    Commentors, WELL DONE.

    There’s something a-happening here!

    What is money?
    From where does it come?
    Why the bankers?
    Only the Congress-assembled SHALL.

    I hope there’s a question floating around on this.
    Who’s money system is this?
    Who should “regulate the value thereof”?
    Monetary sovereignty.
    The beginning.
    Bankers, it’s over.
    We have liftoff.

    1. MacroStrategy Edge


      You get it. Now link the article to 10 of your acquaintances that you think may be willing to d-ECON themselves. And tell them to each send it to 10 more, and so on. Because the Wall Street Journal is not going to put this in print. Nor is the New York Times or WashPo. But it needs to be understood. And it is not that hard to understand. You just have to trace money back to its creation, and things start to get very clear all of a sudden. Mind you, it took most of my adult life to get there, but I am a particularly stubborn and slow witted one who worked in the belly of the beast from day one out of college.

  8. Siggy

    As I recall, Nixon shut the Gold Window circa August 1971.

    Where does money come from? The Government when it buys something or pays out benefits; and, from banks when they grant a loan.

    What is any form of money worth? What it will buy.

    Now, we currently have a fiat currency and a mostly erzatz coinage. The only legitimacy of our fiat currency is that it has been decreed to be legal tender for all debts public and private. Now it is also true that the IRS will accept little electron pulses as money when you pay over the internet by credit card. In fact, even if you send the IRS a check, the IRS accepts little electron pulses by way of the Federal Reserve’s check clearing service. Consider that, Virtual Money.

    Recall the time when a greenback was redeemable in silver and the coinage was not an almagam but real copper and silver except for the nickel which was an almagam. Curious thing, that currency and coinage had far more purchasing power than the current little electron pulses, fiat currency and mostly almagam coinage. And by the by, what is the significance that those coins that are today struck in gold or silver have more purchasing power by weight than by their face denomination?

    So, as a country spends more than it can readily tax, what must it do? Default on or Repudiate outstanding debt: or, tax more, or, spend less, or debase its currency, or Tax More, Spend Less and Debase its currency. Which combination has the greatest political appeal? Over the course of history the repeated choice has been to repudiate outstanding debt and/or debase the currency.

    Now, how does one debase a fiat currency? The Government issues bonds that are bought by the Federal Reserve System. Think of that it’s so nice its so open, the Federal Reserve is making a loan to the US Government and in doing so it is creating more money.

    Now curious thing, the funds from the bonds that the Treasury sold to the Federal Reserve are parked/deposited with the Federal Reserve System and there they sit for a short time as Excess Reserves. And how nice, the Federal Reserve pays interest on those so called Excess Reserves. In fact the Federal Reserve pays its profits to the US Treasury. Although, because the Federal Reserve is now paying Interest on Excess Reserves, profits will be a bit lower than once was the case.

    Who was the guy that said what this country needs is a good 5 cent cigar? Today that stogie costs a buck or more and what we really need is a nice redeemable greenback, either or both of gold or silver will do.

    Having been confronted with the continuing erosion of purchasing power for nearly two generations, the body politic has chosen to spend now and pay later. We have become quite expert at this foible.

    1. john c. halasz

      Ah, yes, a dollar nowadays is worth a mere nickle in 1900 dollars. The currency has been debased! In the meantime, real per capita output has increased by, oh, say, 15 times. Go figure. And just try buying an airline ticket or an anti-biotic with your 1900 dollars, let alone a computer or cell phone.

    2. Marshall Auerback

      On the point of Nixon and the gold window close, there is some ambiguity in regard to this. Nixon did shut the window in 1971, but the so-called window still played a limited role until ’73, when the US disbanded all aspects of Bretton Woods.

  9. AK

    I also don’t understand why such “exotic theories” are published here.

    MMT is total BS in my view. It falls in the same trap as Greenspan’s one earlier. He said that financial prudence was outdated and financial high-risk innovations are the real solution. And we got the crisis.

    Those MMT guys are saying the same thing. The financial prudence is outdated and more public debt is the real solution. Do we need to repeat this BS again and again?

    I truly believe that Yves should remove “bad articles” (not only by MMT folks) from her site. It will only make her site more influential.

    1. stf

      “Those MMT guys are saying the same thing. The financial prudence is outdated and more public debt is the real solution. Do we need to repeat this BS again and again”?

      Please copy and paste one place in which they have said that. If you think that’s what is being argued, you haven’t understood a thing.

    2. stf

      “Those MMT guys are saying the same thing. The financial prudence is outdated and more public debt is the real solution. Do we need to repeat this BS again and again”?

      Please copy and paste one place in which they have said that. If you think that’s what is being argued, you haven’t understood a thing. Unlike you, Yves appears to actually understand MMT.

      1. AK

        >> Unlike you, Yves appears to actually understand MMT.

        I don’t care what you actually think about me and I was not writing to you.

    3. reprobate

      Since people like Martin Wolf (the Financial Times’ highly respected economics editor) has started saying things that sound very much like they came from some of these MMT articles, you seem to have an incorrect take on what makes for “influential”.

  10. standingonmelaurels

    The emperor has no clothes, but let’s carry on believing he’s dolled-up to the nines – for now. But what happens when the lowly subjects stop dreaming and stop believing? What happens when the credibility evaporates?

  11. flow5

    MMT warped. Models are precise, & forecasts are infallible. There’s no free lunch, only temporary palliatives & transfer payments (velocity). Reserves & rates were never inextricably linked. The Pentagon shut the gold window. Pegging bonds in WWII is ancient history. Obama can’t count & doesn’t have a shot.

    1. Marshall Auerback


      We’re not calling for a “free lunch”. We want to bring back full employment policies. I always thought a free lunch was when someone else paid for it. We’re trying to design policies that reduce involuntary unemployment so that everybody can pay for their own lunch. The “free lunch” image is one of the biggest canards out there.

      1. molecule

        Unemployment is the market’s way of telling people they’re no longer economically useful and should change careers, upgrade their skills, move to a different city etc. This takes time. Do you want the goverment to print money and rehire all the mortgage brokers that lost their jobs since 2007?

        In addition, there is “government caused unemployment”. That’s what happens when taxes, fees and mandates keep increasing on small business.

        And by the way, if employment is what you want, I am willing to hire 1000 people at 1$/week. It’s illegal, you say? Yes, it’s better to let the unemployed stay home, earn $0/week and get a check from the government. I thought you wanted full employment “because we can afford it”. If capacity utilization is low why not advocate the repeal of minimum wage laws and see if it increases? What’s the worst that could happen?

  12. Jamisia

    I think MMT is so far perfectly right. According to MMT government spending is funded by neither taxes nor issuing debt. As long as the government is sovereign, it finances itself. Value of the currency would therefore come from taxation (creating demand for the state currency) and / or labor. If there’s nothing out there for the government to purchase, the money is useless.

    Inflation / depreciation: Denninger, of all people, posted a calculation that tried to answer what would’ve happened if the government had simply printed the more or less $4.5T from 1988 to 2009. Outcome: 2.8%, I think. That’s not exactly negligible, but most economies could handle that. If memory serves, the dollar both appreciated & depreciated quite a bit and it wasn’t much of a problem.

    Best of all about MMT, it stresses full employment! (I’m unemployed myself)

  13. PP Mazzini

    The concept of MMT is so spurious that I find it hard to accept that its supporters actually have faith in is veracity. Supporters of MMT are either incredibly stupid and ill-informed, which I find unlikely, or very crafty. Crafty because they don’t honestly believe this garbage, but have an ulterior intent of attempting to implement a strategy of massive wealth redistribution by stealth. That will be the only effect of this policy: transfer of wealth. None will be created, and when one considers the incredible inefficiencies in capital allocation that will be introduced, it is likely that wealth will actually be destroyed. I suppose that the amount of wealth that is destroyed is considered a small price to pay for the “greater good” that will arise from this idealogically motivated wealth redistribution.

    1. Jeff65

      PP Mazini said:
      “The concept of MMT is so spurious that I find it hard to accept that its supporters actually have faith in is veracity.”

      What is the specific fault of logic that makes it spurious?

      Faith is not required because MMT accurately describes how the fiat system the USG has right now already works. There are a select group of people who want to continue to pretend the US is on a gold standard at times that it suits their interest, but at other times they act in exact accordance with MMT (Cheney’s deficits don’t matter, for example) when the spending side of it suits their private goals.

      Your fears regarding inefficient capital allocation is exactly equivalent to saying “we need to continue to let a few smart, rich white guys make all the economic decisions instead of letting the public have a say in it or we’ll be screwed.” How has that worked out for the US over the last three years?

      But it is the exact same class war we’ve been having for over 220 years in the USA. The Constitution was drafted specifically to reduce the democracy granted in the Articles of Confederation, not to enhance it.

      1. PP Mazzini

        Thank you Jeff65. You have proven my precise point: this is motivated by ideology about wealth distribution, and is being clothed in arguments about ideologically impartial economics. So, you’re not more honest than the rotten “white people” who are currently in command of the system.

        1. Jeff65

          Of course it’s about ideology. It’s about removing the false gold standard ideology that persists to the advantage of a few despite it being inconsistent with the reality of the fiat monetary system now in place.

          MMT says absolutely nothing regarding the size and functions of the government. It can be as big or as small as is desired. But the existing government is already of a certain size, so MMT naturally prescribes certain policies to minimize pain and to support the desire of the private sector to increase savings.

    2. MacroStrategy Edge

      PP Mazzini: Do consider asking the 6 million people who have been unemployed for six months or longer how much wealth they have been creating of late.

      Hidden agenda? That would belong to the dupesters that want to keep you ECONned. Of course, you are welcome to buy their wares – so far, they are working just swimmingly, aren’t they?

      1. PP Mazzini

        Rob, the system is broken because people, such as yourself, have foolish, dogmatic beliefs that justify behaviour that is incompatible with the laws of nature. Sorry, but there is such a thing called reality, and all of the bull sh*t theorizing has to ultimately answer to that reality.

        The system in the US has gotten so grossly out of equilibrium not because the people at the top are unjustly enriching themselves. I will grant you that the financial class is raping the population, but that isn’t the cause of the current problem facing those 6 million that you reference. And, it is a problem that can be dealt with through other, less intrusive means. In many ways, your 6 million are the authors of their own misfortune, collectively.

        It is because the people at the bottom and middle have been too stupid to appreciate how quickly the global environment has changed, and how devalued their contribution has become. Not fair? Maybe, but they should have had the common sense to appreciate that the competitive environment had changed, and running up the tab on credit cards, home equity extraction or increased government debt is not, in the long run, going to change the fundamental problem. The day of reckoning for their lack of utility can be postponed by eating away at the nation’s capital, but not indefinitely.

        No more big screen TV’s, or even cable TV for that matter. No more 4 ton pick-up trucks, and 3000 square foot houses, and marble counter tops and annual trips to Disneyland, or cruises, or foot ball games or all of the other wasteful, degenerate, non-productive activity that Americans believe to be their God given rights. Let’s try focusing on economically productive activity for a change. I would encourage you to spend your energy on this type of thinking, rather than plotting ways to merely take from one group to give to another. The historical track record for that approach isn’t very good. Ask someone who lived in the former USSR during the 1990’s how much fun it was to clean up the mess left by socialism.

  14. RebelEconomist

    I agree with the sceptics above. The logic of MMT is fine in that the Fed could indeed peg the whole of the yield curve, avoid a formal default in their own currency and generate full employment for a while at least, but what the proponents of MMT do not discuss is the quantity of base money that would have to be created to do so. I have asked Randall Wray this question in the past, and did not get an answer. Given the sizes of the markets involved, it seems to me that so much base money would need to be created that high, if not hyper, inflation would result, unless very high tax rates were levied to withdraw the base money. I would urge Yves to stop allowing her blog to be used to promote these ideas until such vital details are explained.

    1. MacroStrategy Edge

      Rebel ECONomist

      Try reading the hyperinflation hyperventalists piece I put out on NC a week or so ago. May help with your base money question.

      Then go take a look at base money growth in Japan and inflation, or more recently base money growth in the US and inflation.

      You may discover you belong to the monetarist cargo cult. Good luck with that. Even Milton Friedman abandoned ship before he died. But don’t tell Chairman Bernanke, or Larry Krudlow either, as they would be absolutely crushed.

      1. RebelEconomist

        I did see that post……as usual, reasonable logic but no numbers! Even if real supply does expand, that expansion is limited to about 2-3% per year, so the potential for non-inflationary monetary financing is small.

        I would not dispute that the state can substantially finance its spending with reserves if it pays enough interest on reserves to make reserves an attractive substitute for term debt, especially when reserves’ absence of interest rate and liquidity risk is especially highly valued (as in the Japanese slump and now in the US), but if the required rate of interest is close to the cost of term debt, it would not represent much of an advantage.

    2. Greg


      You said we could avoid a formal default for a while.

      What would a default in our currency look like?

      Is there possibly one morning where the “bond market” wakes up and says we dont want your money any more ole US of A? Fuhgedaboudit we’re done. Your currency is worthless. We’re going elsewhere for our value.

      Where do they go? What then do they do with their dollars? If they have deemed them worthless how can they exchange them for anything? What options do they have? They will need to trade their dollars for something or go steal something else wont they?

      I ask this question somewhat rhetorically but also as a real question because I have never heard anyone who talks about our govt defaulting from bond market rejection or whatever, explain this to anyone. They just say it as if we all know its true. Yes currencies have failed (when states have failed) but the reasons for failure are probably not nearly as neat as presented. I’m not an economist and I have simple questions. How can our currency be rejected? As long as we have a govt that can require us to pay taxes with US$ (and enforce the requirement) we’re gonna need dollars.

      Can you really imagine a day when merchants wont accept dollars?

      Any scenario that I can imagine going there has nothing to do with financing and everything to do with politics and civil war.

      Its not a money issue. All Rob and Marshall (and the rest of MMTers) are saying is CURRENCY IS THE RESPONSIBILITY AND CREATION OF A STATE always and everywhere. There is no “natural” currency like gold.

      Since the currency is the responsibility of the state it needs to remember that and act like it and not let private banking and bond trading interests interfere with good policy.

      Bond traders need currency issuers not vice versa.

      1. RebelEconomist


        Given control of the central bank, a government could avoid a formal default altogether. It could just keep printing the money to pay the interest and principal on time! The government might even be able to keep selling debt if it offers a high enough interest rate so that the buyers expect to keep ahead of inflation. But the price of every real asset would climb as people tried to avoid holding money. If the government taxed people enough to withdraw the base money they were spending, it would hardly be worth working! In short, the government can only use resources that it obtains from the rest of the economy.

  15. RebelEconomist

    Here is a ball park figure for consideration:

    The value of outstanding US treasury debt is about $7tn and has an average maturity of just over four years, which I shall assume gives US treasury debt a DV01 of about 4c per $100 nominal per basis point, equivalent to about 4% in value for a 1% change in yields. This suggests that, to lower treasury yields by about 1% would require the value of US treasury debt to be bid up by about $300bn dollars. This is roughly one third of the present stock of dollar bills in circulation.

    I am not saying that this much base money would have to be created to hold down treasury yields by 1% across the curve, but it does give some idea of the relative scales of the markets involved.

    1. MacroStrategy Edge

      Odds are once the Bond Gods figured out the Fed a) has an unlimited checkbook, and b) was willing to bury them every and anytime they placed a bet on 10 year UST yields rising above 3.5%, they would eventually (and reasonably)conclude a credible threat had been placed on the table, and you would never see the Fed need to create more than a fraction of the $300b in base money you estimate to insure the message was received loudly and clearly.

      Think Paulson’s bazooka. Think military doctrine of deterence. Or overwhelming force if you prefer.

      1. mezcal

        Should the bondgods determine that Ben is going to disallow any trading profits then they will simply hit his bid until he owns them all and exit the so-called market.

        They will also naturally be disinclined to purchase any new issuance from Timmy.
        Unless of course Tim is offering for less than Ben is paying in which case they’ll just happily arb the spread in perpetuity.

        Ben’s “bazooka” is pointed directly at his own balls.

        Why not just cut out the middleman entirely and proceed directly to your ultimate goal?
        Which appears to me to be raw, unsterilized printing until the cows come home.

        I’d imagine your benefactors at Soros, inc would coincidentally happen to be massively short the dollar at that particular point in time, no?

        1. Greg


          “Should the bondgods determine that Ben is going to disallow any trading profits then they will simply hit his bid until he owns them all and exit the so-called market.”

          And then what? They’ve exited and have just cash and no interest paying bond.
          What they gonna do now? Put it in the shredder? Buy gold? Whos gonna take the dollar from them if they’re so worthless?

          1. KnotRP

            > who’s going to take the dollar from them, if they’re so worthless….

            Just like Zimbabwe or Weimar, at first, it all seems to be working, but then the currency usage/velocity starts to go exponential, approaches the vertical limit, then dies as a form of currency.

            Why are you guys speaking as if no one has ever destroyed
            their home currency before, via oversupply? It’s as if you live in a linear-only mental world, where nothing ever goes non-linear.

          2. mezcal

            I have no idea what they’d do with the cash, Greg.
            If I did I’d not likely be reading here.

            The main blog post is, at least in my version of reality, arguing that Ben should be allowed to control all profits and losses in the bond market.
            As if he (or his handlers) were some sort of omniscient, benevolent dictator.

            Calling such a system a “market” is ridiculous on its face.

            So I ask why bother with the charade?

            Why won’t they just come out and say what they’re advocating?
            “We will print whatever we decide you ‘need” whenever we decide you ‘need’ it.”

            After all, we’re much smarter and better educated than you proles.
            So shut up and leave these complicated decisions to those of us who know what’s best for you.
            Trust us.

            Thanks anyway but I’ll pass.

            btw, I’m well aware that the current system is gamed and needs serious work (if it’s fixable at all at this late date.)
            I just fail to see any improvement in this proposal.
            Quite the opposite actually.

        2. Marshall Auerback


          For what it’s worth, I think the treasury should issue no debt at all. There is a weak case for the government issuing only short-term paper to allow the central bank to reach its target interest rate via liquidity management operations. But I see no reason to offer longer dated paper. It’s a gift to the rentiers. I think monetary policy should be put to bed and all counter-stabilisation be performed via fiscal policy.

          There is no financial reason for issuing the debt because the sovereign government retains monopoly control over the currency. The practice of debt-issuance is a hang-over from the gold standard era where governments had to “finance” their spending in order to retain control over the exchange rate.

      2. Andrew Bissell

        Think Paulson’s bazooka … Or overwhelming force if you prefer.

        Paulson’s bazooka kept Fannie & Freddie alive for all of what, two months? And “overwhelming financial force” seems to be Tim Geithner’s preferred term for the orchestrated ripoff of the early ’09 bank bailouts, which are now seen as a fait accompli savior of a still-insolvent banking system.

        If these are the theories by which we are supposed to hope that Bernanke can leash the bond market I find them wanting.

    2. Marshall Auerback


      The value of outstanding Treasury debt is a stock item. It simply reflects the total debt issuance. We don’t speak about cumulative GDP based over centuries. You have to look at debt issuance from a flow perspective.

  16. flow5

    MMT mis-allocates both credit & wealth. You can float this year’s debt by raising reserve ratios or raising the remuneration rate. Both have price tags.

    It’s not about making US banks more competitive world-wide. Paying the bankers is uneconomical & unconstitutional.

    If you want to increase employment (which the FED’s can’t), then get the commercial banks out of the savings business.

    It began with the General Theory. John Maynard Keynes gives the impression that a commercial bank is an intermediary type of financial institution serving to join the saver with the borrower when he states that it is an “optical illusion” to assume that “a depositor and his bank can somehow contrive between them to perform an operation by which savings can disappear into the banking system so that they are lost to investment, or, contrariwise, that the banking system can make it possible for investment to occur, to which no savings corresponds.”

    In almost every instance in which Keynes wrote the term bank in the General Theory, it is necessary to substitute the term financial intermediary in order to make the statement correct. This is the source of the pervasive error that characterizes the Keynesian economics, the Gurley-Shaw thesis, Regulation Q ceilings, the DIDMCA of March 31st, 1980, the Garn-St. Germain Depository Institutions Act of 1982, Financial Services Regulatory Relief Act of 2006, Emergency Economic Stabilization Act of 2008, sec. 128. Acceleration of the effective date for payment of interest on reserves, etc.

    The CBs have forced a contraction in the size of the thrifts, and created liquidity problems in the process, thru backstopping by the Reserve banks, & by outbidding the non-banks for the public’s savings. This process is called “disintermediation” (an economist’s word for going broke). The reverse of this operation cannot exist. Transferring saved bank deposits through the shadow banking system cannot reduce the size of the commercial banking system. Deposits are simply transferred from the saver to the financial intermediaries, to the borrower, etc.

    The drive by the commercial bankers to expand their savings accounts has a totally irrational motivation, since it has meant, from a system standpoint, competing for the opportunity to pay higher & higher interest rates on deposits that already exist in the commercial banking system.

    The shift from demand to time deposits has converted spendable balances into stagnant money. This transfer added nothing to the Gross National Product, and nothing will be added so long as the funds are held in the form of time deposits. Shifts from transaction deposits, to time deposits, simply increases the aggregate costs to the banking system and adds nothing to the system’s income.

    But it does profit a particular bank, Citigroup for example, to pioneer the introduction of a new financial instrument such as the negotiable CD until their competitors catch up; and then all are losers. The question is not whether net earnings on CD assets are greater than the cost of the CDs to the bank; the question is the effect on the total profitability of the banking system. This is not a zero sum game. One bank’s gain is less than the losses sustained by other banks.

    How does the FED follow a “tight” money policy and still advance economic growth? What should be done? The money creating depository banks should gradually be put out of the savings business (REG Q in reverse-but leave the non-banks unrestricted). What would this do? The commercial banks would be more profitable – if that is desirable.

    Why? Because, the source of all time/savings deposits within the commercial banking system, are other commercial bank customer’s deposits, directly or indirectly through currency, or the bank’s undivided profits accounts.

    Money flowing “to” the intermediaries (non-banks) actually never leaves the com. banking system as anybody who has applied double-entry bookkeeping on a national scale should know. The growth of the intermediaries/non-banks cannot be at the expense of the commercial. banks. And why should the commercial banks pay for something they already have? I.e., interest on time/savings deposits.

    (1) The Commercial & Financial Chronicle Thursday, April 6, 1967 “MONETARY POLICY BLUNDER CAUSED HOUSING CRISIS”
    (2) The commercial & Financial Chronicle, Thursday, June 6, 1968 “REPEAT OF 1966-TYPE CREDIT CRUNCH UNLIKELY DESPITE TIGHT MONEY”
    The Father of Monetarism: Dr. Leland James Pritchard, PhD, Economics, Chicago, 1933, MS, Statistics, Syracuse
    If you want copies send me an e-mail

    1. Jeff65

      “MMT mis-allocates both credit & wealth.”

      Only to the extent that the current monetary system does these things, because it already operates according to MMT stocks and flows. I don’t see how simply recognizing the realities of the existing system could make it perform worse in this regard.

      Understanding the reality of the MMT stock and flow models is like a scythe that allows you to cut through the bullshit talk about economic choices. You can still carry your small government or libertarian ideologies along side it if you like. Things like job guarantee programs make sense along side MMT, but they are not part and parcel of the core MMT stock and flow principles which can be proven as factual through basic accounting principles.

    2. Greg

      People misallocate wealth not MMT. MMT cant DO anything its a set of concepts which need humans to act on.

      So what paradigms were we using to misallocate all the wealth that has been misallocated the last few millenia?

      1. GBear

        Precisely! so where are the controls? I’ve asked the question twice before and never had an answer.

        This is from a previous post that was ignored.

        “I get the accounting, I really do, and maybe in isolation like in Argentina it can work. But on the US scale, or heaven forbid, a near global scale it will be out of control!
        Chartalists seeks to perpetuate the current unsustainable growth path. They deride neo-classical economics, but to me this just looks like the other side of the same coin.
        A know its cold hearted, but the world simply cannot sustain the full employment approach of this doctrine.

        Man is just beginning to feel the impact of a finite world.

        The ultimate accounting is a growing human deficit offsetting the world resource surplus.

        Under the purportedly noble pretext of human upliftment both neoclassicals and Chartalists seem to want to denude this as quickly as possible.

        I think the “market” will set them both straight!”

        How will MMT help with global imbalances?

        Bailing out the western economies and more particularly the financial system using MMT simply maintains the status quo!

        The banksters and western elite will prosper, but what about developing nations? How does this help them I ask you?

        1. Skippy

          I concur, whilst the impetus may be noble, to-date ever increasing complexity has not forwarded humanity’s nor the environments base needs…substability/equalibium.

          Skippy…full employment = extinction (and not just for us)

          PS. why are other solutions so unpalatable…eh.

          1. Jeff65

            “Skippy…full employment = extinction (and not just for us)”

            Actually unemployment is solely due to the existence of the state. You don’t really believe there were once lazy hunter gatherers who starved to death in preference to looking for food do you? Or farmers who were too lazy to grow their own food to eat?

            The state therefore bears some responsibility for preventing or alleviating unemployment. Working for a wage and paying someone else to live is not the default condition of a human being.

          2. Jeff65

            Other solutions are unpalatable because they pretend that the market is making objective decisions when it is not. Why not admit there are decisions to be made and make them democratically instead of pretending? By pretending the result is that some few make the decisions to suit their own interests.

          3. reprobate


            Sounds like you object to capitalism, not government. Any accumulation of capital (factories, any commercial organization) results in employer-employee relationships. Sounds like you want to go back to hunter-gatherer, or maybe subsistence agriculture. Funny, the Chinese are working super hard to escape that model.

          4. Jeff65


            No. I’m just saying that no one should have to pay someone to live. There can still be accumulations of capital, but if one finds the employee / employer relationship abusive or in any way objectionable, one should have a non-humiliating option.

            The state entirely enables those accumulators of capital too, so they shouldn’t object to having their power diminished somewhat. The greedy bastards do though, and at every turn.

            Most people would be enticed into the private sector anyway. Western countries did pursue full employment policies at one time and were successful with it. It wasn’t until the 1970’s that the monetarists came in and screwed the little guy.

          5. Skippy

            We have never had capitalism, so [I]we have no data to conclude if it works or not.

            The hunter gather argument is a straw-man, we have sufficient tools to enable life with out going backwards. Seems to me that the only thing changing the tune of this dance is the DJs.

            The Chinese are working hard to off set the western domination of their slice of the globe. How many country’s have they invaded in 2000 years?

            Dogmatic ideology got us in this mess, I fear more will only exacerbate the problem. We need solutions that address all the issues of the day and moving forward, to only focuses on job creation with respect to making a wage by with they can pay their way, only increases the size of the total mess we are in.

            Resorting to MMT is a symptom of the duress the world is in, the need to expand limited by the physical world, only to be over come by creating a limitless supply of monies. By which the pseudo capitalistic/socialistic economies of this world may FIRE up job creation after the Fire sector gets its inoculation first…real jobs[?] come last.

            Skippy…hows that capitalism working out so far, job creation for the sole purpose of taxation and a little to spend on food/shelter and TV inspired shopping.

          6. Jeff65

            “Resorting to MMT is a symptom of the duress the world is in, the need to expand limited by the physical world, only to be over come by creating a limitless supply of monies.”


            I frequently enjoy your posts here, but the above makes it clear that you don’t fully understand MMT. No one ever said anything about a limitless supply of money.

          7. Skippy

            Sorry for the inaccuracy of that statement, casual thinking.
            Just observing the trajectory of currency creation and its destruction through the looking glass.

            I’ll leave it to Edward Abbey.

            Growth for the sake of growth is the ideology of the cancer cell.

            Skippy…thanks for your reply and back at you. BTW just worried for *all of us* in the end.

        2. Jeff65

          “Bailing out the western economies and more particularly the financial system using MMT simply maintains the status quo!”

          This is a strawman argument. MMT does not favour financial system bail outs or any particular kind of spending.

          I would have wiped out the banks a la Sweden. And I would hire Bill Black for the criminal indictments to follow.

          1. GBear

            I didn’t say that was their policy but in effect it is what will happen. Their policies if implemented would maintain a seriously unbalanced financial status quo.

            The banksters are still supremely placed to benefit from/abuse any form of economic bailout/ deep deficit spending.

            I could live with MMT if from hereon it advocated all deficit spending was aimed, on a GLOBAL scale to poverty alleviation, but I have yet to see evidence of such an ideal.

            Pie in the sky I know!

  17. Ignim Brites

    “the governments [should] either stop allowing the bond markets to determine yields – that is, use their capacity to control the yield curve or, better still, abandon the practice of issuing debt.” – I dunno. Maybe I’ll have to go back and read the referenced post but it sounds to me like MMT means that governments really have no need to collect revenue and consequently no need to levy taxes. Whatever money they need to fund their operations they can just mint via a few keystrokes. Is this what Dick Cheney was getting at? Seems like I must have missed something in the discussion.

  18. nmtdoc


    Judging by the heated rhetoric I’d say your foray into MMT is a smashing success. Please continue stirring the pot.

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