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7 Deadly Frauds Of Economic Policy

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This is long, cos it needs to be. I have tried to think of an answer as to why the below is incorrect. Can anyone help out?

http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf

Deadly Innocent Fraud #1:

The federal government must raise funds through taxation or borrowing in order to spend. In other words, government spending is limited by its ability to tax or borrow.

Fact:

Federal government spending is in no case operationally constrained by revenues, meaning that there is no “solvency risk.” In other words, the federal government can always make any and all

payments in its own currency, no matter how large the deficit is, or how few taxes it collects.

Here is a quote from the good Federal Reserve Bank Chairman, Ben Bernanke, on 60 Minutes for support:

SCOTT PELLEY: Is that tax money that the Fed is spending?

CHAIRMAN BERNANKE: It’s not tax money. The banks have accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed.

The Chairman of the Federal Reserve Bank is telling us in plain English that they give out money (spend and lend) simply by changing numbers in bank accounts. There is no such thing as having to “get” taxes (or borrow) to make a spreadsheet entry that we call “government spending.” Computer data doesn’t come from anywhere. Everyone knows that!

We all know how data entry works, but somehow this has gotten turned upside down and backwards by our politicians, media, and, most all, the prominent mainstream economists. Just keep this in mind as a starting point: The federal government doesn’t ever “have” or “not have” any dollars. It’s just like the stadium, which doesn’t “have” or “not have” a hoard of points to give out. When it comes to the dollar, our government, working through its Federal agencies, the Federal Reserve Bank and the U.S. Treasury Department, is the score keeper. (And it also makes the rules!) You now have the operational answer to the question “How are we going to pay for it?” And the answer is: the same way government pays for anything, it changes the numbers in our bank accounts. The federal government isn’t going to “run out of money,” as our President has mistakenly repeated. There is no such thing. Nor is it dependent on “getting” dollars from China or anywhere else. All it takes for the government to spend is for it to change the numbers up in bank accounts at its own bank, the Federal Reserve Bank. There is no numerical limit to how much money our government can spend, whenever it wants to spend. (This includes making interest payments, as well as Social Security and Medicare payments.) It encompasses all government payments made in dollars to anyone. This is not to say that excess government spending won’t possibly cause prices to go up (which is inflation).

But it is to say that the government can’t go broke and can’t be bankrupt. There is simply no such thing.

From our point of view (not the federal government’s), we need to first have U.S. dollars to be able to make payments.... And state governments, cities, and businesses are all in that same boat as well. They all need to be able to somehow get dollars before they can spend them. That could mean earning them, borrowing them, or selling something to get the dollars they need to be able to spend. In fact, as a point of logic, the dollars we need to pay taxes must, directly or indirectly, from the inception of the currency, come from government spending (or government lending, which I’ll discuss later).

Now let’s build a national currency from scratch. Imagine a new country with a newly announced currency. No one has any. Then the government proclaims, for example, that there will be a property tax. Well, how can it be paid? It can’t, until after the government starts spending. Only after the government spends its new currency does the population have the funds to pay the tax.

To repeat: the funds to pay taxes, from inception, come from government spending (or lending). Where else can they come from?

So while our politicians truly believe the government needs to take our dollars, either by taxing or borrowing, for them to be able to spend, the truth is: We need the federal government’s spending to get the funds we need to pay our taxes.

So why then does the federal government tax us, if it doesn’t actually get anything to spend or need to get anything to spend? There is a very good reason it taxes us. Taxes create an

ongoing need in the economy to get dollars, and therefore an ongoing need for people to sell their goods and services and labor to get dollars. With tax liabilities in place, the government can buy things with its otherwise-worthless dollars, because someone needs the dollars to pay taxes. Think of a property tax. (You’re not ready to think about income taxes - it comes down to the same thing, but it’s a lot more indirect and complicated). You have to pay the property tax in dollars or lose your house.

The following is not merely a theoretical concept. It’s exactly what happened in Africa in the 1800’s, when the British established colonies there to grow crops. The British offered jobs to the local population, but none of them were interested in earning British coins. So the British placed a “hut tax” on all of their dwellings, payable only in British coins. Suddenly, the area was “monetized,” as everyone now needed British coins, and the local population started offering things for sale, as well as their labor, to get the needed coins. The British could then hire them and pay them in British coins to work the fields and grow their crops.

The government taxes us and takes away our money for one reason - so we have that much less to spend which makes the currency that much more scarce and valuable. Taking away our money can also be thought of as leaving room for the government to spend without causing inflation. Think of the economy as one big department store full of all the goods and services we all produce and offer for sale every year. We all get paid enough in wages and profits to buy everything in that store, assuming we would spend all the money we earn and all the profits we make. (And if we borrow to spend, we can buy even more than there is in that store.) But when some of our money goes to pay taxes, we are left short of the spending power we need to buy all of what’s for sale in the store. This gives government the “room” to buy what it wants so that when it spends what it wants, the combined spending of government and the rest of us isn’t too much for what’s for sale in the store.

However, when the government taxes too much - relative to its spending - total spending isn’t enough to make sure everything in the store gets sold. When businesses can’t sell all that they produce, people lose their jobs and have even less money to spend, so even less gets sold. Then more people lose their jobs, and the economy goes into a downward spiral we call a recession.

Keep in mind that the public purpose behind government doing all this is to provide a public infrastructure. This includes the military, the legal system, the legislature and the executive

branch of government, etc. So there is quite a bit that even the most conservative voters would have the government do.

Therefore, the way I see it, we first set the size of government at the “right” level of public infrastructure, based on real benefits and real costs, and not the “financial” considerations. The monetary system is then the tool we use to achieve our real economic and political objectives, and not the source of information as to what those objectives are. Then, after deciding what we need to spend to have the right-sized government, we adjust taxes so that we all have enough spending power to buy what’s still for sale in the “store” after the government is done with its shopping. In general, I’d expect taxes to be quite a bit lower than government spending, for reasons already explained and also expanded on later in this book. In fact, a budget deficit of perhaps 5% of our gross domestic product might turn out to be the norm, which in today’s economy is about $750 billion annually. However, that number by itself is of no particular economic consequence, and could be a lot higher or a lot lower, depending on the circumstances. What matters is that the purpose of taxes is to balance the economy and make sure it’s not too hot nor too cold. And federal government spending is set at this right amount, given the size and scope of government we want.

Restated one more time: Taxes function to regulate the economy, and not to get money for Congress to spend. And, again, the government neither has nor doesn’t have dollars; it simply changes numbers in our bank accounts upward when it spends and downwards when it taxes. All of this is, presumably, for the public purpose of regulating the economy.

So the UK will never default, like Japan has never defaulted. The EU will default, as they are not in control of their currencies. The only issue with QE or the deficit is not the amount, but amount relative to productivity and demand and whether QE boosts productivity and demand.

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The only issue with QE or the deficit is not the amount, but amount relative to productivity and demand and whether QE boosts productivity and demand.

There is no "issue", QE cannot boost productivity or demand because of the market mechanism of price discovery (which manifests itself as inflation).

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QE is failing because the creation of notional cash by pouring it down the wrong funnel (ie the banks) is not emerging as a practical way of promoting economic growth or even stemming the tide of recession. That's because as QE money descends the banking funnel, it is leaking like a giant sieve from the sides, to the benefit NOT of national infrastructure, employment or productivity, but leaks back into the hands of those who caused the crisis in the first place: The Bankers and other lenders.

If QE cash is to be effective at all, the LAST place it should go is to already failed institutions. It should go directly into federal, or national infrastructure investment that bypasses the need for banks to be involved at all, or at least as involved as little as possible. QE of the kind that supposes the cash will somehow filter through in the form of private loans is wasteful and futile because banks will still not lend to those who are considered any real risk.

If you look at the more successful economies which are riding the recession better, they all have one thing in common: They spent money on infrastructure like road, rail, public utilities, culture, education and health. They didn't spend it on proppping up existing house prices, which make no contribution to the economy, or at best very little. UK's QE has been aimed almost solely at keeping mortgage payments of the already well-off immune from recession, while those not in possession of a mortgage are footing the bill.

Banks like Northern Rock should have been allowed to fail. It would have been cheaper to guarantee deposits rather than guarantee the bank itself.

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QE is failing because the creation of notional cash by pouring it down the wrong funnel (ie the banks) is not emerging as a practical way of promoting economic growth or even stemming the tide of recession. That's because as QE money descends the banking funnel, it is leaking like a giant sieve from the sides, to the benefit NOT of national infrastructure, employment or productivity, but leaks back into the hands of those who caused the crisis in the first place: The Bankers and other lenders.

If QE cash is to be effective at all, the LAST place it should go is to already failed institutions. It should go directly into federal, or national infrastructure investment that bypasses the need for banks to be involved at all, or at least as involved as little as possible. QE of the kind that supposes the cash will somehow filter through in the form of private loans is wasteful and futile because banks will still not lend to those who are considered any real risk.

If you look at the more successful economies which are riding the recession better, they all have one thing in common: They spent money on infrastructure like road, rail, public utilities, culture, education and health. They didn't spend it on proppping up existing house prices, which make no contribution to the economy, or at best very little. UK's QE has been aimed almost solely at keeping mortgage payments of the already well-off immune from recession, while those not in possession of a mortgage are footing the bill.

Banks like Northern Rock should have been allowed to fail. It would have been cheaper to guarantee deposits rather than guarantee the bank itself.

QE, or printing cant work, as it just deals with numbers, and adds to them.

The wealth behind the numbers remains unchanged.

So yes, any issuing entity can add any numbers they like to a means of exchange...it just wont buy so much, and, as Government pledge to spend at least what they did last year, and they have inflation they created to contend with, printing more just means more spending to stand still.

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So.... we can devalue / debase / debauch / inflate / printyprinty our currency whenever we feel like stiffing our creditors....

Whoopy effing doo. This is not exactly news

The rest of that seven deadly frauds screed were just some pseudo-intellectual masturbation with a soupçon of pious flatulence. I think there was actually more lucid insight in the gaps between the paragraphs.

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Nothing comes from nothing. That's a good starting point for criticising MMT!

What the OP has posted is theory. Now we need the evidence to back it up - but there is none. It assumes perfect sovereignty in isolation. And I think people should be worried at the effect of credit creation from nothing that we've seen the past twenty years + the effect QE has had so far ie. commodity ramping.

This is a giant experiment that will fail.

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Any borrowing or printing must eventually be paid for by future taxes or defaults through inflation.

you don't get something from nothing!

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VELOCITY.....................................Money moving, changing hands, being spent, chasing up the costs of goods and services, VELOCITY......QE is sitting stationary on bank balance sheets.....Until it gets lent out the velocity = zilch, should the 275 billion QE cash get lent out at a leverage of say 10 to 1, we will have a serious inflation problem in an asset class which it is borrowed against.....................The Swerv has his finger on the pulse of VELOCITY, while it sits still, its just a recapitalisation exercise, to prop up insolvent banks and financial institutions.....The current inflation being felt is from the currency debasement due to QE, import costs rising, so pushing up need to buy costs...

Edited by Panda

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QE is failing because the creation of notional cash by pouring it down the wrong funnel (ie the banks) is not emerging as a practical way of promoting economic growth or even stemming the tide of recession. That's because as QE money descends the banking funnel, it is leaking like a giant sieve from the sides, to the benefit NOT of national infrastructure, employment or productivity, but leaks back into the hands of those who caused the crisis in the first place: The Bankers and other lenders.

If QE cash is to be effective at all, the LAST place it should go is to already failed institutions. It should go directly into federal, or national infrastructure investment that bypasses the need for banks to be involved at all, or at least as involved as little as possible. QE of the kind that supposes the cash will somehow filter through in the form of private loans is wasteful and futile because banks will still not lend to those who are considered any real risk.

If you look at the more successful economies which are riding the recession better, they all have one thing in common: They spent money on infrastructure like road, rail, public utilities, culture, education and health. They didn't spend it on proppping up existing house prices, which make no contribution to the economy, or at best very little. UK's QE has been aimed almost solely at keeping mortgage payments of the already well-off immune from recession, while those not in possession of a mortgage are footing the bill.

Banks like Northern Rock should have been allowed to fail. It would have been cheaper to guarantee deposits rather than guarantee the bank itself.

Yes, this is what MMT appears to be arguing. It is acknowledged within the theory that QE and deficit spending of and by itself can be inflationary, it is necessary for the government to ensure the spending goes on boosting productivity. The issue isn't the volume of money per se, it is the money versus the good and services we produce. Boosting one without boosting the other would be problematic.

QE, or printing cant work, as it just deals with numbers, and adds to them.

The wealth behind the numbers remains unchanged.

So yes, any issuing entity can add any numbers they like to a means of exchange...it just wont buy so much, and, as Government pledge to spend at least what they did last year, and they have inflation they created to contend with, printing more just means more spending to stand still.

The point is the money originates from govt spending. There is no other source of money. So whilst yes, govt spending may create inflation, in the current system there is no other source of money.

So.... we can devalue / debase / debauch / inflate / printyprinty our currency whenever we feel like stiffing our creditors....

Whoopy effing doo. This is not exactly news

The rest of that seven deadly frauds screed were just some pseudo-intellectual masturbation with a soupçon of pious flatulence. I think there was actually more lucid insight in the gaps between the paragraphs.

You didn't read it, did you? The point is there are no creditors.

Nothing comes from nothing. That's a good starting point for criticising MMT!

What the OP has posted is theory. Now we need the evidence to back it up - but there is none. It assumes perfect sovereignty in isolation. And I think people should be worried at the effect of credit creation from nothing that we've seen the past twenty years + the effect QE has had so far ie. commodity ramping.

This is a giant experiment that will fail.

MMT does not assume prefect sovereignty in isolation. It assumes a fiat currency controlled by the government in a world of free floating currencies. What do you mean by evidence? MMT states that there is no curb to govt spending and that money within our current system must originate with govt printing. It is a description of things as they are. It explains the lack of movement against the UK and Japan rather well, I think. Where is your counter argument?

Any borrowing or printing must eventually be paid for by future taxes or defaults through inflation.

you don't get something from nothing!

MMT acknowledges the possibility of inflation. There is no borrowing. All money comes from the govt and all govt spending must occur first. This is a very important point and one that is undeniable. There will be no UK, US default such as is commented on this forum. The only risk is hyperinflation, which won't happen due to the excess capacity within the economy.

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  • 285 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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