One of the most important parts of the collective effort to spread the good news about the Modern Money Theory approach to macroeconomics is popularization of MMT views. Read more about The Smart Bunny's Guide to Debt, Deficit and Austerity: A Review
In October 2011 Marc Lavoie, a post-keynesian economist, very friendly to Modern Money Theory (MMT) wrote a paper presenting a friendly critical look at MMT. In his conclusion, Lavoie states that “. . . the neo-chartalist analysis is essentially correct . . . “ affirming his substantial agreement with MMT's analysis of banking operations and fiscal realities in nations with non-convertible fiat currencies, with floating exchange rates and no debts in currencies they do not issue, as well as MMT's analysis of Eurozone viability. But he goes on to say (p. 25):
“There is nothing or very little to be gained in arguing that government can spend by simply crediting a bank account; That government expenditures must precede tax collection; that the creation of high powered money requires government deficits in the long run; that central bank advances can be assimilated to a government expenditure; or that taxes and issues of securities do not finance government expenditures.”
So, Lavoie questions the wisdom of MMT economists and writers making certain counter-intuitive statements he perceives as certainly questionable, perhaps untrue, and also confusing to people, economists and decision makers trying to understand MMT writings. He considers these statements an important barrier to understanding, and he wants this 'baggage' to be discarded because he thinks it hurts MMT and post-keynesian efforts to get important new approaches to economics accepted. Read more about Lavoie's Critical Look at Modern Money Theory: A Reply
It makes a good headline; but it’s dangerous to say “austerity is dead,” just because new budget projections indicate that the deficit has already been cut by $200 Billion more than in previous projections, and because the Reinhart-Rogoff study has been debunked successfully, and, hopefully, irretrievably. Austerity will only be dead when legislators, Presidents, Prime Ministers, Central Bankers, and international lending organizations stop trying to implement it, whether or not they stop because deficits have already been cut.
Of course, those claiming austerity is dead, mean by their claim that deficit cutting efforts have already been successful enough in the United States that future projections in all the mainstream budget plans now show only “moderate” deficits (See the Table which now includes CBO revised budget projections.) These don’t signal a debt crisis, and instead suggest that we can now turn to the really serious economic, health, and environmental challenges we face. Read more about Sorry Folks, Austerity’s Not Dead Yet!
On May 9, 2013, The Republican House passed H.R. 807 the Full Faith and Credit Act. The Bill says in part:
(a) In General- In the event that the debt of the United States Government, as defined in section 3101 of title 31, United States Code, reaches the statutory limit, the Secretary of the Treasury shall, in addition to any other authority provided by law, issue obligations under chapter 31 of title 31, United States Code, to pay with legal tender, and solely for the purpose of paying, the principal and interest on obligations of the United States described in subsection (b) after the date of the enactment of this Act.
(b) Obligations Described- For purposes of this subsection, obligations described in this subsection are obligations which are--
(1) held by the public, or
(2) held by the Old-Age and Survivors Insurance Trust Fund and Disability Insurance Trust Fund.
So, in brief, the Bill provides for the Treasury, even when it is about to reach the debt ceiling, to issue additional debt to pay principal and interest on debt instruments issued to the public including foreign nations, and to pay principal and interest on Social Security (SS) “trust fund bonds” in the course of paying SS recipients. Read more about Mr. President, End Debt Ceiling Hostage-taking for Good!
Make ‘em Prove the Causality before They Cause Any More Suffering: Part Three, Reinhart - Rogoff Retrospective
This post is a more complete statement of my conclusions based on the analysis in Parts One and Two of this series. Read more about Make ‘em Prove the Causality before They Cause Any More Suffering: Part Three, Reinhart - Rogoff Retrospective
In Part One, I asked whether the Carmen Reinhart/Kenneth Rogoff study and book didn’t show that, on average, nations experiencing debt-to-GDP ratios above 90% had negative rates of economic growth? And I said the answer to the question was “no.” But I didn’t explain why that was true. Read more about Make ‘em Prove the Causality before They Cause Any More Suffering: Part Two, the Fall and After
(Cross-posted with permission of the author from
The Center of the Universe)
The intellectual dishonesty continues. As before, it's the lie of omission. Read more about Reply to Reinhart and Rogoff’s NYT Response to Critics
Deficit spending by the government is merely the counterpart of private sector saving. What government deficit spending does is to permit the private sector to achieve its level of desired saving. When the latter changes, government spending ought to be adjusting in the opposite direction to offset it (unless the current account balance happens to do the job).
The underlying rationale for “a Grand Bargain” and the President’s deficit reduction budget including cuts to both Social Security (SS) and Medicare and many valuable discretionary programs, apart from the pragmatic justification, that he may be able to complete such a bargain with the Republicans and blue dog Democrats in Congress, is that the fiscal health of the United States requires that we can’t keep running annual deficits of the size we’ve been running. Why? Read more about Hell No! The Ultimate Pushback against the Grand Bargain
OK, the President has officially proposed the “chained CPI” cut to Social Security in opposition to what the heavy majority of American voters want him to do and in contradiction with promises he and Joe Biden made during their re-election campaign. So, what punishment should we exact from this Administration, and what should we do to prevent cuts from happening in addition to signing petitions, and calling Representatives and Senators?
Immediate Punishment for Lying
President Obama and Vice President Biden clearly lied to our faces about what they would do when the Republicans came for Social Security if they were re-elected. I know politicians lie frequently during campaigns. But, I think that if we want to make them accountable, then we need to develop zero tolerance for that. A politician’s word has to become his/her bond; or he/she must be defeated as soon as we can make it possible. That has to become both the perception of politicians and the reality of how our system operates, if we’re going to save our democracy.
Accordingly, I propose that a Democratic Congressperson introduce a bill of impeachment in the House for this President as soon as possible. The grounds for impeachment could include failure to prosecute the torturers from the Bush Administration, failure to prosecute the control frauds in the FIRE sector, as well as the charge that the President lied to the American people about his intentions on SS policy in the last election campaign, in order to deceive us into re-electing him. I think that’s fraud. Read more about They’re Making Love to the Third Rail: What Are We Gonna Do About It?
Domestic Private Balance + Domestic Government Balance + Foreign Balance = 0
is an accounting identity that provides a focus for macroeconomic analysis, explanation, and prediction by economists applying the Modern Money Theory (MMT) approach. It leads to a very critical line of thinking about the budget deficit projections produced for our consumption by the Congressional Progressive Caucus (CPC), Congressional Budget Office (CBO), the House, and the Senate. The US has recently had a sharp decline in its balance of trade deficit. It now stands at about 3% of GDP; which means that the rest of the world has a surplus, a balance of +3% of US GDP in its annual trade with the United States.
Assuming that surplus is unlikely to shrink anymore, we can see from the equation that unless the Government balance is less than -3% of GDP, the Domestic Private Balance in the United States economy will not be positive (a surplus, and addition to nominal financial wealth) and is very likely to be negative (a deficit, a subtraction from nominal financial wealth). So, the private sector taken as a whole will be losing rather than gaining Net Financial Assets (NFAs), every year for as long as the situation lasts. Read more about A Plague on All Your Budgets