We are joined for the full hour by geopolitical financial expert and financial historian, Nomi Prins, to discuss her new book, “Permanent Distortion: How Financial Markets Abandoned the Real Economy Forever,” which highlights the huge gap between the high-flying stock market, versus back down here on earth, where average people struggle to make ends meet.
Please cover the ex-prisoner of Guantanano who says Ron De Santis was in military there, then and laughed at him when he was being tortured there in that prison. Thank you!
These discussions are getting very tangled every time they're approached. Okay, we all know that the monetary system (first monetarism from mid-70s, then revised monetarism when they realised the money supply control theory was a failure, then New Monetary Consensus which is the current iteration) runs the shady issue of government bonds as so-called 'debt', but this is not specifically why it is issued. It is issued as a drain for excess bank reserves in the banking system. This simply because banks can't earn profit or interest on excess reserves. Though we know that post 2008 the Fed (the government's bank) did pay direct interest on these reserves.
That the shady financial sector uses bonds as a safe base investment (won't default) for running their dodgy portfolios is something else, and an argument for abolishing the issue of bonds, which government doesn't do and doesn't need to do anyway in order to spend. Any economist or economic historian worth their salt knows that economists in the 20s and 30s were all well aware of the mechanism of fiat money issue and were neither in a panic about it nor thought it was 'odd'. See e.g: McKenna Post War Banking Policy 1928 for this view taken as normal by a mainstream economist. Keynes knew it. Whereas today where everyone operates on the monetarist assumption - nonsense such as 'loanable funds theory', potential national bankruptcy, that the government 'borrows' it's own currency from the markets (whilst also supposedly being able to create it out of thin air!). Those earlier economists knew simple facts such as loans create money, or government spends by decree when it is currency issuer. The left's problem, or the progressive problem, today is falling into this pit of 'oh no! money gets created out thin air!'. So what? It's normal. It isn't something that especially happened after 2008. What's being referenced here is QE, but QE is nothing but putting the reserves back into banks which existed as bonds (and which was previously reserves!). In that scenario there are supposedly not as many bonds (though they are always sold in the mechanism I stated). And it is these holding up everything financial crooks use or build upon for their activities. This is indeed a sham and the way to end it is to stop selling government bonds and stop having central banks setting a fake, arbitrary overnight interest rate target.
There are two main considerations which should follow: where does money issue go? Is the tax system operational in that it can remove money effectively (for inflation control)?
The first clearly references, and criticises, the failed notion of 'trickle down' which pushes money for so-called investment into corporate pockets on the privatisation assumption that this will furnish public goods and services. Effectively government shunting all responsibility for meeting the entire public purpose onto the private sector and illusory 'market forces' mechanism. Which is insane. The second consideration is a discussion about tax evasion/avoidance and corporation lobbying and getting tax law favourable to their desire to hold onto as much money issue as they can. This does not mean issuing money as a mechanism in itself is therefore bad or somehow illegitimate , it means it is abused. It means steps must be taken to ensure normal money issue for spending is used to both purchase and encourage economic activity for the public purpose.
Nomi Prins is correct about government needing to just rid itself of the fake independence of the Federal Reserve. It is effectively an arm of government as all central banks are and recognising this means doing away with the fairy story that it is a separate institution to somehow prevent governments from being money issue crazy. Rid it of shareholders and appoint its staff, all of them as part of the treasury. In the UK Thatcher, a nasty woman, but not stupid knew she needed control of the Bank of England. Blair/Brown did what even she didn't do, went along with the neo-liberal claptrap of 'central bank independence'.
Let's be clear though, apart from direct spending by government which is essential, there is actually a limit on money creation in the form of loans, since banks only want to lend to creditworthy borrowers. Hence the development of unsafe lending at the tail end of the 80s, through the 90s up to the 2007 crash. Finding ways to extend loans (create money) on a false pretence of creditworthy borrowers. Banks don't need 'extra reserves' to make loans.
It points to need for regulation and oversight. Also if people want money issue to go to the 'real economy' they need to vote for government platforms which say they will create direct employment by purchasing labour the private sector can't/won't. It's the only way to thwart the idea that goods/services/infrastructure must always be 'created' by private enterprise, which is the core of privatisation/trickle down.
Unfortunately Nomi doesn't properly understand modern monetary theory. It hasn't been 'kicking around since the 70s' . It was only in the early 90s that many of it's concepts came together and several of them have never been stated before. Warren Mosler single-handedly developed an understanding of the both the function of 'debt' issue and brought clarity to the concept of: tax liability first, spending issue second. MMT does absorb lots of post-Keynesian economics, but much more than that. I take the point that under the current system money issue can and is a problem, but this has nothing to do with the observation of fiat money within MMT! Which is not a 'policy', but a theoretical understanding of the operations a modern monetary economy.
Ferdy’s post is, in my opinion, a must-read for anyone listening to this episode. This should be the Wrap-Up segment for this show! I know those new to this topic might find Ferdy’s post to be written in a different language, but I encourage everyone to research the points made in Ferdy’s post.
“The left's problem, or the progressive problem, today is falling into this pit of 'oh no! money gets created out thin air!'. So what? It's normal.”
Over the past few years, we’re starting to see somewhat mainstream economic thinktanks and such admitting to this rather than adopting the monetarist/New Monetary Consensus perspective which which has permeated the economic narrative, both in the field and with the general population, since the 1970s. Even research from the Federal Reserve has described this process quite well, but good luck getting the economically illiterate, and also corporately biased, media to pick up on these obscure documents.
Part of Milton Friedman’s monetarist agenda was to convince people that the budget of a currency issuer, such as the US federal government, is similar to the budget of a currency user such as a family’s household budget, a business budget, or even a state/local government budget. When people think ‘budget’, the household/business model is often all people know so Friedman’s agenda was a successful one. However, comparing the two is like comparing a mammal to a plant. Both are living organisms with many similarities, but many key differences. Most people learn these key differences in school, but people don’t learn about these economic differences and so it is highly confusing to most people. This is an understandable problem, but one which must be overcome if we wish to see more progressive policy.
“Let's be clear though, apart from direct spending by government which is essential, there is actually a limit on money creation in the form of loans, since banks only want to lend to creditworthy borrowers. Hence the development of unsafe lending at the tail end of the 80s, through the 90s up to the 2007 crash. Finding ways to extend loans (create money) on a false pretence of creditworthy borrowers. Banks don't need 'extra reserves' to make loans.
It points to need for regulation and oversight. Also if people want money issue to go to the 'real economy' they need to vote for government platforms which say they will create direct employment by purchasing labour the private sector can't/won't. It's the only way to thwart the idea that goods/services/infrastructure must always be 'created' by private enterprise, which is the core of privatisation/trickle down.”
If the Federal Reserve is really so politically odious to the American public, I propose merging the Treasury and the Federal Reserve and then downsizing the policy rôle of this central bank. It still serves an important rôle, but the focus ought to be on fiscal policy (taxing, government spending, etc.) from Congress. Congress can also find better ways to implement banking regulation. But, of course, how can this be successful if the public is not educated on what to demand of Congress? Very few members of Congress are going to be even remotely educated enough on these matters to know what to do. The problem with Congress is not just corruption, but also ignorance.
Demanding Congress as we know it now to merge the Treasury and the Federal Reserve probably isn’t going to lead to any better results than we have now. Secretary of the Treasury Yellen, after all, was formerly on the Federal Reserve Board of Governors. Besides that, does anyone really believe that Cabinet members are free from corporate influence? Who here believes Mayor Butt, Lloyd Austin, Antony Blinken, and company are free from corporate influence?
Merely re-arranging things to eliminate the Federal Reserve is not going to solve anything really. There has to be a strategic vision by the people, and Congress, to determine how Congress can use their ability to regulate, tax, and fund government programs for the benefit of the people rather than for the sake of corporate welfare.
Ferdy’s point in the second paragraph of the above quote is all-important. How often is the topic of full employment discussed by American progressives? Don’t we all agree that full employment is something politically valuable? Why is this being ignored or, more precisely, over-looked? To Steve’s point, this is totally being exploited by Republicans when they put up a facade of caring about employment.
Government purchasing under-utilized labor via a job guarantee not only protects against inflation, but a job guarantee also works as a minimum wage/benefits level as the private sector would have to match government’s livable wage minimum in order to attract labor. This counters low-wage employers like McDonald’s and Uber who rely on government subsidization of low-wage earners who do not earn a livable wage via their employment.
“Which is not a 'policy', but a theoretical understanding of the operations a modern monetary economy.”
Bingo! MMT is not policy. Policy, such as the proposed job guarantee, needs to be informed by an understanding of economics. A knowledge of MMT is vitally important in that regard. Critics of MMT say it is leftist policy. That is not remotely true. MMT is neither right-wing nor left-wing. Policy stemming from informed theoretical knowledge may lean left, or even right, but the bottom line is that policymakers and the public must form policy from informed knowledge of theory. This goes back to my earlier point about understanding how the federal budget is not like a household budget.
The the claim that gov is not like a household has some validity but in fact, under our current system, the government is forced to operate as one. It's also true under our current system that banks do not need reserves to create new money through lending BUT they do need reserves to actually transfer the new money to the borrower's account. This places a cap on lending and bankers are supposed to monitor and anticipate reserve flow closely. For instance, if a bank does not pay enough interest to attract depositors and the reserves that brings into their "master accounts" at the Fed, the bank becomes illiquid. Or if the bank's holdings, bonds for instance, can't support the conversion to sufficient reserves to make payment, it fails (SVB). Ultimately the taxpayer is on the hook to bail out illiquid banks since Fed reserve creation appears as a loss on its balance sheet which directly reduces the Fed's profits that would have been returned to the Treasury -sleight of hand that no one seems to be aware of.
MMT presumes and supports the current paradigm of private banks being the creators of the money used in the real economy (reserves only serve interbank transfers). What is needed is for the system to adopt what Robert Hockett calls the "digital Greenback" - direct money creation by the Treasury to be spent for public purpose into the private economy. Kucinich's 2011 bill, HR2990 does just that.( But we all know Kucinich is a radical left wing vegan looney tune, right? So why take him seriously?)
The claim doesn't have 'some validity' it is entirely true. You are confusing banks lending money as loans to private money-user customers (i.e. non-issuers) with the government's ability to issue its own currency as spending. They are not the same thing. Banks don't greatly consider their reserve position when lending, they seek 'creditworthy borrowers'. Of course those whose job it is to monitor reserve positions aren't about to let this fly out of kilter, but this is met, if necessary, by interbank lending. They don't need any immediate reserves to transfer created credit money as a loan to an account.
When you say: "For instance, if a bank does not pay enough interest to attract depositors and the reserves that brings into their "master accounts" at the Fed, the bank becomes illiquid".. this is just wrong. They are not 'illiquid'. And what you describe is the loanable funds theory which is thoroughly debunked. They are not lending deposits and that is not the origin of the majority of reserves like this anyway. Reserves are result of previous deficit spending. Also bond conversion is just a sham. It makes little sense to be draining reserves into bonds if apparently these reserves are always so urgently needed. They could just be left where they are and fixed interest paid on them. Why would a bank 'hold bonds' which are its own reserves in another form, then go through the circus of reconverting them? Because they can earn interest on bonds and/or sell them to the secondary market.
The 'taxpayer' is only 'on the hook' in this instance in the sense that when economies fail these neoliberal governments retreat into austerity and the ordinary worker is pushed into more work slavery or penury to offset this. It has nothing to do with their tax which isn't funding. Whether or not their tax should higher, lower, relieved or whatever.
When you say: "MMT presumes and supports the current paradigm of private banks being the creators of the money used in the real economy.." that's because this is how a such a monetary economy operates. It's not a 'paradigm' it's an operational fact. It's not that MMT as some collective theoretical entity holds a favourable opinion of any abuse of this fact. What you say Robert Hockett says is EXACTLY what MMT theory says: direct money creation by the Treasury (via its banking arm) to be spent for public purpose into the private economy. Or spending to the public purpose. It's called 'Overt Money Financing (OMF)'. My advice is that 'critics' actually read first-hand MMT literature before having a go at saying what is in it. When I studied economics a long time ago I had to read all the literature of what I critique so I actually know what they say before I level my critique.
Happened to catch this recently. Well you may understand Fed monetary policy but not the daily operations of banking. The need for reserves has zero to do with "loanable funds". You apparently don't understand that banks MUST obtain adequate reserves, not to lend, but to make payments. If banks over extend with liabilities created through lending, they must borrow overnight from other banks (if they will comply) or the Fed as a last resort to pay out that loan. SVB was solvent with long term treasuries, but lacked the reserves to pay on behalf of account holders. Clearly you believe that there is only one way run a monetary system, what you see in front of you. But your are correct, there are many critics of MMT who get MMT wrong, mainly because MMT is obtuse inconsistent and inaccessible to most. Enjoy living in your bubble.
You must have spent a good few months reading up to attempt a reply, which is always adirable. Pity it falls short. I mentioned 'loanable funds theory' because you wrote this:
"It's also true under our current system that banks do not need reserves to create new money through lending BUT they do need reserves to actually transfer the new money to the borrower's account. This places a cap on lending and bankers are supposed to monitor and anticipate reserve flow closely. For instance, if a bank does not pay enough interest to attract depositors and the reserves that brings into their "master accounts" at the Fed, the bank becomes illiquid."
Which is simply wrong. The money 'transferred' to a loan account IS the creation/issuance of money; there is no need at all to consider a specific reserve position to make a loan or to render it accessible in an account. The only consideration it 'creditworthiness'. This is a different scenario than what you have come back 4 months later to discuss: i.e. the end-of-day bank settlements.
You're a critic of MMT because you don't understand it, refuse to properly engage with it except through 2nd-hand misunderstandings, nor do you fully understand the operations of a monetary economy. Instead you are learning along the way and overreaching yourself at every turn. Also being impeded by whatever beliefs you held already. This notion that MMT is trying to force you and everyone else to 'believe' that a monetary economy is or should be something along ideological lines held within MMT is fictional. I gather that since you are at RNRH you are both 'progressive' and a critic of the monetarist economic model. You would do well not to repeat and attempt to confirm its fictions if you want to see the back of it.
From Ralph's recent blog, Boomerang- Big Business Style:
To date, the Democratic party has rarely done so [rolling back these anti-people travesties] ....
Persistent democracy does take work, doesn't it? Oh people!
Ralph also correctly points out that demanding that the Deathocrats do so is useless.
The reason that it is useless is that both the Deathocrats and Republikillers are controlled by their big money corporate paymasters.
So endless blogs and Radio Hour segments on the symptoms are not doing the work that persistent democracy requires and is useless. Oh Ralph !!!!!!
Let's get the work started on the cause of the symptoms (big money controlling both halves of the one big money party) by demanding that all politicians not take big money in order to earn our votes.
After all, Ralph has said many times that politicians want our votes more than big money.
As Not Sure says in Idiocracy- Lead, follow or get out of the way.
If you, Ralph, take the lead people will follow and we can get the big money charlatans out of the way.
If you don't we won't have to wait 500 years for Idiocracy to become a reality.
We can't keep killing the crops (democracy) by irrigating the crops with Brawndo (big money politicians). We have to use water (a demand for small donor politicians enforced with our votes) to make the crops grow.
It won't work instantly, but the longer we wait to get started the longer it will take for it to start working.
I had not read Mr. Nader’s weekly commentary this week, but I did so after reading this comment. Here is my response to parts of that commentary and I will connect it with the topic of this RNRH episode.
Mr. Nader: “The U.S. Securities and Exchange Commission (SEC) does not require companies to disclose their percentage of charitable contributions. Institutional and individual shareholders should introduce resolutions to compel the top brass to do so. Such resolutions should win a majority of votes and open the door to the shame and embarrassment of stingy companies.”
The whole concept of relying on private charity is rather diseased and I believe progressive policy should move away from the private charity model. For basic human needs, such as food pantries, housing/care for the homeless, healthcare, education, natural disaster assistance, the arts, and so forth, there should not be any need for private charity to fulfil basic public needs. The ability for the federal government to fund programs in these areas, which can then be given as grants to local governments, exists so it is up to the public to determine basic human standards rather than rely on private charities and their many flaws. The ideas put forth by Ferdy and company are an example of how this can be achieved.
I find it rather disconcerting how some people beam with pride when they support a private charity dealing with feeding hungry Americans or providing medical care. Sure, I suppose it is better than the needy not getting anything. Charity might be necessary at the present time, but looking at things more broadly, should we beam with pride for helping people in such a selective manner when we can pass anti-poverty measures, healthcare reform, foreign policy which does not unnecessarily put US military members in mentally and physically dangerous positions, and so forth with better economic policy? Perhaps the more provocative question is to ask how many of those who beam with pride for supporting charitable efforts have voted for politicians and policies which have made the situation worse for the working class, veterans, and so forth which has only increased the need for charitable efforts?
“[In addition to the preceding paragraphs…] During the second Bush Administration, Congress cut the tax rate sharply to induce U.S. companies to bring home tens of billions of stored dollars in return for businesses promising to invest this money in productive enterprise and wage gains. Result – A double-cross. Instead, the companies bought back their own stock, pumped up executive compensation and funded mergers.”
Such is the nature of ‘trickle-down’ neoliberalism, or corporatism to use a more broad term, and this economic mentality which lead to parlous fiscal policy, amongst other things, from Congress. This is what needs to be attacked when we discuss economics. I think the majority of the working class is aware by now that trickle-down economics is pure nonsense, even if they supported the likes of Clinton, Obama, and Republicans who supported that ideology, but I don’t think they all know, especially younger generations, that neoliberalism isn’t the only model and that the US followed other models before the rise of neoliberalism. We need further, deeper discourse in this area because the public really doesn’t know what to demand from Congress. I’m glad that the RNRN is at least starting to broach this subject.
Ferdy - There is plenty of very useful information on both the Fed and Treasury website on how the process works. It's not a secret. The only thing the Fed can legally "issue" (a vague and loaded word) are reserve balances as liabilities held in a member bank's master account at the Fed. It can only create these mainly as either a loan at the Fed window or through the swap of financial assets such as during QE.
Yes, banks don't look at the static reserve position to decide whether or not to create additional money in the private economy through a loan. But what they do do is have a solid analysis of the statistical cash flow based upon many factors. This is what bankers must do. People confuse reserve balances with money. The concept of reserve balances was specifically created by the 1913 Fed Act to act as payment vehicles, NOT stores of money. Money stores exist as commercial bank liabilities to depositors. Hence reserves held at the Fed accounts(M0) are dwarfed by bank money (M2) in the economy.
Of course banks borrow from each other to essentially "top off" expected daily reserve shortfalls. This has nothing to do with chronic shortfalls as in the case of SVB whose capital requirements were poorly managed. Capital, such as bonds, can easily be transferred (sold) for reserve balances but can still be insufficient to satisfy payments (withdrawals), especially if that capital loses value due to Jerome Powell's shenanigans. That is the definition of being illiquid.
By your lingo you are apparently an MMT follower. MMT has its own language which I don't find helpful or illuminating. For the rest of us, its easy to go to the Treasury website and see that spending can never exceed income through taxation or borrowing from the private sector.
What some explainers do is incorrectly lump money creation with money payment. In a second, a bank can create a trillion dollars in liabilities to a borrower with an account at the lending bank. But the moment the borrower wants to pay to an account at another bank, then and only then do reserve balances come into play through the settlement system. This is the way the system is designed to work. Prior to the Fed, banks had no way of trusting each other's ability to pay, hence the creation of a sanctioned "reserve" system that was verifiable via the Fed master account system. When a payment is actually made, this reserve account balance is verified electronically to be sufficient or else the interbank payment is rejected. Again, this is easy to see on the Fed website.
Look at the percentage of you tax bill that goes to service the US debt. (Lots of pie charts on the web) Has nothing to do with austerity. You and many MMTrs claim that this is just an illusion. My bank account after paying taxes says otherwise.
And absolutely regarding MMT support for bank money creation via credit. This is support for the current failed and easily corruptible system that must be changed. The problem with the "theory" of overt money creation is that it does not exist (except for a decade during the 1860's.) If some insist that that it does, that will create enough confusion among the public so that the goal of direct money creation by the Treasury will never be achieved.
BTW I've spent several years studying MMT literature (included Stephanie Bell's papers from the 1990's). I don't think the average citizen is going to plow through tombs of academic theory that is very much contested and subject to interpretation. Lincoln had it right - the farmers who made up the bulk of the Populist Movement got it.
(BTW, by now, no one is paying attention to this thread)
I already know how the Fed works thanks. Your attempt at being 'technical' with regard to what it does is the sort of thing that makes Mr Nader say ordinary people are sick of economics. The Federal Reserve is multi-armed in its functions and in conjunction with the treasury makes (creates) any payments the treasury requests. This is how all central banks work in such set-ups. Its other function with regard to private bank activity is a separate operation. There is a lot of jumping through hoops to make it appear that money is being gathered or 'found', but this is illusory.
Almost bit of every reply you make is is hamstrung by contradictions. For instance this:
"For the rest of us, its easy to go to the Treasury website and see that spending can never exceed income through taxation or borrowing from the private sector. "
Is just 100% wrong. It makes no sense. You can't claim this on the one hand, then also accept that the ability to create money by fiat decree. Tax 'income' refers not to 'funding' but the clearing of fiscal space narrative they want to rely upon as a neoliberal/monetarist-based economy. The sort of economy you are railing against. The U.S. government doesn't 'borrow' it's own currency from the private sector. If you say it does, who does it 'borrow' it from when it has to bail out that same private sector in a crash? Some other parallel private sector we don't know about? No, it is the supplier of financial resources to the private sector: always. That's you, me, Walmart and anyone else who is a money user. Money users don't create money, that's called counterfeiting.
No Paul, MMT isn't support for "the current failed and easily corruptible system...". And this didn't only happen in a decade in the 1860s. Overt money creation has been common throughout history, and only impeded when the system of credit creation isn't properly understood. It's great you mentioned Lincoln because he famously made a strong statement about it, because he indeed understood it and the concept of currency sovereignty. It's completely in line with MMT's view.
You really shouldn't make a claim to have 'studied the literature' if you're going to make statements that are completely at odds with it. Nice touch though using Kelton's maiden name to make it appear you've been doing it from 'way back'. What about Randy Wray's central work? That alone, he's a senior colleague of Kelton's, but they share different approaches. Or Bill Mitchell? Or Mosler? Or Pavlina Tercheva? Or Scott Fullwiler? There are more critics of MMT than people who understand it; or those who push back because they have been gazumped. It's common when something drags the rug from under everyone. I understand it because I felt like that, suspicious about it. A lot of progressive economists have had their noses put out of joint because they never really had enough to demolish monetarist/neoliberal cant which owns the narrative of economic operations. Which is why you see these same economists unwittingly falling into line with that narrative and coming up empty-handed apart from a moral complaint. Some are wise enough to see otherwise, yet still don't want to be sidelined.
Interesting discussion here. I think we are all better for it and I think Ferdy’s analysis is easy enough for everyone to understand. I want to add a little bit to what was said by Ferdy.
“A lot of progressive economists have had their noses put out of joint because they never really had enough to demolish monetarist/neoliberal cant which owns the narrative of economic operations. Which is why you see these same economists unwittingly falling into line with that narrative and coming up empty-handed apart from a moral complaint. Some are wise enough to see otherwise, yet still don't want to be sidelined.”
The focus during the last two RNRH episodes has been on the very nature of the Federal Reserve, but I believe there should be discussion about the neoliberal, or corporatist if that is the preferred word, nature of the Federal Reserve and of government in general since at least the time of Volcker. Volcker, Alan Greenspan, and company were falsely credited with helping revitalize the economy in the 1980s and 1990s. What is not said is that the transitory issues which plagued the country in the 1970s, chiefly high energy costs, subsided during that issue and that had nothing to do with neoliberal policies. What the neoliberals did do, however, was substantially deregulate many things, including banking regulation, on the basis that banks, like other corporations, could self-regulate and had some bizarre inherit set of ethics. Milton Friedman’s ‘explanations’ of this were laughable, but they were lapped up by social democratic parties, like the Democratic Party, in addition to the usual right-wingers. Neoliberal economists were so daft to say that the business cycle was over! We see the result of that.
But, really, this is not solely, or even mainly, a central bank issue. This wouldn’t have been a problem if Congress wasn’t drinking the same neoliberal nonsense. Congress’ shift towards neoliberalism is something which needs closer analysis on the RNRH. We can call it corporatism if that is what Mr. Nader prefers, but neoliberalism and monetarism are a specific aspect of corporatism and I think that needs to be specifically brought to the attention of the listeners.
“The U.S. government doesn't 'borrow' it's own currency from the private sector. If you say it does, who does it 'borrow' it from when it has to bail out that same private sector in a crash? Some other parallel private sector we don't know about? No, it is the supplier of financial resources to the private sector: always.”
This is also a very important point as it relates to national funding of, say, universal healthcare versus state funding. States and local governments are currency users and, thus, have constraints which do not apply to the national government. This is why I strongly advocate for national funding of such initiatives. Implementation can be done at the state level, but the funding aspect is key.
The US government doesn't borrow it's own currency, it borrows credit-money provided to the private sector through commercial banks. Insurance companies, retirement funds, foreign countries (and individuals) all lend to the US government. Merely stating it isn't so doesn't change reality. Of course it's absurd that the gov is forced to borrow when it could, through proper legislation, be the creator of the money it spends in addition to what it taxes. (Its so ironic that prominent MMT'rs are promoting the creation of a trillion dollar coin - seems MMT alone just can't supply the money needed.)
The wishful belief that proclaiming that one's taxes don't fund government spending and the use of twisted phasing such as "clearing of fiscal space" will somehow lead to a eureka moment among citizens is delusional. Tell the average person that their taxes are payed just to make them poorer! None of Ferdy's assertions in anyway refutes my description. I didn't stoop to listing the names of MMT proponents to impress. (If you had read Kelton's working papers you would have realized she used her maiden name). I've read and listened to all of those acolytes, took them very seriously and ultimately rejected their framing - I am certainly not alone. It was pretty humorous to see Ferdy attempt to associate the Greenback with MMT. What else does MMT explain, the origin of the universe?
The reason deficits are not limiting at the moment, is because the economy and GDP continues to grow to support continued rollover of debt. It is not necessary to create a massive convoluted superstructure to explain this. MMT offers no solutions - just an odd description of our current failed system. Instead of restricting one's understanding of money to a group who represents an esoteric economic strain, study Frederick Soddy, C.H. Douglas, Del Mar - but I suppose if it's not "modern" it can't be valid.
What on earth are you talking about? Fiscal space clearance is a well-understood economic principle. I have no idea how you arrive at the view that this is telling people that their taxes make them poorer. Obviously I knew her name was Bell then or I wouldn't have recognised it?!
No MMT economists are promoting trillion-dollar coins. There is a fellow active on Twitter whose name I can't recall (something Gray) who promoted it, he has some links with MMT, though his push for that is to simply speed up the nonsense of the 'debt ceiling' since no-one seems able to think outside of that restraint; and show how stupid it is as a concept when it simply involves a spending decree. If you understood this, you would see it it for what it is.
"The reason deficits are not limiting at the moment, is because the economy and GDP continues to grow to support continued rollover of debt."
This is completely incoherent as a sentence. Deficits don't need to 'limit' as a policy, they expand and contract as required, or unless ideological policy aims to curtail them. You persist in imagining 'debt' as the neoliberals frame it, and clearly don't understand the process. As such you are an unwitting neoliberal, like quite a few on the left who don't understand how economics works, but think they do. As of now after being repeatedly told otherwise you are becoming a witting neoliberal due to recalcitrance. I understand you must have spent some time getting to where you are now and are unwilling to be told otherwise, for pride reasons I suppose. As it stands you are promoting and spreading nonsense and also mentioning links to things promoting Chicago School nonsense (the birthplace of the idiotic neoliberal system we have now). You need to settle down and get to grips what you're attempting to understand and critique, because right now it's a complete mess.
“No MMT economists are promoting trillion-dollar coins. There is a fellow active on Twitter whose name I can't recall (something Gray) who promoted it, he has some links with MMT, though his push for that is to simply speed up the nonsense of the 'debt ceiling' since no-one seems able to think outside of that restraint; and show how stupid it is as a concept when it simply involves a spending decree. If you understood this, you would see it it for what it is.”
Ah, okay, I knew that nonsense had to come from Twitter. Even then, there seems to be some context to the statement, but I prefer to stick to Modern Monetary Theory rather than Modern Monetary Twitter. On places like Twitter, there are those who claim to be major adherents to things like MMT, but then also claim to support inane policies such as a universal basic income. Clearly, these people have not properly studied economics.
Politically, the debt ceiling is pure political theater. This political theater was correctly eschewed under the era of the Gephardt Rule, but brought back into prominence during the Gingrich era and insufficiently attacked by Congressional Democrats who want to try to claim ‘fiscal responsibility’. Fortunately, the Democrats are not so eager to prove ‘fiscal responsibility’ as some other western social democratic parties such as the New Labour Party in the UK. This is hardly high praise for the Democrats though.
Ferdy, given the rôle of the Federal Reserve in maintaining financial stability, if Congress really lost their minds with the debt ceiling, the Federal Reserve could just write off the debt and end the debt ceiling crisis right then and there?
“I understand you must have spent some time getting to where you are now and are unwilling to be told otherwise, for pride reasons I suppose.”
I have noticed that this is a major problem in the field of economics….and other fields as well. Young economists establish their careers with a particular theoretical framework, often some form of monetarism in recent decades given the neoliberal orientation of most economic departments, and then refuse to deviate from that framework through the rest of their careers or else they risk discrediting their earlier work. Then there are those in the non-academic peanut gallery who refuse to deviate for issues of pride and so forth as you say. With the academics at least, it’s quite easy to see if they are purely an ideologue when they try to respond to challenges.
"Its so ironic that prominent MMT'rs are promoting the creation of a trillion dollar coin - seems MMT alone just can't supply the money needed."
Name these prominent MMT theorists who would even suggest such a thing and provide links to these statements. By prominent, I mean someone who has published scholarly articles or books on the subject, not someone on Reddit, Twitter, or the like where someone can claim to be an 'MMTer' or 'anti-MMTer' without having a clue what is actually in the research.
Ralph Nader you said there's no sales Tax to buy Stocks. Starting around 3 to 5 years ago most Banks now are also brokerage firms and it cost to trade stocks is zero dollars. We must re-install The Glass-
Steagall Act. Thank you Nomi Prins to state the obvious that most economist never mention.
It was heartening to hear that Ralph did his homework and seems to have learned about the Greenback movement and the Progressive movement in the late 1800's to change the money system. Quashed by the bankers who created the Federal Reserve Act in 1913 to save the banks from themselves.
Prins if great. But, as Ferdy point out, she wallows in the pathology of our byzantine and corrupted banking industry and fails to reveal the fundamental driver: money creation is outsourced to the private commercial banks who dole out that money to the CREDIT WORTHY, not for public purpose. There is no other way now to get money to where we, as a country, need it.
Of course there is a limit on Fed creation of reserves since the supply of willing borrowers of bank-created money is limited. But it is true that money gets maldistributed into the "casino" not the real economy as Prins points out. There is no "mechanism" to get money in the real economy by design. Realize that Prins makes the common mischaracterization by implying the "real economy" (credit worthy borrowers) is the same as public purpose economy.
Ferdy's comment tries but fails to simplify the problem. Central banks don't create money that is used in the real economy - private commercial banks do. This needs to be ended. The leading economists of the 30's and 40's tried to get FDR to see this - instead he cobbled together a banking fix that eventually failed.
Google the 2011 bill, HR2990 Kucinich. It cuts through all the crap we get hung up on when hand-wringing over derivatives, the IMF, bank bailouts, Glass-Steagall the World bank, Sun Valley, regulation up the whazoo, etc., etc. We are so drawn to the drama and catharsis of good vs evil that the simple mundane solutions aren't sexy enough for the modern angry progressive to entertain. Good fodder for endless podcasts. Instead of only promoting authors, why doesn't Ralph interview Dennis Kucinich or Elizabeth Kucinich or experts from the American Monetary Institute or Alliance for Just Money, to get a solid perspective on the root causes?
It baffles me how you can rail against MMT then talk about Dennis Kucinich. Here's what MMT founder economist Bill Mitchell said about Kucunich's employment bill proposal:
"A Democrat from Ohio has introduced a “full employment bill” which aims to eliminate the US central bank (good) and restore the US government’s currency sovereignty for keeps."
When we see Kucinich's statement, it's amenable to any MMT economist:
"The National Emergency Employment Defense Act of 2010 would allow the federal government to directly fund badly-needed infrastructure repairs and fund education systems nationwide by spending money into circulation without increasing the national debt. The bill would end the current practice of fractional reserve lending, whereby the economy depends upon private financial institutions to lend money into circulation. "
Yet much in Kucinich's bill rests on sheer misunderstandings:
"The United States is not financially capable of capitalizing on the burgeoning demand for wind, solar and other renewable energy technologies..."
Untrue. If those things are for sale in U.S. dollars they can purchase them at any time they choose.
The glaring problem with progressive economists is this notion that congress has no power over the Federal Reserve and that all power has been relinquished to them. It's not true. The governmnet structure is only politically and ideologically wayward, not divorced from economic operations. Yet this is the narrative this Radio Hour chooses to promote for some reason and the one 'progressive economists' seem to prefer.
To quote Mitchell:
"It [government] could change the legislation governing debt-issuance – which are legacies of the fixed exchange rate, convertible currency system which failed in 1971. The only reason that these voluntary rules governing the way in which the US government spends survive is because the neo-liberal political forces which seek to limit the ambit of the public sector are dominant."
And again:
"I agree with Kucinich that abolishing the unaccountable central bank control over macroeconomic policy is a way forward and I have been advocating that for many years. In one paper (with Warren Mosler and published in Australian Journal of Labour Economics, 2002 we wrote:
"In general, we argue that the electorate should periodically sanction policy at the ballot box. The idea of an independent central bank, which could impose harsh monetary policy, without political scrutiny would be an anathema to this objective.."
The disconnect? Kucinich and you and others seem to think the route to having money directly spent to the public purpose is to abolish 'the creation of money' for use by the private sector, when that has no impact on government's actual ability to spend to the public purpose, which is merely a failure of policy, will and the residue of an economic ideology. Other than that Kuninich's proposal is the right direction.
I'm not entirely sure if Dennis Kucinich is still advocating for full employment now that he is no longer in Congress, but the policy goal of returning to full employment was the right goal in 2010 just as it is now. I've mentioned this several times in the comments here over the last few months. That said, the approach advocated by Bill Mitchell is the right one. This is a political issue which needs to be resolved through better fiscal policy. Fiscal policy is under the purview of Congress. The ability to get progressive legislation and have it funded is without question. What is in question is Congress's ability to see it through. Furthermore, only Congress has the ability to 'shoot themselves in the foot' completely by implementing, or even considering, nonsense such as the debt ceiling.
There are not root causes, there is only one root cause to all the symptoms of that cause- big money controlling our political process and politicians.
The simple mundane solution is for citizens to demand that politicians do not take big money and enforce that demand with our votes.
People get to feel good about recognizing the symptoms and proposing legislative solutions but as long as the politicians that would pass such legislation are controlled by the big money interests such legislation will remain a proposition and will never become legislation.
It's not rocket science- it's just citizens using the simple mundane basic principles of democracy.
The only way this solution will not work is if democracy doesn't work.
The real question is if Ralph believes that democracy can work and in his oft repeated statement that politicians want our votes more than big money, then why is Ralph not organizing citizens to demand that politicians do not take big money and enforcing that demand with our votes?
It's difficult for most to understand - the system is designed to be opaque. As hideous as Andrew Jackson was regarding the native Americans, he fully understood that your "solution" is self-contradictory since it ignores the "money power". You are assuming the money power will self-regulate. The root question is, why do we operate under a system that allows such a gross concentration of money? Until that is reversed, you might as well be complaining about the weather.
Actually my solution is specifically designed to address the "money power". I "assume', based on the fact that money power has not self-regulated that it will never self-regulate.
I also "assume" that based on the last forty years of big money politicians not regulating the money power that they work for that the way to regulate the money power is to elect politicians that do not work for the big money interests.
We operate under a system that allows such a gross concentration of money because citizens are not exercising the power of the vote to replace the big money politicians with small donor politicians that will work for us instead of the big money interests.
Until citizens stop voting for the big money politicians, demand small donor politicians and enforce that demand with our votes the system we currently operate under will not be reversed.
There is nothing opaque about it. It is obvious that the big money politicians work for the big money interests and they get away with it only because citizens keep voting for them anyway.
I wasn't clear. Because of the money power, people will not vote in their own interest. If you never ask the question, why is it that big money interests exist in the first place, you will never find the solution. The answer is that our money system is designed to create gross wealth inequality. So your "solution" to just have citizens vote properly won't work - the monied interests have hijacked the democratic process - it is a flickering candle right now.
So it seems you are saying democracy/the money system is not working properly because citizens will not/do not vote in their own self interest but organizing people to vote in their own self interest will not work.
That just doesn't make any sense at all.
I did ask and answer the question why the big money interests exist in the first place. Your implication that I didn't also makes no sense.
When I try to open Capital Hill Citizen website I get a message from Safari that states that the website is unsecured and therefore it won’t allow me to open it, what’s going on 🤷♂️
Two programs in a row about economics! I am impressed, keep up the good work! We cannot begin to formulate solid economic policy without an understanding of economic theory. In reality, economic policy is related to almost all important policy, including foreign policy, so it is vital that we understand these things.
Ferdy’s comment astutely covers a lot of ground so I won’t repeat what Ferdy wrote and what I wrote in reply to Ferdy’s comment. I would like to cover a few other points though. I have not read Dr. Prins’ books, so perhaps she covers this, but why is there not discussion of how Iceland handled the Global Financial Crisis? Iceland is an important global ally and one of our closest western neighbors. Iceland liquidated their failing private banks and jailed some of their bankers. This led to a great dispute between Iceland and the rest of the west, including the IMF, the UK, and the Netherlands via the Icesave dispute when the neoliberal leaders of those countries/organizations sought to punish Iceland for their policies. It even spilled over into questions about NATO. Anyway, it seems this important global event from not long ago gets very little discussion here in the US when it probably deserves some discussion.
I also somewhat dispute Dr. Prins’ commentary about the Belt and Road Initiative as being one-sided. Yes, China’s efforts are certainly not altruistic in nature, but that cannot be said without discussing that the IMF and World Bank’s initiatives have a long history of not being altruistic in nature either. The IMF and company impose harsh monetarism (austerity) on countries receiving western aid. The same is true of the EU and their governance over southern/eastern EU members, but in the case of the IMF, the foreign debt burden on developing countries is crushing and forces countries to abide by the very non-altruistic wishes of western countries. This is why the developing world is looking towards China and Russia for assistance. That support might come at a cost, but countries have to weigh that cost with the known high costs of being assisted by the IMF and company. Some developing countries, especially in South America, don’t help their causes by engaging in economic malpractice by pegging their currencies to the Dollar, or any foreign currency, or by embracing cryptocurrencies.
I also dispute Mr. Nader’s continued use of the term ‘money printing’. As Dr. Prins used more accurate terminology for money creation. It really is just an entry of data on a computer and nothing more. ‘Money printing’ is not only an inaccurate description of the process, but it is a right-wing, corporatist term meant to evoke thoughts of the Weimar Republic, Zimbabwe, and other circumstances of hyperinflation which have no relation to what was discussed on the program. A progressive using ‘money printing’ to describe this process would be like a progressive using ‘climate change’ to describe the climate crisis. I strongly advise against using such terminology unless it is to say why the term should not be used.
That said, Mr. Nader’s example of the people he met campaigning in Arkansas is a telling one. Just as it is easy for government to bail out banks, it is easy for Congress to pass solid policy for universal healthcare, nationalization of the military industry, full employment, and so forth. It may not be direct payment to the public, but funding for those aforementioned initiatives is actually much more beneficial in the long-run! We must not lose focus on that point. We must tackle corporate corruption, but we must also work to pass social spending legislation which benefits the public. Really, the former won’t happen without the latter. The latter naturally works to oppose the former.
I hope my fellow RNRH listeners appreciate that the show staff respects us listeners enough to give us discussion about truly important points when so many other political talk shows discuss trivial matters. That said, I encourage the RNRH staff to dig deeper into economic theory and the application of it towards progressive policy. I’ve suggested many potential guests before, such as Randy Wray and Bill Mitchell, and I hope to hear from these voices here at the RNRH in the future. The economic expertise of these economists combined with the policy expertise of Mr. Nader may lead to stunning eye/ear- and mind-opening discussion.
Good take on Ralph's use of the term "money printing". He is a victim of the image of the Weimar Wheelbarrows-of-money Republic hyper inflation we baby boomers were exposed to. Despite what Prins claims, we don't have government money printing or even gov money creation now. All money used in the private economy and spent by the Treasury has been created by banks. This must end. The Fed should be subsumed by the Treasury which should be the sole creator of US Money.
It's not all created by banks. Government spends by its own decree every single day - to e.g. pay social security transfer payments, to pay contractors it employs from the private sector or direct employees (such as the defence sector) etc. It simply instructs the central bank to do so. There are always shenanigans about 'the government's account at the Fed' and whether it has 'enough money'. It's a circus side-show. The government is the currency issuer which spends that currency into existence by decree. End of story. Anything else is political ideology not operational economic fact.
First thought: the formation of the FRB. How much money do these people get to raise or lower an interest rate, beyond the control of congress? Who gets paid to sit on that board? To sit at a table with lots of water and breaks, to decide lives while re-hydrating themselves every 15 minutes. Talk about the history of this, Dec 23, 1913
Read about the formation of the Fed in 1913 and the vehement dissent and protest by progressive Representative Charles Lindbergh Sr., the father of the fascist antisemite aviator. Americans now are ignorant and clueless about our money system compared to the average citizen a century ago.
Excerpt from the NY Times:
The Federal Reserve’s Framers Would Be Shocked
By Roger Lowenstein
June 22, 2013
"ONE hundred years ago today, President Woodrow Wilson went before Congress and demanded that it “act now” to create the Federal Reserve System. His proposal set off a fierce debate. One of the plan’s most strident critics, Representative Charles A. Lindbergh Sr., the father of the aviator, predicted that the Federal Reserve Act would establish “the most gigantic trust on earth,” and that the Fed would become an economic dictator or, as he put it, an “invisible government by the money power.” " ..... (Google the rest)
Please cover the ex-prisoner of Guantanano who says Ron De Santis was in military there, then and laughed at him when he was being tortured there in that prison. Thank you!
Naomi Prins is as always, truly brilliant. Ralph is always insightful and educational. Will ask re: public banking of any would be office holder.TY
I like the 10-item news roundup in Episode Details. It's very useful.
These discussions are getting very tangled every time they're approached. Okay, we all know that the monetary system (first monetarism from mid-70s, then revised monetarism when they realised the money supply control theory was a failure, then New Monetary Consensus which is the current iteration) runs the shady issue of government bonds as so-called 'debt', but this is not specifically why it is issued. It is issued as a drain for excess bank reserves in the banking system. This simply because banks can't earn profit or interest on excess reserves. Though we know that post 2008 the Fed (the government's bank) did pay direct interest on these reserves.
That the shady financial sector uses bonds as a safe base investment (won't default) for running their dodgy portfolios is something else, and an argument for abolishing the issue of bonds, which government doesn't do and doesn't need to do anyway in order to spend. Any economist or economic historian worth their salt knows that economists in the 20s and 30s were all well aware of the mechanism of fiat money issue and were neither in a panic about it nor thought it was 'odd'. See e.g: McKenna Post War Banking Policy 1928 for this view taken as normal by a mainstream economist. Keynes knew it. Whereas today where everyone operates on the monetarist assumption - nonsense such as 'loanable funds theory', potential national bankruptcy, that the government 'borrows' it's own currency from the markets (whilst also supposedly being able to create it out of thin air!). Those earlier economists knew simple facts such as loans create money, or government spends by decree when it is currency issuer. The left's problem, or the progressive problem, today is falling into this pit of 'oh no! money gets created out thin air!'. So what? It's normal. It isn't something that especially happened after 2008. What's being referenced here is QE, but QE is nothing but putting the reserves back into banks which existed as bonds (and which was previously reserves!). In that scenario there are supposedly not as many bonds (though they are always sold in the mechanism I stated). And it is these holding up everything financial crooks use or build upon for their activities. This is indeed a sham and the way to end it is to stop selling government bonds and stop having central banks setting a fake, arbitrary overnight interest rate target.
There are two main considerations which should follow: where does money issue go? Is the tax system operational in that it can remove money effectively (for inflation control)?
The first clearly references, and criticises, the failed notion of 'trickle down' which pushes money for so-called investment into corporate pockets on the privatisation assumption that this will furnish public goods and services. Effectively government shunting all responsibility for meeting the entire public purpose onto the private sector and illusory 'market forces' mechanism. Which is insane. The second consideration is a discussion about tax evasion/avoidance and corporation lobbying and getting tax law favourable to their desire to hold onto as much money issue as they can. This does not mean issuing money as a mechanism in itself is therefore bad or somehow illegitimate , it means it is abused. It means steps must be taken to ensure normal money issue for spending is used to both purchase and encourage economic activity for the public purpose.
Nomi Prins is correct about government needing to just rid itself of the fake independence of the Federal Reserve. It is effectively an arm of government as all central banks are and recognising this means doing away with the fairy story that it is a separate institution to somehow prevent governments from being money issue crazy. Rid it of shareholders and appoint its staff, all of them as part of the treasury. In the UK Thatcher, a nasty woman, but not stupid knew she needed control of the Bank of England. Blair/Brown did what even she didn't do, went along with the neo-liberal claptrap of 'central bank independence'.
Let's be clear though, apart from direct spending by government which is essential, there is actually a limit on money creation in the form of loans, since banks only want to lend to creditworthy borrowers. Hence the development of unsafe lending at the tail end of the 80s, through the 90s up to the 2007 crash. Finding ways to extend loans (create money) on a false pretence of creditworthy borrowers. Banks don't need 'extra reserves' to make loans.
It points to need for regulation and oversight. Also if people want money issue to go to the 'real economy' they need to vote for government platforms which say they will create direct employment by purchasing labour the private sector can't/won't. It's the only way to thwart the idea that goods/services/infrastructure must always be 'created' by private enterprise, which is the core of privatisation/trickle down.
Unfortunately Nomi doesn't properly understand modern monetary theory. It hasn't been 'kicking around since the 70s' . It was only in the early 90s that many of it's concepts came together and several of them have never been stated before. Warren Mosler single-handedly developed an understanding of the both the function of 'debt' issue and brought clarity to the concept of: tax liability first, spending issue second. MMT does absorb lots of post-Keynesian economics, but much more than that. I take the point that under the current system money issue can and is a problem, but this has nothing to do with the observation of fiat money within MMT! Which is not a 'policy', but a theoretical understanding of the operations a modern monetary economy.
Ferdy’s post is, in my opinion, a must-read for anyone listening to this episode. This should be the Wrap-Up segment for this show! I know those new to this topic might find Ferdy’s post to be written in a different language, but I encourage everyone to research the points made in Ferdy’s post.
“The left's problem, or the progressive problem, today is falling into this pit of 'oh no! money gets created out thin air!'. So what? It's normal.”
Over the past few years, we’re starting to see somewhat mainstream economic thinktanks and such admitting to this rather than adopting the monetarist/New Monetary Consensus perspective which which has permeated the economic narrative, both in the field and with the general population, since the 1970s. Even research from the Federal Reserve has described this process quite well, but good luck getting the economically illiterate, and also corporately biased, media to pick up on these obscure documents.
Part of Milton Friedman’s monetarist agenda was to convince people that the budget of a currency issuer, such as the US federal government, is similar to the budget of a currency user such as a family’s household budget, a business budget, or even a state/local government budget. When people think ‘budget’, the household/business model is often all people know so Friedman’s agenda was a successful one. However, comparing the two is like comparing a mammal to a plant. Both are living organisms with many similarities, but many key differences. Most people learn these key differences in school, but people don’t learn about these economic differences and so it is highly confusing to most people. This is an understandable problem, but one which must be overcome if we wish to see more progressive policy.
“Let's be clear though, apart from direct spending by government which is essential, there is actually a limit on money creation in the form of loans, since banks only want to lend to creditworthy borrowers. Hence the development of unsafe lending at the tail end of the 80s, through the 90s up to the 2007 crash. Finding ways to extend loans (create money) on a false pretence of creditworthy borrowers. Banks don't need 'extra reserves' to make loans.
It points to need for regulation and oversight. Also if people want money issue to go to the 'real economy' they need to vote for government platforms which say they will create direct employment by purchasing labour the private sector can't/won't. It's the only way to thwart the idea that goods/services/infrastructure must always be 'created' by private enterprise, which is the core of privatisation/trickle down.”
If the Federal Reserve is really so politically odious to the American public, I propose merging the Treasury and the Federal Reserve and then downsizing the policy rôle of this central bank. It still serves an important rôle, but the focus ought to be on fiscal policy (taxing, government spending, etc.) from Congress. Congress can also find better ways to implement banking regulation. But, of course, how can this be successful if the public is not educated on what to demand of Congress? Very few members of Congress are going to be even remotely educated enough on these matters to know what to do. The problem with Congress is not just corruption, but also ignorance.
Demanding Congress as we know it now to merge the Treasury and the Federal Reserve probably isn’t going to lead to any better results than we have now. Secretary of the Treasury Yellen, after all, was formerly on the Federal Reserve Board of Governors. Besides that, does anyone really believe that Cabinet members are free from corporate influence? Who here believes Mayor Butt, Lloyd Austin, Antony Blinken, and company are free from corporate influence?
Merely re-arranging things to eliminate the Federal Reserve is not going to solve anything really. There has to be a strategic vision by the people, and Congress, to determine how Congress can use their ability to regulate, tax, and fund government programs for the benefit of the people rather than for the sake of corporate welfare.
Ferdy’s point in the second paragraph of the above quote is all-important. How often is the topic of full employment discussed by American progressives? Don’t we all agree that full employment is something politically valuable? Why is this being ignored or, more precisely, over-looked? To Steve’s point, this is totally being exploited by Republicans when they put up a facade of caring about employment.
Government purchasing under-utilized labor via a job guarantee not only protects against inflation, but a job guarantee also works as a minimum wage/benefits level as the private sector would have to match government’s livable wage minimum in order to attract labor. This counters low-wage employers like McDonald’s and Uber who rely on government subsidization of low-wage earners who do not earn a livable wage via their employment.
“Which is not a 'policy', but a theoretical understanding of the operations a modern monetary economy.”
Bingo! MMT is not policy. Policy, such as the proposed job guarantee, needs to be informed by an understanding of economics. A knowledge of MMT is vitally important in that regard. Critics of MMT say it is leftist policy. That is not remotely true. MMT is neither right-wing nor left-wing. Policy stemming from informed theoretical knowledge may lean left, or even right, but the bottom line is that policymakers and the public must form policy from informed knowledge of theory. This goes back to my earlier point about understanding how the federal budget is not like a household budget.
The the claim that gov is not like a household has some validity but in fact, under our current system, the government is forced to operate as one. It's also true under our current system that banks do not need reserves to create new money through lending BUT they do need reserves to actually transfer the new money to the borrower's account. This places a cap on lending and bankers are supposed to monitor and anticipate reserve flow closely. For instance, if a bank does not pay enough interest to attract depositors and the reserves that brings into their "master accounts" at the Fed, the bank becomes illiquid. Or if the bank's holdings, bonds for instance, can't support the conversion to sufficient reserves to make payment, it fails (SVB). Ultimately the taxpayer is on the hook to bail out illiquid banks since Fed reserve creation appears as a loss on its balance sheet which directly reduces the Fed's profits that would have been returned to the Treasury -sleight of hand that no one seems to be aware of.
MMT presumes and supports the current paradigm of private banks being the creators of the money used in the real economy (reserves only serve interbank transfers). What is needed is for the system to adopt what Robert Hockett calls the "digital Greenback" - direct money creation by the Treasury to be spent for public purpose into the private economy. Kucinich's 2011 bill, HR2990 does just that.( But we all know Kucinich is a radical left wing vegan looney tune, right? So why take him seriously?)
The claim doesn't have 'some validity' it is entirely true. You are confusing banks lending money as loans to private money-user customers (i.e. non-issuers) with the government's ability to issue its own currency as spending. They are not the same thing. Banks don't greatly consider their reserve position when lending, they seek 'creditworthy borrowers'. Of course those whose job it is to monitor reserve positions aren't about to let this fly out of kilter, but this is met, if necessary, by interbank lending. They don't need any immediate reserves to transfer created credit money as a loan to an account.
When you say: "For instance, if a bank does not pay enough interest to attract depositors and the reserves that brings into their "master accounts" at the Fed, the bank becomes illiquid".. this is just wrong. They are not 'illiquid'. And what you describe is the loanable funds theory which is thoroughly debunked. They are not lending deposits and that is not the origin of the majority of reserves like this anyway. Reserves are result of previous deficit spending. Also bond conversion is just a sham. It makes little sense to be draining reserves into bonds if apparently these reserves are always so urgently needed. They could just be left where they are and fixed interest paid on them. Why would a bank 'hold bonds' which are its own reserves in another form, then go through the circus of reconverting them? Because they can earn interest on bonds and/or sell them to the secondary market.
The 'taxpayer' is only 'on the hook' in this instance in the sense that when economies fail these neoliberal governments retreat into austerity and the ordinary worker is pushed into more work slavery or penury to offset this. It has nothing to do with their tax which isn't funding. Whether or not their tax should higher, lower, relieved or whatever.
When you say: "MMT presumes and supports the current paradigm of private banks being the creators of the money used in the real economy.." that's because this is how a such a monetary economy operates. It's not a 'paradigm' it's an operational fact. It's not that MMT as some collective theoretical entity holds a favourable opinion of any abuse of this fact. What you say Robert Hockett says is EXACTLY what MMT theory says: direct money creation by the Treasury (via its banking arm) to be spent for public purpose into the private economy. Or spending to the public purpose. It's called 'Overt Money Financing (OMF)'. My advice is that 'critics' actually read first-hand MMT literature before having a go at saying what is in it. When I studied economics a long time ago I had to read all the literature of what I critique so I actually know what they say before I level my critique.
Happened to catch this recently. Well you may understand Fed monetary policy but not the daily operations of banking. The need for reserves has zero to do with "loanable funds". You apparently don't understand that banks MUST obtain adequate reserves, not to lend, but to make payments. If banks over extend with liabilities created through lending, they must borrow overnight from other banks (if they will comply) or the Fed as a last resort to pay out that loan. SVB was solvent with long term treasuries, but lacked the reserves to pay on behalf of account holders. Clearly you believe that there is only one way run a monetary system, what you see in front of you. But your are correct, there are many critics of MMT who get MMT wrong, mainly because MMT is obtuse inconsistent and inaccessible to most. Enjoy living in your bubble.
You must have spent a good few months reading up to attempt a reply, which is always adirable. Pity it falls short. I mentioned 'loanable funds theory' because you wrote this:
"It's also true under our current system that banks do not need reserves to create new money through lending BUT they do need reserves to actually transfer the new money to the borrower's account. This places a cap on lending and bankers are supposed to monitor and anticipate reserve flow closely. For instance, if a bank does not pay enough interest to attract depositors and the reserves that brings into their "master accounts" at the Fed, the bank becomes illiquid."
Which is simply wrong. The money 'transferred' to a loan account IS the creation/issuance of money; there is no need at all to consider a specific reserve position to make a loan or to render it accessible in an account. The only consideration it 'creditworthiness'. This is a different scenario than what you have come back 4 months later to discuss: i.e. the end-of-day bank settlements.
You're a critic of MMT because you don't understand it, refuse to properly engage with it except through 2nd-hand misunderstandings, nor do you fully understand the operations of a monetary economy. Instead you are learning along the way and overreaching yourself at every turn. Also being impeded by whatever beliefs you held already. This notion that MMT is trying to force you and everyone else to 'believe' that a monetary economy is or should be something along ideological lines held within MMT is fictional. I gather that since you are at RNRH you are both 'progressive' and a critic of the monetarist economic model. You would do well not to repeat and attempt to confirm its fictions if you want to see the back of it.
From Ralph's recent blog, Boomerang- Big Business Style:
To date, the Democratic party has rarely done so [rolling back these anti-people travesties] ....
Persistent democracy does take work, doesn't it? Oh people!
Ralph also correctly points out that demanding that the Deathocrats do so is useless.
The reason that it is useless is that both the Deathocrats and Republikillers are controlled by their big money corporate paymasters.
So endless blogs and Radio Hour segments on the symptoms are not doing the work that persistent democracy requires and is useless. Oh Ralph !!!!!!
Let's get the work started on the cause of the symptoms (big money controlling both halves of the one big money party) by demanding that all politicians not take big money in order to earn our votes.
After all, Ralph has said many times that politicians want our votes more than big money.
As Not Sure says in Idiocracy- Lead, follow or get out of the way.
If you, Ralph, take the lead people will follow and we can get the big money charlatans out of the way.
If you don't we won't have to wait 500 years for Idiocracy to become a reality.
We can't keep killing the crops (democracy) by irrigating the crops with Brawndo (big money politicians). We have to use water (a demand for small donor politicians enforced with our votes) to make the crops grow.
It won't work instantly, but the longer we wait to get started the longer it will take for it to start working.
Boomerang- Democracy style!
I had not read Mr. Nader’s weekly commentary this week, but I did so after reading this comment. Here is my response to parts of that commentary and I will connect it with the topic of this RNRH episode.
Mr. Nader: “The U.S. Securities and Exchange Commission (SEC) does not require companies to disclose their percentage of charitable contributions. Institutional and individual shareholders should introduce resolutions to compel the top brass to do so. Such resolutions should win a majority of votes and open the door to the shame and embarrassment of stingy companies.”
The whole concept of relying on private charity is rather diseased and I believe progressive policy should move away from the private charity model. For basic human needs, such as food pantries, housing/care for the homeless, healthcare, education, natural disaster assistance, the arts, and so forth, there should not be any need for private charity to fulfil basic public needs. The ability for the federal government to fund programs in these areas, which can then be given as grants to local governments, exists so it is up to the public to determine basic human standards rather than rely on private charities and their many flaws. The ideas put forth by Ferdy and company are an example of how this can be achieved.
I find it rather disconcerting how some people beam with pride when they support a private charity dealing with feeding hungry Americans or providing medical care. Sure, I suppose it is better than the needy not getting anything. Charity might be necessary at the present time, but looking at things more broadly, should we beam with pride for helping people in such a selective manner when we can pass anti-poverty measures, healthcare reform, foreign policy which does not unnecessarily put US military members in mentally and physically dangerous positions, and so forth with better economic policy? Perhaps the more provocative question is to ask how many of those who beam with pride for supporting charitable efforts have voted for politicians and policies which have made the situation worse for the working class, veterans, and so forth which has only increased the need for charitable efforts?
“[In addition to the preceding paragraphs…] During the second Bush Administration, Congress cut the tax rate sharply to induce U.S. companies to bring home tens of billions of stored dollars in return for businesses promising to invest this money in productive enterprise and wage gains. Result – A double-cross. Instead, the companies bought back their own stock, pumped up executive compensation and funded mergers.”
Such is the nature of ‘trickle-down’ neoliberalism, or corporatism to use a more broad term, and this economic mentality which lead to parlous fiscal policy, amongst other things, from Congress. This is what needs to be attacked when we discuss economics. I think the majority of the working class is aware by now that trickle-down economics is pure nonsense, even if they supported the likes of Clinton, Obama, and Republicans who supported that ideology, but I don’t think they all know, especially younger generations, that neoliberalism isn’t the only model and that the US followed other models before the rise of neoliberalism. We need further, deeper discourse in this area because the public really doesn’t know what to demand from Congress. I’m glad that the RNRN is at least starting to broach this subject.
Ferdy - There is plenty of very useful information on both the Fed and Treasury website on how the process works. It's not a secret. The only thing the Fed can legally "issue" (a vague and loaded word) are reserve balances as liabilities held in a member bank's master account at the Fed. It can only create these mainly as either a loan at the Fed window or through the swap of financial assets such as during QE.
Yes, banks don't look at the static reserve position to decide whether or not to create additional money in the private economy through a loan. But what they do do is have a solid analysis of the statistical cash flow based upon many factors. This is what bankers must do. People confuse reserve balances with money. The concept of reserve balances was specifically created by the 1913 Fed Act to act as payment vehicles, NOT stores of money. Money stores exist as commercial bank liabilities to depositors. Hence reserves held at the Fed accounts(M0) are dwarfed by bank money (M2) in the economy.
Of course banks borrow from each other to essentially "top off" expected daily reserve shortfalls. This has nothing to do with chronic shortfalls as in the case of SVB whose capital requirements were poorly managed. Capital, such as bonds, can easily be transferred (sold) for reserve balances but can still be insufficient to satisfy payments (withdrawals), especially if that capital loses value due to Jerome Powell's shenanigans. That is the definition of being illiquid.
By your lingo you are apparently an MMT follower. MMT has its own language which I don't find helpful or illuminating. For the rest of us, its easy to go to the Treasury website and see that spending can never exceed income through taxation or borrowing from the private sector.
What some explainers do is incorrectly lump money creation with money payment. In a second, a bank can create a trillion dollars in liabilities to a borrower with an account at the lending bank. But the moment the borrower wants to pay to an account at another bank, then and only then do reserve balances come into play through the settlement system. This is the way the system is designed to work. Prior to the Fed, banks had no way of trusting each other's ability to pay, hence the creation of a sanctioned "reserve" system that was verifiable via the Fed master account system. When a payment is actually made, this reserve account balance is verified electronically to be sufficient or else the interbank payment is rejected. Again, this is easy to see on the Fed website.
Look at the percentage of you tax bill that goes to service the US debt. (Lots of pie charts on the web) Has nothing to do with austerity. You and many MMTrs claim that this is just an illusion. My bank account after paying taxes says otherwise.
And absolutely regarding MMT support for bank money creation via credit. This is support for the current failed and easily corruptible system that must be changed. The problem with the "theory" of overt money creation is that it does not exist (except for a decade during the 1860's.) If some insist that that it does, that will create enough confusion among the public so that the goal of direct money creation by the Treasury will never be achieved.
BTW I've spent several years studying MMT literature (included Stephanie Bell's papers from the 1990's). I don't think the average citizen is going to plow through tombs of academic theory that is very much contested and subject to interpretation. Lincoln had it right - the farmers who made up the bulk of the Populist Movement got it.
(BTW, by now, no one is paying attention to this thread)
I already know how the Fed works thanks. Your attempt at being 'technical' with regard to what it does is the sort of thing that makes Mr Nader say ordinary people are sick of economics. The Federal Reserve is multi-armed in its functions and in conjunction with the treasury makes (creates) any payments the treasury requests. This is how all central banks work in such set-ups. Its other function with regard to private bank activity is a separate operation. There is a lot of jumping through hoops to make it appear that money is being gathered or 'found', but this is illusory.
Almost bit of every reply you make is is hamstrung by contradictions. For instance this:
"For the rest of us, its easy to go to the Treasury website and see that spending can never exceed income through taxation or borrowing from the private sector. "
Is just 100% wrong. It makes no sense. You can't claim this on the one hand, then also accept that the ability to create money by fiat decree. Tax 'income' refers not to 'funding' but the clearing of fiscal space narrative they want to rely upon as a neoliberal/monetarist-based economy. The sort of economy you are railing against. The U.S. government doesn't 'borrow' it's own currency from the private sector. If you say it does, who does it 'borrow' it from when it has to bail out that same private sector in a crash? Some other parallel private sector we don't know about? No, it is the supplier of financial resources to the private sector: always. That's you, me, Walmart and anyone else who is a money user. Money users don't create money, that's called counterfeiting.
No Paul, MMT isn't support for "the current failed and easily corruptible system...". And this didn't only happen in a decade in the 1860s. Overt money creation has been common throughout history, and only impeded when the system of credit creation isn't properly understood. It's great you mentioned Lincoln because he famously made a strong statement about it, because he indeed understood it and the concept of currency sovereignty. It's completely in line with MMT's view.
You really shouldn't make a claim to have 'studied the literature' if you're going to make statements that are completely at odds with it. Nice touch though using Kelton's maiden name to make it appear you've been doing it from 'way back'. What about Randy Wray's central work? That alone, he's a senior colleague of Kelton's, but they share different approaches. Or Bill Mitchell? Or Mosler? Or Pavlina Tercheva? Or Scott Fullwiler? There are more critics of MMT than people who understand it; or those who push back because they have been gazumped. It's common when something drags the rug from under everyone. I understand it because I felt like that, suspicious about it. A lot of progressive economists have had their noses put out of joint because they never really had enough to demolish monetarist/neoliberal cant which owns the narrative of economic operations. Which is why you see these same economists unwittingly falling into line with that narrative and coming up empty-handed apart from a moral complaint. Some are wise enough to see otherwise, yet still don't want to be sidelined.
Interesting discussion here. I think we are all better for it and I think Ferdy’s analysis is easy enough for everyone to understand. I want to add a little bit to what was said by Ferdy.
“A lot of progressive economists have had their noses put out of joint because they never really had enough to demolish monetarist/neoliberal cant which owns the narrative of economic operations. Which is why you see these same economists unwittingly falling into line with that narrative and coming up empty-handed apart from a moral complaint. Some are wise enough to see otherwise, yet still don't want to be sidelined.”
The focus during the last two RNRH episodes has been on the very nature of the Federal Reserve, but I believe there should be discussion about the neoliberal, or corporatist if that is the preferred word, nature of the Federal Reserve and of government in general since at least the time of Volcker. Volcker, Alan Greenspan, and company were falsely credited with helping revitalize the economy in the 1980s and 1990s. What is not said is that the transitory issues which plagued the country in the 1970s, chiefly high energy costs, subsided during that issue and that had nothing to do with neoliberal policies. What the neoliberals did do, however, was substantially deregulate many things, including banking regulation, on the basis that banks, like other corporations, could self-regulate and had some bizarre inherit set of ethics. Milton Friedman’s ‘explanations’ of this were laughable, but they were lapped up by social democratic parties, like the Democratic Party, in addition to the usual right-wingers. Neoliberal economists were so daft to say that the business cycle was over! We see the result of that.
But, really, this is not solely, or even mainly, a central bank issue. This wouldn’t have been a problem if Congress wasn’t drinking the same neoliberal nonsense. Congress’ shift towards neoliberalism is something which needs closer analysis on the RNRH. We can call it corporatism if that is what Mr. Nader prefers, but neoliberalism and monetarism are a specific aspect of corporatism and I think that needs to be specifically brought to the attention of the listeners.
“The U.S. government doesn't 'borrow' it's own currency from the private sector. If you say it does, who does it 'borrow' it from when it has to bail out that same private sector in a crash? Some other parallel private sector we don't know about? No, it is the supplier of financial resources to the private sector: always.”
This is also a very important point as it relates to national funding of, say, universal healthcare versus state funding. States and local governments are currency users and, thus, have constraints which do not apply to the national government. This is why I strongly advocate for national funding of such initiatives. Implementation can be done at the state level, but the funding aspect is key.
The US government doesn't borrow it's own currency, it borrows credit-money provided to the private sector through commercial banks. Insurance companies, retirement funds, foreign countries (and individuals) all lend to the US government. Merely stating it isn't so doesn't change reality. Of course it's absurd that the gov is forced to borrow when it could, through proper legislation, be the creator of the money it spends in addition to what it taxes. (Its so ironic that prominent MMT'rs are promoting the creation of a trillion dollar coin - seems MMT alone just can't supply the money needed.)
The wishful belief that proclaiming that one's taxes don't fund government spending and the use of twisted phasing such as "clearing of fiscal space" will somehow lead to a eureka moment among citizens is delusional. Tell the average person that their taxes are payed just to make them poorer! None of Ferdy's assertions in anyway refutes my description. I didn't stoop to listing the names of MMT proponents to impress. (If you had read Kelton's working papers you would have realized she used her maiden name). I've read and listened to all of those acolytes, took them very seriously and ultimately rejected their framing - I am certainly not alone. It was pretty humorous to see Ferdy attempt to associate the Greenback with MMT. What else does MMT explain, the origin of the universe?
The reason deficits are not limiting at the moment, is because the economy and GDP continues to grow to support continued rollover of debt. It is not necessary to create a massive convoluted superstructure to explain this. MMT offers no solutions - just an odd description of our current failed system. Instead of restricting one's understanding of money to a group who represents an esoteric economic strain, study Frederick Soddy, C.H. Douglas, Del Mar - but I suppose if it's not "modern" it can't be valid.
What on earth are you talking about? Fiscal space clearance is a well-understood economic principle. I have no idea how you arrive at the view that this is telling people that their taxes make them poorer. Obviously I knew her name was Bell then or I wouldn't have recognised it?!
No MMT economists are promoting trillion-dollar coins. There is a fellow active on Twitter whose name I can't recall (something Gray) who promoted it, he has some links with MMT, though his push for that is to simply speed up the nonsense of the 'debt ceiling' since no-one seems able to think outside of that restraint; and show how stupid it is as a concept when it simply involves a spending decree. If you understood this, you would see it it for what it is.
"The reason deficits are not limiting at the moment, is because the economy and GDP continues to grow to support continued rollover of debt."
This is completely incoherent as a sentence. Deficits don't need to 'limit' as a policy, they expand and contract as required, or unless ideological policy aims to curtail them. You persist in imagining 'debt' as the neoliberals frame it, and clearly don't understand the process. As such you are an unwitting neoliberal, like quite a few on the left who don't understand how economics works, but think they do. As of now after being repeatedly told otherwise you are becoming a witting neoliberal due to recalcitrance. I understand you must have spent some time getting to where you are now and are unwilling to be told otherwise, for pride reasons I suppose. As it stands you are promoting and spreading nonsense and also mentioning links to things promoting Chicago School nonsense (the birthplace of the idiotic neoliberal system we have now). You need to settle down and get to grips what you're attempting to understand and critique, because right now it's a complete mess.
Ferdy,
“No MMT economists are promoting trillion-dollar coins. There is a fellow active on Twitter whose name I can't recall (something Gray) who promoted it, he has some links with MMT, though his push for that is to simply speed up the nonsense of the 'debt ceiling' since no-one seems able to think outside of that restraint; and show how stupid it is as a concept when it simply involves a spending decree. If you understood this, you would see it it for what it is.”
Ah, okay, I knew that nonsense had to come from Twitter. Even then, there seems to be some context to the statement, but I prefer to stick to Modern Monetary Theory rather than Modern Monetary Twitter. On places like Twitter, there are those who claim to be major adherents to things like MMT, but then also claim to support inane policies such as a universal basic income. Clearly, these people have not properly studied economics.
Politically, the debt ceiling is pure political theater. This political theater was correctly eschewed under the era of the Gephardt Rule, but brought back into prominence during the Gingrich era and insufficiently attacked by Congressional Democrats who want to try to claim ‘fiscal responsibility’. Fortunately, the Democrats are not so eager to prove ‘fiscal responsibility’ as some other western social democratic parties such as the New Labour Party in the UK. This is hardly high praise for the Democrats though.
Ferdy, given the rôle of the Federal Reserve in maintaining financial stability, if Congress really lost their minds with the debt ceiling, the Federal Reserve could just write off the debt and end the debt ceiling crisis right then and there?
“I understand you must have spent some time getting to where you are now and are unwilling to be told otherwise, for pride reasons I suppose.”
I have noticed that this is a major problem in the field of economics….and other fields as well. Young economists establish their careers with a particular theoretical framework, often some form of monetarism in recent decades given the neoliberal orientation of most economic departments, and then refuse to deviate from that framework through the rest of their careers or else they risk discrediting their earlier work. Then there are those in the non-academic peanut gallery who refuse to deviate for issues of pride and so forth as you say. With the academics at least, it’s quite easy to see if they are purely an ideologue when they try to respond to challenges.
Paul,
"Its so ironic that prominent MMT'rs are promoting the creation of a trillion dollar coin - seems MMT alone just can't supply the money needed."
Name these prominent MMT theorists who would even suggest such a thing and provide links to these statements. By prominent, I mean someone who has published scholarly articles or books on the subject, not someone on Reddit, Twitter, or the like where someone can claim to be an 'MMTer' or 'anti-MMTer' without having a clue what is actually in the research.
Ralph Nader you said there's no sales Tax to buy Stocks. Starting around 3 to 5 years ago most Banks now are also brokerage firms and it cost to trade stocks is zero dollars. We must re-install The Glass-
Steagall Act. Thank you Nomi Prins to state the obvious that most economist never mention.
It was heartening to hear that Ralph did his homework and seems to have learned about the Greenback movement and the Progressive movement in the late 1800's to change the money system. Quashed by the bankers who created the Federal Reserve Act in 1913 to save the banks from themselves.
Prins if great. But, as Ferdy point out, she wallows in the pathology of our byzantine and corrupted banking industry and fails to reveal the fundamental driver: money creation is outsourced to the private commercial banks who dole out that money to the CREDIT WORTHY, not for public purpose. There is no other way now to get money to where we, as a country, need it.
Of course there is a limit on Fed creation of reserves since the supply of willing borrowers of bank-created money is limited. But it is true that money gets maldistributed into the "casino" not the real economy as Prins points out. There is no "mechanism" to get money in the real economy by design. Realize that Prins makes the common mischaracterization by implying the "real economy" (credit worthy borrowers) is the same as public purpose economy.
Ferdy's comment tries but fails to simplify the problem. Central banks don't create money that is used in the real economy - private commercial banks do. This needs to be ended. The leading economists of the 30's and 40's tried to get FDR to see this - instead he cobbled together a banking fix that eventually failed.
Google the 2011 bill, HR2990 Kucinich. It cuts through all the crap we get hung up on when hand-wringing over derivatives, the IMF, bank bailouts, Glass-Steagall the World bank, Sun Valley, regulation up the whazoo, etc., etc. We are so drawn to the drama and catharsis of good vs evil that the simple mundane solutions aren't sexy enough for the modern angry progressive to entertain. Good fodder for endless podcasts. Instead of only promoting authors, why doesn't Ralph interview Dennis Kucinich or Elizabeth Kucinich or experts from the American Monetary Institute or Alliance for Just Money, to get a solid perspective on the root causes?
It baffles me how you can rail against MMT then talk about Dennis Kucinich. Here's what MMT founder economist Bill Mitchell said about Kucunich's employment bill proposal:
"A Democrat from Ohio has introduced a “full employment bill” which aims to eliminate the US central bank (good) and restore the US government’s currency sovereignty for keeps."
When we see Kucinich's statement, it's amenable to any MMT economist:
"The National Emergency Employment Defense Act of 2010 would allow the federal government to directly fund badly-needed infrastructure repairs and fund education systems nationwide by spending money into circulation without increasing the national debt. The bill would end the current practice of fractional reserve lending, whereby the economy depends upon private financial institutions to lend money into circulation. "
Yet much in Kucinich's bill rests on sheer misunderstandings:
"The United States is not financially capable of capitalizing on the burgeoning demand for wind, solar and other renewable energy technologies..."
Untrue. If those things are for sale in U.S. dollars they can purchase them at any time they choose.
The glaring problem with progressive economists is this notion that congress has no power over the Federal Reserve and that all power has been relinquished to them. It's not true. The governmnet structure is only politically and ideologically wayward, not divorced from economic operations. Yet this is the narrative this Radio Hour chooses to promote for some reason and the one 'progressive economists' seem to prefer.
To quote Mitchell:
"It [government] could change the legislation governing debt-issuance – which are legacies of the fixed exchange rate, convertible currency system which failed in 1971. The only reason that these voluntary rules governing the way in which the US government spends survive is because the neo-liberal political forces which seek to limit the ambit of the public sector are dominant."
And again:
"I agree with Kucinich that abolishing the unaccountable central bank control over macroeconomic policy is a way forward and I have been advocating that for many years. In one paper (with Warren Mosler and published in Australian Journal of Labour Economics, 2002 we wrote:
"In general, we argue that the electorate should periodically sanction policy at the ballot box. The idea of an independent central bank, which could impose harsh monetary policy, without political scrutiny would be an anathema to this objective.."
The disconnect? Kucinich and you and others seem to think the route to having money directly spent to the public purpose is to abolish 'the creation of money' for use by the private sector, when that has no impact on government's actual ability to spend to the public purpose, which is merely a failure of policy, will and the residue of an economic ideology. Other than that Kuninich's proposal is the right direction.
I'm not entirely sure if Dennis Kucinich is still advocating for full employment now that he is no longer in Congress, but the policy goal of returning to full employment was the right goal in 2010 just as it is now. I've mentioned this several times in the comments here over the last few months. That said, the approach advocated by Bill Mitchell is the right one. This is a political issue which needs to be resolved through better fiscal policy. Fiscal policy is under the purview of Congress. The ability to get progressive legislation and have it funded is without question. What is in question is Congress's ability to see it through. Furthermore, only Congress has the ability to 'shoot themselves in the foot' completely by implementing, or even considering, nonsense such as the debt ceiling.
There are not root causes, there is only one root cause to all the symptoms of that cause- big money controlling our political process and politicians.
The simple mundane solution is for citizens to demand that politicians do not take big money and enforce that demand with our votes.
People get to feel good about recognizing the symptoms and proposing legislative solutions but as long as the politicians that would pass such legislation are controlled by the big money interests such legislation will remain a proposition and will never become legislation.
It's not rocket science- it's just citizens using the simple mundane basic principles of democracy.
The only way this solution will not work is if democracy doesn't work.
The real question is if Ralph believes that democracy can work and in his oft repeated statement that politicians want our votes more than big money, then why is Ralph not organizing citizens to demand that politicians do not take big money and enforcing that demand with our votes?
It's difficult for most to understand - the system is designed to be opaque. As hideous as Andrew Jackson was regarding the native Americans, he fully understood that your "solution" is self-contradictory since it ignores the "money power". You are assuming the money power will self-regulate. The root question is, why do we operate under a system that allows such a gross concentration of money? Until that is reversed, you might as well be complaining about the weather.
Actually my solution is specifically designed to address the "money power". I "assume', based on the fact that money power has not self-regulated that it will never self-regulate.
I also "assume" that based on the last forty years of big money politicians not regulating the money power that they work for that the way to regulate the money power is to elect politicians that do not work for the big money interests.
We operate under a system that allows such a gross concentration of money because citizens are not exercising the power of the vote to replace the big money politicians with small donor politicians that will work for us instead of the big money interests.
Until citizens stop voting for the big money politicians, demand small donor politicians and enforce that demand with our votes the system we currently operate under will not be reversed.
There is nothing opaque about it. It is obvious that the big money politicians work for the big money interests and they get away with it only because citizens keep voting for them anyway.
I wasn't clear. Because of the money power, people will not vote in their own interest. If you never ask the question, why is it that big money interests exist in the first place, you will never find the solution. The answer is that our money system is designed to create gross wealth inequality. So your "solution" to just have citizens vote properly won't work - the monied interests have hijacked the democratic process - it is a flickering candle right now.
So it seems you are saying democracy/the money system is not working properly because citizens will not/do not vote in their own self interest but organizing people to vote in their own self interest will not work.
That just doesn't make any sense at all.
I did ask and answer the question why the big money interests exist in the first place. Your implication that I didn't also makes no sense.
What I am saying is that people must be given the information they need in order to vote in their own interest.
When I try to open Capital Hill Citizen website I get a message from Safari that states that the website is unsecured and therefore it won’t allow me to open it, what’s going on 🤷♂️
Two programs in a row about economics! I am impressed, keep up the good work! We cannot begin to formulate solid economic policy without an understanding of economic theory. In reality, economic policy is related to almost all important policy, including foreign policy, so it is vital that we understand these things.
Ferdy’s comment astutely covers a lot of ground so I won’t repeat what Ferdy wrote and what I wrote in reply to Ferdy’s comment. I would like to cover a few other points though. I have not read Dr. Prins’ books, so perhaps she covers this, but why is there not discussion of how Iceland handled the Global Financial Crisis? Iceland is an important global ally and one of our closest western neighbors. Iceland liquidated their failing private banks and jailed some of their bankers. This led to a great dispute between Iceland and the rest of the west, including the IMF, the UK, and the Netherlands via the Icesave dispute when the neoliberal leaders of those countries/organizations sought to punish Iceland for their policies. It even spilled over into questions about NATO. Anyway, it seems this important global event from not long ago gets very little discussion here in the US when it probably deserves some discussion.
I also somewhat dispute Dr. Prins’ commentary about the Belt and Road Initiative as being one-sided. Yes, China’s efforts are certainly not altruistic in nature, but that cannot be said without discussing that the IMF and World Bank’s initiatives have a long history of not being altruistic in nature either. The IMF and company impose harsh monetarism (austerity) on countries receiving western aid. The same is true of the EU and their governance over southern/eastern EU members, but in the case of the IMF, the foreign debt burden on developing countries is crushing and forces countries to abide by the very non-altruistic wishes of western countries. This is why the developing world is looking towards China and Russia for assistance. That support might come at a cost, but countries have to weigh that cost with the known high costs of being assisted by the IMF and company. Some developing countries, especially in South America, don’t help their causes by engaging in economic malpractice by pegging their currencies to the Dollar, or any foreign currency, or by embracing cryptocurrencies.
I also dispute Mr. Nader’s continued use of the term ‘money printing’. As Dr. Prins used more accurate terminology for money creation. It really is just an entry of data on a computer and nothing more. ‘Money printing’ is not only an inaccurate description of the process, but it is a right-wing, corporatist term meant to evoke thoughts of the Weimar Republic, Zimbabwe, and other circumstances of hyperinflation which have no relation to what was discussed on the program. A progressive using ‘money printing’ to describe this process would be like a progressive using ‘climate change’ to describe the climate crisis. I strongly advise against using such terminology unless it is to say why the term should not be used.
That said, Mr. Nader’s example of the people he met campaigning in Arkansas is a telling one. Just as it is easy for government to bail out banks, it is easy for Congress to pass solid policy for universal healthcare, nationalization of the military industry, full employment, and so forth. It may not be direct payment to the public, but funding for those aforementioned initiatives is actually much more beneficial in the long-run! We must not lose focus on that point. We must tackle corporate corruption, but we must also work to pass social spending legislation which benefits the public. Really, the former won’t happen without the latter. The latter naturally works to oppose the former.
I hope my fellow RNRH listeners appreciate that the show staff respects us listeners enough to give us discussion about truly important points when so many other political talk shows discuss trivial matters. That said, I encourage the RNRH staff to dig deeper into economic theory and the application of it towards progressive policy. I’ve suggested many potential guests before, such as Randy Wray and Bill Mitchell, and I hope to hear from these voices here at the RNRH in the future. The economic expertise of these economists combined with the policy expertise of Mr. Nader may lead to stunning eye/ear- and mind-opening discussion.
Good take on Ralph's use of the term "money printing". He is a victim of the image of the Weimar Wheelbarrows-of-money Republic hyper inflation we baby boomers were exposed to. Despite what Prins claims, we don't have government money printing or even gov money creation now. All money used in the private economy and spent by the Treasury has been created by banks. This must end. The Fed should be subsumed by the Treasury which should be the sole creator of US Money.
It's not all created by banks. Government spends by its own decree every single day - to e.g. pay social security transfer payments, to pay contractors it employs from the private sector or direct employees (such as the defence sector) etc. It simply instructs the central bank to do so. There are always shenanigans about 'the government's account at the Fed' and whether it has 'enough money'. It's a circus side-show. The government is the currency issuer which spends that currency into existence by decree. End of story. Anything else is political ideology not operational economic fact.
First thought: the formation of the FRB. How much money do these people get to raise or lower an interest rate, beyond the control of congress? Who gets paid to sit on that board? To sit at a table with lots of water and breaks, to decide lives while re-hydrating themselves every 15 minutes. Talk about the history of this, Dec 23, 1913
Read about the formation of the Fed in 1913 and the vehement dissent and protest by progressive Representative Charles Lindbergh Sr., the father of the fascist antisemite aviator. Americans now are ignorant and clueless about our money system compared to the average citizen a century ago.
Excerpt from the NY Times:
The Federal Reserve’s Framers Would Be Shocked
By Roger Lowenstein
June 22, 2013
"ONE hundred years ago today, President Woodrow Wilson went before Congress and demanded that it “act now” to create the Federal Reserve System. His proposal set off a fierce debate. One of the plan’s most strident critics, Representative Charles A. Lindbergh Sr., the father of the aviator, predicted that the Federal Reserve Act would establish “the most gigantic trust on earth,” and that the Fed would become an economic dictator or, as he put it, an “invisible government by the money power.” " ..... (Google the rest)