MMT: an alternative to austerity - Michael Hudson

[bagginz]

Very interesting...

Audio: http://michael-hudson.com/wp-content/uploads/2012/GunsnButter03.07.2012.mp3

Transcript: http://michael-hudson.com/2012/03/mm...y-alternative/

[thriftyandboringinohio]

Re: MMT: an alternative to austerity - Michael Hudson

bagginz, thanks for also posting the trnscript.

[thriftyandboringinohio]

Re: MMT: an alternative to austerity - Michael Hudson

Thanks EJ. I remember that interest rate spike clearly.
In 1980 I was taking the 100-level introductory macroeconomics class at Ohio State.
Took it as a night class, and had a great prof. A calm and intelligent younger man, he worked full-time as an economist during the day for the State of Ohio, and taught that night class.

One night, mid-lecture, out of the blue, he lost it.
"How can you people just sit there?!" he said emotionally.

Stunned silence from the class.

"Interest rates are 14 percent! Inflation is 13 percent!"
"With tax bracket creep you'll need to get a 25 percent raise every year just to stay even! Nobody gets a 25% raise every year!"
"I'm a pretty rich guy and I'm scared -you people should be terrified!"

He took a deep breath, regained his composure, and went back to talking about guns and butter, or whatever.

The other cool thing he did one night was take a one-ounce gold coin out his pocket. Held it up, told us what it was. He said "Shhsh, listen.." and dropped it on the floor so we could hear it ring. Put it back in his pocket with a smile and went back to another boring lecture.

[jneal3]

Re: MMT: an alternative to austerity - Michael Hudson

It was an interesting read, but unfortunate in that Dr. Hudson resorted to framing his argument in 'war' rhetoric; there are always two in this tango of borrowing/lending, and if the governments (and individuals) 'under attack' by the banksters valued their assets so dearly they conceivably would have been more prudent in borrowing against them, regardless of the effect of being told what they wanted to hear by the motive-conflicted lenders. A real plan to solve the problem involves acknowledgement of everyone's complicity in this mess.

[jk]

Re: MMT: an alternative to austerity - Michael Hudson

i remember that spike well. i got my first mortgage in 1979, and was happy it was only a bit over 9%.

on mmt, wouldn't the mmt people argue that the gov't WANTED rates that high? after all, it was a policy decision to push them up, and it was done for a purpose.

[Fiat Currency]

Re: MMT: an alternative to austerity - Michael Hudson

Basing a global monetary system on a single nation's currency was a really bad idea. I think the whole crazy contraption is going to blow up. After it does, the U.S. will find itself having to earn foreign exchange just like everyone else. No more exorbitant privilege.

Well said. That first line is really the Grade-6-turbo-version of it all.

[mesyn191]

Re: MMT: an alternative to austerity - Michael Hudson

EJ I see the MMT thing pop up a lot and while there things about it that sound sensible there are other things just come off as plain stupid.

Have you considered doing an article debunking MMT, at least as it is commonly used right now (ie. (c. 11:19) “The government.... quote here>) to paint the government's actions as beneficial and/or sensible?

[c1ue]

Re: MMT: an alternative to austerity - Michael Hudson

The counterparty in the exchange above seems to be Dr. Michael Hudson himself; he is the only one I've seen who consistently makes the point that the entire US deficit in the late '60s and early '70s was due to the Vietnam war.

I'd also note that Dr. Hudson has never actually proposed MMT - he merely notes that MMT, or more precisely money printing, would perform the job of reducing debt as well as reducing spending (i.e. austerity), but without the same consequences of austerity: massive economic contraction.

He hasn't spoken in detail of the consequence of money printing/MMT: inflation, but I'd be shocked if he did not understand it.

Given that Dr. Hudson has spoken out many times on the need to write down debt, doing so via money printing/MMT is an alternative to a much less politically feasible outright or partial debt jubilee.

[at147]

Re: MMT: an alternative to austerity - Michael Hudson

Here is another view of MMT from Doug Noland:

Contemporary Monetary Analysis
by Doug NolandFebruary 24, 2012
February 21 – CNBC (John Carney): “The Washington Post ran a long and well-wrought article on Modern Monetary Theory over the weekend. The piece, by Dylan Matthews, starts with Jamie Galbraith’s experience trying to explain to a large audience of economists in the Clinton White House that the budget surpluses the federal government was running was immensely destructive. Or, rather, it starts with those economists laughing at Galbraith’s attempt to explain this. It was obvious to me way back before I had ever heard of MMT that governments should probably never run a budget surplus—or should do so only in dire emergencies. When the government runs a surplus, that means it is taking more money out of the economy than it is spending back into the economy. It is making us poorer.”

In my initial CBB back in 1999, I trumpeted the need for a Contemporary Theory of Money and Credit. Some thirteen years later, I lament that the void remains as large as ever. Mr. Matthews’ Washington Post article highlighted “Modern Monetary Theory,” an alternative economic framework with Keynesian roots that is receiving heightened attention in our age of unrelenting government stimulus. I will not be jumping on board.

From Mr. Matthews’ article: “‘Modern Monetary Theory’ was coined by Bill Mitchell, an Australian economist and prominent proponent, but its roots are much older. The term is a reference to John Maynard Keynes, the founder of modern macroeconomics. In ‘A Treatise on Money,’ Keynes asserted that ‘all modern States’ have had the ability to decide what is money and what is not for at least 4,000 years. This claim, that money is a ‘creature of the state,’ is central to the theory. In a ‘fiat money’ system like the one in place in the United States, all money is ultimately created by the government, which prints it and puts it into circulation. Consequently, the thinking goes, the government can never run out of money. It can always make more.”

The rest here:

http://prudentbear.com/index.php/cre...w?art_id=10634

[thriftyandboringinohio]

Re: MMT: an alternative to austerity - Michael Hudson

Here is another view of MMT from Doug Noland...

Noland always struck me as a fairly smart guy. I did pretty well with that PSAFX Prudent Bear fund years ago before Federated took it over.

[charliebrown]

Re: MMT: an alternative to austerity - Michael Hudson

While I understand some parts of MMT, I can't understand the concept of balancing inflation and inerest rates. If the economy is composed of rational actors, and real things are fininte in quantity. Who is going to hold gvt. debt growing at geometric rates at negative real rates? The only people I can think of is the fed, and other sovereigns who hold if for other reasons than real rate of return. Other non gvt institutions might hold it but it would be fear that induces the holding. Fear that other investments are going to stink worse than a guaranteed loss of purchasing power of treasury debt. In this gloomy atmosphere how does the economy expand?? We already see other nations reducing their treasury holdings. A smart poker player backs out slowly so as to not spook the heard.

For example, if I could stomach the volatility, and had no cash flow issues to deal with, I would move all of my cash, and gvt debt to blue chip stocks, gold and other tangibles. The only thing keeping me from doing so is as mentioned, is the afore mentioned fear. It is also difficult for me to figure out how high inflation would effect the long term profitablity, . Which companies will not be able to roll their debt, which need new debt to expand, which will not be able to pass higher input costs onto consumers???

[vinoveri]

Re: MMT: an alternative to austerity - Michael Hudson

They're making it up as they go along.
"It's working sort-of and as long as it doesn't blow up on my watch" is not the basis on which to build an economic/monetary system. "In the long run ....who gives a shit" is just the sort of policies we don't want in a system operated by "those who set their eye on public office ..."

My main reason for supporting substantive elements of the Austrian theory and commodity based money is not so much from an understanding of economics, but in looking for a system which is less susceptible to being gamed. I would suspect most want a fair, just and open system. Fiat money might work in some form if those implementing it were all philosopher kings, but history has given us far fewer of these than the tyrannical types. Don't tempt human nature and if you do, make it hard to cheat ought to be one of the bases for any monetary system.


Does MMT and its tenets require the banking system as we know it, i.e, a Federal Reserve System analog, with money created out of debt?

MMT- Another fine example supporting this quote:
Quote for this Market: “It's almost worth the Great Depression to learn how little our big men know.”
- Will Rogers

[Pascal]

Re: MMT: an alternative to austerity - Michael Hudson

EJ - My guess is that most of us probably consider MMT more than sufficiently debunked. No need, IMO, to spend any more effort unpacking. It pretty clearly has huge flaws and the only question has been how much longer it could continue. I am very much looking forward to the discussion of possible timing and triggers that I think you've mentioned may be part of a future article.

Every time in the past that I've thought the system had to blow-up, our "policy makers" have managed to pull another rabbit out of the hat, delaying the blow-up and probably making the final end much worse. I've given up on my ability to predict or recognize the big kahuna -- e.g., at the time I thought 1987 was it -- so I'm glad that you're focusing on it!

[jk]

Re: MMT: an alternative to austerity - Michael Hudson

It only appears that the U.S. Government's ability to issue dollars is infinite because the US keeps expanding its pool of creditors and by the Fed buying Treasury issuance.

[emphasis added]

you have said that the trigger for kapoom will be pool of foreign creditors drying up. but you have not [yet] addressed the question of what will stop the fed from purchasing whatever supply of bonds are created. yes, that will cause inflation. yes, that will make the dollar drop. but isn't that the sure way to avoid deflation, which - after all- is the alternative?

what stops that is when foreign commodity suppliers stop accepting dollars as payment. [this reminds me of when the carter admin was forced to issue bonds in foreign currencies, "samurai bonds" iirc]

[ProdigyofZen]

Re: MMT: an alternative to austerity - Michael Hudson

Food retailers usually can pass their high input costs onto consumers. I mean afterall everyones gonna eat right?

Who will be the buyer of treasuries? Well financial repression of course! They will force pension funds/insurance funds etc to buy a certain % of their portfolios in treasuries. They most likely will also make treasuries tax free investments.

If you want a short read of such policies; http://www.bloomberg.com/news/2012-0...-reinhart.html

Longer read is her Fed paper. Search online and it should be the first one to come up.