The Guardian has a long-running series where a reader asks a question and comments are invited, with the best being published. This weekend the question was:
The chancellor has borrowed an unprecedented amount of money. Who is lending it to him, and where did they get it?
Sean Boyle, London
I had the second reply:
The answer is really very easy. In the last year it has been the BoE. Using quantitative easing the bank has bought, in real terms, almost all the net debt issued by the government to pay for the coronavirus crisis. The crisis has cost £400bn. Quantitative easing might turn out to be a little more or less than that in the past year. So, in other words, the government has borrowed from its own bank. And for the record, it had to do that because as data makes clear, everyone else in the economy has been saving. That's what happens when most people cut their spending. Saving reduces the money supply by taking money out of circulation. The government had to make good that shortfall to keep the economy going. This is not rocket science, but almost no one in the Treasury and almost no politician seems to understand that this is the case. That lack of understanding is the biggest economic problem that we face. Richard Murphy, Cambridgeshire
Is that completely technically accurate? No. Is it the clearest I thought I could do? Probably. I make clear that there is direct monetary funding (even if the Bank of England denies it). And I make clear this is essential. I also draw out the political dimension - which is the denial that this is possible, which contrasts with the necessity that it happens. I deliberately make clear the link with saving. Perhaps I should have been more explicit that government deficits create private wealth, because they do. I thought I would have only a few words to use - and worked within that.
I am pleased that most answers were well informed. There is one disappointing answer, which is this from those linked with the Gower Initiative for Modern Monetary Studies:
We are the authors of a 200-page study entitled An Accounting Model of the UK Exchequer, which explores how UK government spending works in great depth. In the UK, the Crown, in the form of HM government, asks for money and parliament authorises its issue. Alongside this is an elaborate Wizard of Oz routine involving gilts and Treasury bills that distracts from what is happening behind the curtain. There is a belief among the government and their advisers that exchanging sterling for gilts and Treasury bills (after the spending has already happened) helps support monetary policy in some way. Over-emphasising the importance of what is a largely useless financial instrument swap provides a convenient excuse for government inaction. An excuse that is suddenly forgotten the minute a bank needs bailing out or a pandemic strikes. Andrew Berkeley, Richard Tye and Neil Wilson, London
The second sentence is correct. The third adds to the confusion and the fourth would leave 99.8% of people confused - and so solves nothing. What the 'largely useless financial instrument swap' did do was keep banks solvent. Maybe GIMMS are not interested in that, but ignoring reality does not help. Maybe too they are not interested in suggesting why direct monetary financing of government is worthwhile - which is what I would read from their answer, when they actually support it. MMT really has got to sell itself better than this, because this does not work. An obsession with the mechanics of financial instruments rather than a focus on economic substance will get MMT nowhere.
In contrast, Positive Money had a go at addressing real issues. I can't reproduce another answer here. Follow the link.
It was good to get the answer out there. Good too to see many understanding the reality. But Zimbabwe did appear, of course. There is still work to do, and it would help if those who support MMT took opportunities like this to sell the advantages of the approach rather than snipe.
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Dear Richard,
Both you and the team behind the paper, ‘An Accounting Model of the UK Exchequer’ are engaging in equally scholarly investigations into the how the UK money system work. I see in today’s blog you see differences in the two readings of Exchequer operations. Seems to me like an occasion for a scholarly discussion between you and the authors of the “Accounting Model” regarding one of the great economic not to speak of political issues of the day. You are on the public record as having a lot of sympathy for MMT so I imagine that such a discussion would easily be amicable as well fruitful. I know the three authors of the paper would be up for some kind of engagement along these lines. There are various formats such an interaction might take. What do you think?
Best,
David
When GIMMS apologise for their abuse of me
I am bored by being trolled by them just as others are by being trolled by their friend Bill Mitchell whilst they all miss the point as to what MMT is actually about – which is facilitating real political change rather than scoring silly points.
If the exchange was to be about negotiating a peace deal between the People’s Front and the Front for the People count me out – there is a real world to deal with
Dear Richard,
I am sorry that you feel so hurt by the fact that our fears regarding your use of terms such as “borrowing” mean that we do not want to link to your site any more.
My personal view, as I have said to others, and say to you now, is that I think you have people’s best interest at heart. But I feel that continuing to use terminology that reinforces the orthodox view of macroeconomics is unhelpful.
It might also help If GIMMS not so rude to people in emails about me, which has shocked at least one person who corresponded with you and showedthe somewhat surprising reply with me, so surprised were they.
But let me turn to your ‘argument’.
As a matter of fact right now there is something that takes the form of borrowing.
I entirely agree it need not happen.
And I argue relentlessly that QE cancels it – and although you say you do not want QE you have offered no alternative mechanism for cancelling the property right that nonetheless actually exists
Nor has anyone in GIMMS that I have seen dealt with the issue of wealth inequality that actually exists as a result of money creation – including by MMT which in this sense behaves in exactly the same way as QE unless you claim the sectoral balances do not apply to MMT, when they do.
Instead you play semantics that miss the point and literally will persuade no one of MMT’s relevance. It’s as if you are very happy playing on the fringes achieving nothing when the reality is that there are real issues to be addressed
Pretending there is no borrowing is absurd when £1.2 trillion of property rights exist that look like it.
Tell me how you would unwind them, with what consequence and how you might address all those consequences and I think you have something to say
Until such realities are addressed by you then you are literally closing your eyes and pretending that by renaming things a problem will go away. It won’t.
The SBFG are hoping to stimulate a similar discussion via the pages of The National – this is a draft of a letter from the SBFG to The National in response to an article by George Kerevan in today’s edition
Dear Sir/Madam
In his column on April 5th (“This was the giant elephant in the room at BBC leaders debate”) George Kerevan rightly calls out the failure to discuss the economy and how Scotland seeks to recover after the pandemic and then goes on to develop our post-independence economy.
The article in the FT which he refers to is another example of the Unionist assault on the Growth Commission and Scottish Government proposals for independence. The truth is that the unionist onslaught on this version of Scottish independence has thoroughly routed the Scottish Government position. The ScotGov and the Growth Commission have been defeated because they have chosen to fight the battle on the turf chosen by the enemy. We have to find a new independence narrative and a new battlefield of our choosing.
That means rejecting the narrative of neo-liberal economics.
Unfortunately George does not do this – at best he is equivocal on the matter. He needs to make up his mind. The equivocation is apparent when he discusses the role of government borrowing. A fiscal stimulus to promote a major house building programme is most certainly important in the post-independence economy (and tackling climate change in the process). George (and presumably the Alba Party) are suggesting this can be done by the independent ScotGov borrowing. But borrowing from who and in what currency?
If we have our own currency then the ScotGov can borrow in its own currency and can never run out of the money to pay back what it has borrowed because a Scottish Central Bank can always provide any new money the government needs.
If the ScotGov borrows in someone else’s currency our country will be at the mercy of the global bond markets – they are ruthless and Scottish interests are the least of their concerns.
Having our own currency also means that the ScotGov can borrow from its own citizens — government borrowing is actually an important mechanism for citizens to keep their savings secure and risk free. So the ScotGov can issue bonds which can be bought via savings such as ISAs and by pension funds. Pension funds like to hold government bonds as they are a low risk financial asset.
With our own currency every Scottish citizen and our economy can be a winner.
So, the truth is that there are two elephants in the room and George has only managed to track one of them down.
Jim Osborne
on behalf of the Scottish Banking & Finance Group
Good to see so many people get it. I liked this really direct, non-jargon answer that covers both the ‘QE’ borrowing seen in the current crisis and ‘normal times’ borrowing from the private sector…
“The answer is very simple. The source of all British pound sterling originates from the BoE, which is a governmental body. The government of the United Kingdom is the monopoly issuer of sterling. Unless you violate the laws of logic, the government must have spent those pounds into existence before they were later “borrowed” or taxed back. If you disagree with me then explain how anybody had money in the first place to “lend” the government. Dylan Baker, Lincolnshire”
I agree with him
I said something very similar in a recent tweet thread
It is the Rich that are LENDING their support to the Government in that they will support the negation of the real technical aspects of sovereign money creation, support the artificial view that such money creation is unsustainable debt and also (1) bypass the issue about taxation being used to curb inflation (or shall we say, allow the Rich to keep as much money for themselves as possible that can also be used to fund the Tory party) and (2) create conditions for the further transfer of remaining public assets to wealthy individuals at knock down prices.
To not put too fine a point on it – this is the TRUE nature of the ‘lending’ that is going on.
Promises and deals behind closed doors. Consent and support is being lent.
Interesting letter on The Grauniad website today
https://www.theguardian.com/society/2021/apr/04/hidden-factor-behind-the-uks-housing-crisis
John Oliver is doing the US nat. debt this week.Very funny video ending.
I think you’re being a little harsh on the gimms folk and those that wrote the paper. I’ve made a start on reading through it and I’m excited to finish reading their accounting model paper. It is the first clear insight into the specific mechanics, in the UK, of exactly how MMT works in our system of institutions. Really it’s the first paper I’ve come across that tries to answer the question, “in the UK what evidence do you have that government spending is not paid for by taxes” and I like that it introduces the reader to the processes, how it’s sanctioned by parliament etc…it’s a really useful resource.
I know you and others have answered that in detail, at length, but correct me if I’m wrong, I’ve so far seen nothing formalised that puts it in the context of the UK treasury in the way their Accounting model paper does. GimMS were probably trying to draw some attention to the paper, which is fair enough. There’s no harm in you being a leader in the more politically engaging side of MMT, whilst others remain in the echo chamber of academia.
It just means you’re doing the more valuable work for society in the long run!
The osier has merits
Telling those who address the issues they are not worth linking to, should not be read and don’t do MMT – as GIMMS does about me helps no one
The opportunity for them to drop their Bill Mitchell style aggression is available at any time
“the issue of wealth inequality that actually exists as a result of money creation — including by MMT which in this sense behaves in exactly the same way as QE unless you claim the sectoral balances do not apply to MMT, when they do.”
This is a crucial point. Money creation is NOT, in itself, a solution to anything. It’s what we do that matters. If money creation leads to asset price inflation it has achieved nothing other than make the wealthy richer, on paper. If instead we use money creation to invest in sustainable energy self sufficiency, than we might be making some progress.
Spot on Charles
And I really don’t think almost anyone in MMT has got this right now
My making this point seems to have upset them all
I can live with it
Charles said: “If instead we use money creation to invest in sustainable energy self sufficiency, than we might be making some progress.”
This is key but it can be done in various ways – the three most obvious being Keynesian spending patterns, MMT or using markets (a CO2 tax in this case). Given that the MMT approach carries the highest risk of increasing wealth inequality according to its supporters, then its proponents have a lot of work ahead of them to convince others that it’s the best option.
Obvs, political spending choices could transform any of the three into the better option, but as I understand it MMT isn’t trying to change who wins elections, it’s just trying to put another choice into the conversation.
Since you have already outed yourself as a troll in another, deleted, comment this morning I will be ignoring this, which is wrong, and too obviously to waste time on
Please don’t call again in any new guise
One of the reasons for the ban on Usury that was found in Judaism and Christianity, and is still in force in Islam was that when the money supply was gold and silver coin there was a possibility that one person could end up with the lot.
The challenge now for MMT is to limit the ability of the rich to accumulate through social, taxation and legislative controls – and that isnt easy.
I just lobbed this into the Scottish Banking & Finance Group debating chamber:
DISCUSSION POINT
I am going to throw something out there to see what other views there are. The points of contention are as follows
1. “Bankers’ Currency”
2. “Unorthodox neo-liberalism”
I was talking to (….) yesterday and he asked me what I mean by the term “bankers’ currency”.
(…….) has challenged my suggestion that MMT has been captured by neo-liberalism — I suggested it in my comment on April 4th regarding Richard Murphy’s article in The National the previous day when I said “there is…a deeply unorthodox neoliberal thinking ….derived from an acceptance of MMT….money creation can be used to sustain rentier capitalism….”
These two propositions are related.
A “bankers currency” is one which functions within a set of institutional and regulatory arrangements which serve the narrow interests of the banking and financial oligarchy — “the money interest”.
The delegation of credit creation to private commercial banks is a feature of a bankers’ currency. The money creation power of the state is used to maintain this relationship. This is how the UK monetary system works, as does the US system, although the specific details of the two systems are not the same because the UK is a unitary state and the USA is a federal state. You can see in the differences between the two how politics and constitutional factors influence monetary system design and have evolved under different historical paths.
MMT has been captured by neo-liberalism and this manifests itself in the form of the monetary tool “Quantitative Easing” (QE). QE is an adaptation of the principles of MMT whereby the money creation power of the state is used to support the private commercial banking sector. We have witnessed the consequences — state created money does not lead to investment in production of use value but in the allocation of capital to financial speculation. Banks make easier money from gambling with public money than they can from productive investment.
MMT-ers argue that QE is “not MMT”. But of course it is. They might well see it as a “corruption” of MMT because they believe that MMT is politically neutral — all governments are free to choose how they use it. And indeed they are….but that is my point — MMT has nothing to say about the purpose of money. Which means that the adoption of your own currency is not a sufficient condition for the creation of an economy and society as defined by whatever overarching vision lies behind it. It is a PRE-CONDITION but once that pre-condition has been met then it is essential to ascribe a purpose to the currency.
So we have choices. The creation of a monetary system which places private commercial banks at the heart of the credit creation process is not some immutable, inviolable universal law — it is a human, political choice. So we do have a choice of creating a monetary system which is driven, not by the private interests of a banking and financial oligarchy, but by the public interest of society as a whole. The wider public interest is for all citizens to live well and in harmony with nature and this requires our money and our currency (which is a measure of money) to be given deliberate purpose(s).
The choice is either a people’s currency or a banker’s currency….and with that also comes a choice between People’s QE and banker’s QE.
DISCUSS
I disagree Jim
MMT has never proposed QE
Nor has it proposed people’s QE
And I do not think that there is clear evidence that MMT has been captured
Rather, I think the limits to existing MMT thinking have been found
I think MMT revealed truths in new ways. In utter words they were always there, but gave been made apparent.
What it has also made clear is that balancing the economy is the priority
But it missed at least two key issues. One became apparent several years ago. Neil Wilson made clear that he thought tax evasion and offshore did not matter in MMT as long as enough tax was collected to balance the fiscal equation. That insight into the thinking of most MMT thinkers (Stephanie Kelton is an exception) fuelled my reservations about accepting MMT. I still remain strongly critical of this thinking, which reveals both a poverty of thinking and an indifference to social injustice that is troubling. Much of MMT gets tax wrong.
And MMT also failed to notice that its prescription has within it the same capacity that QE has, which is to fuel inequality and pump asset prices. If government deficits are private wealth that follows. It is in the system. It can only be corrected outside the MMT system, through tax. But this has been ignored because if the indifference to tax already noted, again Kelton apart, perhaps.
None of this says MMT is wrong. It just says it needs to move on and embrace tax, and the consequences of its own prescriptions and deal with them. That is what I am seeking to do. But it won’t make me popular, I know.
Yes, OK. Perhaps I should reframe the point – by using QE as a monetary policy tool, neo liberal economics has embraced the process which MMT describes in order to use the money creation power of the state to serve the interests of private commercial banks.
I still am not sure I agree
QE was not based on MMT
MMT describes the effect QE creates
And the aim is not to mainly benefit banks but asset owners – which is a broader class
All of this surely arises from MMT’s own long established and fundamental self-definition as a “description” rather than a “prescription”; including here, in many threads and by many commenters – including myself.
One of the things that strikes me about MMT is that it is a generally applicable theory of money – what it is, why it’s valuable, whence it comes and whither it goes – the understanding of which shows the policies open to to government, of itself it says nothing about the merits or demerits of those possible policies, or of how much money there should be or what it should spent on. But too many MMT proponents insist on wrapping it in with some particular policy (and, yes, GIMMS is one such) that – whatever its benefits – just gets in the way of the acceptance of MMT.
Within my (not necessarilly fully baked) understanding of MMT I feel that one way of looking at government borrowing (or should I call it National Savings) is as ‘temporary taxation’ – enabling the government to pull money out of circulation without actually having to impose taxes to do so.
@ Jim Osborne
I like ‘banker’s currency’ but surely that merely states who produces the currency. It could equally well be a treasury’s currency.
More important is in whose interests is either produced?
Richard
I can see this discussion in your ebook ” Money For Nothing ”
Perhaps invite opposing thoughts to help us struggling amateur economics students to form a deeper understanding of different interpretations of MMT
The book is done….
But other options may arise
Loathe though I am to step into the “borrowing” / “not borrowing” spat, could we solve this by changing the framing to keep everyone happy?
Does the private sector save at the Central Bank? Yes.
Does the private sector have a claim on theirs funds deposited at the Central Bank? Absolutely.
Are these funds debt from the perspective of the Central Bank? Yes.
No private depository body advertises the funds deposited with them as “debt”.
Find me any private depository body describing savings on deposit as “debt” in any public facing communication and I will eat both my shoes.
So private banks get to frame the money they “borrow” as “savings” but Central Banks are forced to characterise “savings” as “debt” ?
Seriously? We’re going to go along with this farcical double standard?
The “National Debt” is equally the “National Savings Account”.
Look, I’m open to suggestions. I’m not saying we have to use one particular term or phrase for money deposited at the Central Bank, maybe we could have a chat about what would be acceptable / appropriate.
Thanks for this
Actually, we are not talking about central bank money on central bank reserve accounts here, although you rightly are
I think we were talking gilts, which are technically different – although your framing point survives, I think appropriately
Re the central bank money issue the situation is more complex – the depositor can only be repaid with central bank money – and they can make no claim that this be created for them
This is not even saving in that case. It is a credit on the balance sheet – but not a liability
I must finish my paper on this
James Macdonald, “A Free Nation Deep in Debt” (2003) is interesting on this (I am thinking of Gilts held by the private sector, although Macdonald is not being specific here). He argues that the success of democracy has had over autocracy is found in the nature of the debt between lender and borrower (the state), as resting in “the identity of borrowers and lenders …. As long as the state borrows from its citizens, there is no divergence of interest between borrower and lenders for the two are one and the same. This is a far more powerful reason for theinherent creditworthiness of democracies than mere constituional restraint” (p.7).
Macdonald stresses this only holds good for domestic borrowing; but he also says democracies have greater respect for the “rules of credit” when dealing with foreign creditors, because they accept the “purely economic logic of credit markets” more readily than autocracies. I am not sure that he has fully absorbed the implications of the rise of the PRC in credit markets in his global political analysis.
Did he just fall out of a Tardis from 1931?
“There is no balance sheet operation you can show me in which someone borrows back their own IOU…” L. Randall Wray
The mechanics for a currency issuer to borrow in its own currency do not exist.
The state allows you, as a courtesy, to deposit your money at the Central Bank.
It has no need of your money. It has infinite money.
It may wish to lock your money away to temporarily control inflation and give itself fiscal headroom but it can equally achieve that aim with taxation, albeit at the price of popularity.
What is a deposit if not a loan to the person with whom the sum is deposited?
And no one but commercial banks deposits money with the central bank.
The central bank is not liable for Treasury bonds.
Your comment includes quite a lot of errors
Isn’t a Gilt a certificate of deposit?
I always thought of it like the coat check girl.
You give her your coat, you get a ticket, you redeem the ticket, you get your coat.
The government doesn’t have to make a new coat for you, it already has your coat.
And I know its overly simplistic. The money is a government liability which is cancelled when returned to the government.
“There is no balance sheet operation you can show me in which someone borrows back their own IOU…” L. Randall Wray
I’m going to pass on a correct description, that needs an accountant (!) because in the end, this is an accounting question.
Where does the money go & come back from & who owes who what, are all accounting questions.
Accounting records assets and liabilities in these terms. Money only exists as such: it is virtual, even (in effect) as notes and coin.
So the question is whether there is the firm of a liability. As a matter of fact there is. So there is a debt, in one sense.
But when you ask where did the deposited asset come from it was in turn created by government money creation.
So what is the chicken and which the egg?
MMT makes clear the only logical answer, which is that the money creation had to occur before the deposit could arise.
“The central bank is not liable for Treasury bonds.”
…. Left pocket, right pocket. The government is liable.
“What is a deposit if not a loan to the person with whom the sum is deposited?”
…. If I take a lock box with £500 in it to a bank and ask the to store it for me in their vault, have I lent them £500 ?
The bank won’t open your box, the government won’t use your money.
If anything the government is the safer bet of the two as it can’t be mechanically robbed.
With respect, that’s not a loan at all and the use of the word deposit in both cases is a coincidence, and unrelated in a fiat currency world
If you have not appreciated that then what are we debating?
What are you here to prove? Please lay your cards face-up on the table. It helps. I haven’t got time to play silly games.
This is my entire point….
You can’t lend a currency issuer its own currency.
The words “lend” and “borrow” have no meaning for a currency issuer where the amounts are denominated in its own currency.
Players cannot “lend” the umpire points nor can the umpire accrue a points “debt”.
The normal standards of accounting completely break down in face of the currency issuer.
I agree
Wait to see my paper
But it does not stop the form of a loan being in existence – and that has social consequences that MMT ignores at its peril
“You can’t lend a currency issuer its own currency.”
The currency issuer can pay the currency user to hold the currency if it chooses to do so (historically currency issuers have done all kinds of things); the purpose would presumably be to encourage saving, believing that it is in its economic (or political) interest to do so. In a democracy that interest may be directed to – itself, if we believe the sovereign is in fact the electorate, as in the US Constitution, which begins “We the people” …. ): or to promote the total public trust and confidence in the currency, by holding because that is in the sovereign’s (and the currency’s) critical interest (see ‘safe asset’ theory, why this would seriously interest currency users). This capacity comes as part of the sovereign power that gifts the sovereign with the trust that alone allows it to issue a usable currency. This is perhaps the most important modern from of what is traditionally termed, ‘sovereign prerogative’.
The reality is that the government must always be the borrower of last resort – or to put it another way, the guarantor of safe deposit
I think that a role of government
“But it does not stop the form of a loan being in existence”
I disagree. I feel the “lock box” analogy is much closer to the truth but I’m open to other ideas & I am very interested to read your paper.
Sorry – but we will have to completely disagree on that
It may not be a loan – but it sure as heck has the form of one
Wilson Logan @April 6 2021 at 5:30 pm
“The normal standards of accounting completely break down in face of the currency issuer.”
I kind of agree with this. I’ve long felt that a currency issuer sits on the outside of everything, shielded from view by an accounting ‘event horizon’ where (just like a black hole) infinities lie. Firstly, its important to say that such infinities of potential spending can’t ever come into play, as the sole purpose of the currency issuer is to serve the well being of the private sector, which is very much a finite entity.
Secondly we should recognise that the ‘physics’ of accounting is seen to break down as a currency issuer is very obviously never ‘up’ nor never ‘down’ (in terms of outflows and inflows) no matter how large these are (those infinities again). Therefore it literally makes no sense to talk about the government’s ‘balance’ / ‘deficit’ / ‘surplus’. To take the very instructive analogy of the FA and FA points. Every football fan is fully aware that there are football league tables showing the state of each team and the FA points each has earned. However nobody once ever made a table of the FA’s balance in all of this activity (detailing points spent / FA points collected – at the end of the season) for the very good reason that it matters not a jot what points the FA ‘has’ or ‘hasn’t’ got. Indeed this is exactly what Warren Mosler was talking about when he says rather strikingly that the US government ‘Neither has, nor doesn’t have $’.
Therefore, if the US government neither has $ nor hasn’t $, then it makes no sense to write down on a balance sheet what the US government’s balance is. Likewise the UK vis-a-vis £s
The lesson from all this is that we should ALWAYS talk about the currency balance in terms of the ONLY thing it can affect – namely the private sector – and never in terms of the thing it CANNOT possibly affect – namely the government.
You are presuming a closed economy
We have an open economy
I’m very sure Warren was talking about an open economy when he said the US government (in the form of the Fed) neither has $ nor hasn’t $.
By the way, turning my (Mosler-inspired) declarative sentence above on its head, we get another declarative sentence…
“If the UK private sector is only a mere user of £s, then it makes perfect sense to write down on a balance sheet what the UK private sector’s balance is.”
So the private sector can be in ‘deficit’ and ‘surplus’. It can ‘borrow’ and ‘save’. However none of these statements apply to the currency issuing government.
That being said, I fully appreciate that you as an economist in the public eye, who also doesn’t want to lose your audience, are very much constrained by the language of the debate.
I’m not constrained by anything but a search for the truth
And practical policy which has to deal with the fact that, as I repeatedly say, the form is that there is borrowing and the economy needs its perpetuation – what ever MMT says a to the substance of that transaction
If MMT exists only in a theoretical world it will have literally lost its use
“It may not be a loan — but it sure as heck has the form of one”
And there’s your answer.
But I define an issue to address and you are pretending you have solved it
That’s the difference
Only one of us is engaging with the real world
And it’s you playing with a fantasy
Is it not more true to say that: it may not be a loan — but it sure as heck has been formed to look like one.
Why if its not a loan is it presented as one?
I think we must recognise that bad actors do exist and their mission is to obfuscate the nature of government money creation.
If they didn’t exist, neither of us would be here discussing this. MMT would be orthodox economics.
I correspond with an economist who has been consulted by the worlds most influential financial bodies and he acknowledges that I am correct but he dare not agree with me publicly.
He’s not a nobody. He has plenty of clout but even he is afraid of stepping out of line.
Let’s be clear, even if you are correct it is only in a very narrow sense
Karl Popper would say you have defined something. So what? What about the consequence? That you have ignored. And so your definition is of no value
Yet the needle needs to be moved.
Stephanie did it with “The Deficit Myth”. So here’s hoping her next book is called “The Borrowing Myth”!
You can call it a myth forever
But there is at least £1.2 trillion of it – and that legal reality has still to be addressed
That, and the fact that our economy depends upon its existence
And the fact that you have not addressed the consequence of MMT which happens to be identical in economic impact in increasing inequality
We can all agree there is a deficit and we need not worry about it
On borrowing we have to also recognise it exists as a starting point or you are just playing the economics of make-believe and that’s no better than neoliberalism
There a difference between “liability” and “borrowing”.
Can HMG return all depositors funds immediately? Yes.
Need it ever sell another bond? No.
Does it have to have a liability? Yes.
Returning depositors funds settles the “loan” but it does not settle the “liability”.
And good thing too or there’d be no money because the liability is the money.
If “borrowing” causes such a knot in Treasury’s panties, why not just stop doing it?
There is no mechanical requirement to sell bonds. They can (& have) set the OIR using IOER.
Of course it can return the deposits
WHat6 happens though in an economy without a place of safe deposit?
Does repo collpase?
What happens to the central bank reserve accounts?
What happens to the inequality they create
Why not deal with the real world consequences of what you are saying?
I am bored with your game playing part of it
I am fully aware we need not borrow
Now tell me the alternative ways of addressing the issues I raise
I have zero objection to the private sector saving with the central bank.
I merely object to private saving being referred to as government borrowing.
The government absolutely is not borrowing money. At best it is “accepting deposits” for safe keeping.
If you prefer different terminology then lets use that but lets both agree that the term “borrowing” in connection with Government’s offer to accept deposits is dangerously misleading and should be avoided.
The two central falsehoods that lie at the heart of orthodox, neo-liberal economics are that governments are households & that banks are the intermediaries of funds.
I do have objection to the private sector saving with the central bank
That is not its job
And if all you are worried about is a name you are wasting time
Go and read Karl Popper
are you not conflating 2 issues here entirely though?
you have the MMT framework, which merely describes what is.
Then there’s the application of that framework, and how the institutions and tools within it are used – that’s an entirely different conversation altogether.
You’re framing it like it’s MMT’s “fault” that inequality has grown dramatically since QE became utilised more – and that’s true, but only because the actors within those institutions were operating in their own neoliberal framework and trickle-down thinking.
Out there in the general public, the biggest misconception is primarily that government has to borrow money in order to fund all the nice things we want, and therefore…we can’t fund any nice things, because we’d all end up ‘in debt’, Britains credit card, and all the rest of it – all the phrases the Tories have used for the last 40 years to brainwash a generation of people into believing that government requires tax revenue.
the power of MMT is that it changes the discourse entirely, and changes it to one of thinking about what do we do with credit creation, and what resources do we utilise, rather than worrying about where government will get the money to pay for nice things.
It unwinds about 40 years of brainwashing – which i see and hear regularly with practically everyone i interact with in the “managerial” classes. That is the reality of the situation.
and i don’t think it’s just Kelton that has driven this home – pretty much all of them, Rand, Mitchell, Mosler etal have done their best to expand on the theory….i’m sitting here looking at the textbok now, the first macroeconomic textbook i’ve read since my masters which actually makes sense to me.
i duno exactly what’s been said between you and GIMMS but solidarity (in the strategic sense of the word, not in the way liberal lefties like Mcdonnell chuck it about) is needed if we want to make a difference in the next 40 years.
I know how MMT works
I reckon I have done more than most to promote it in the UK – had have taken the flack for it too
I need not be told what it does, and how it changes things. I know
But equally, let’s not pretend it has all the answers as yet
What I have appreciated – and I will simply suggest that most in MMT have not – is that it does not matter whether money is created via QE or direct money funding because either way the m money will be injected into the eco nomy via central bank reserve accounts with commercial banks
And the reality is that those rising balances do, as MMT often says, represent private wealth
The result is that if MMT says that spending should take place using credit creation – and that may well be true in a great many circumstances – then. it also has to have a plan for tackling the fact that this injection will without correction always increase inequality in the economy
That’s all I am saying
Now either a) show me why I am wrong or b) show me how the inequality can be dealt with without MMT having a ploy to achieve that goal or c) agree with me
It’s really not a hard issue to follow
I am not knocking MMT. I am saying it needs to get better. What the heck is wrong with that?
“I have zero objection to the private sector saving with the central bank.”
Steven Hail has long proposed this (though I guess from your obvious knowledge of the matter that you know this already 🙂 )…
“We could replace government bonds, which are effectively transferable savings accounts at the
central bank, with actual term deposits at the central bank. By doing so, we would eliminate the
dread people feel about the so-called national debt, which is not the debt of the nation at all but
merely the net financial liabilities of the federal government. In place of discussions of whether
the national debt is too high, we could discuss whether we are adding enough to a newly defined
‘broad monetary base’, or more simply to the net money supply.
It would be obvious that government spending always involves the creation of money, and that
this money is not a debt, in the conventional sense of the term. This is true of government bonds
and other government ‘debt’ securities already, but this fact is not understood by the public, the
media, politicians, or even by many neoclassical economists. We could and should simplify the
system, so that the realities of our monetary system, and the appropriate role for the government
budget and the government’s balance sheet within that system, are made clearer to all. Such a
reform would shift the narrative, where macroeconomic policy is concerned, and have a positive
impact on policy making at a moment in history when we can ill afford to labour under
misapprehensions and delusions about the constraints facing policy makers.”
See Steven’s paper “Federal Debt and Modern Money” here…
https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&cad=rja&uact=8&ved=2ahUKEwiO0P-J8u7vAhUe8LsIHf7NCPwQFjAAegQICBAD&url=http%3A%2F%2Fwww.global-isp.org%2Fwp-content%2Fuploads%2FPN-121.pdf&usg=AOvVaw3IQgxGIHUwUHA-UYIsANNf
I have to disagree with Stephen on this
The reason is simple
Fine to have your deposit there
What happens when you need an overdraft? That is not its business
Asymmetric banking of this sort is undesirable
This suggestion is not credible in terms of overall delivery of a service to a banking customer and it is not the go0venmenmt’s role to supply that f0orma. central bank
I like Steven and his work but that one does not work beyond the lecture room
That would make for an interesting discussion :).
I guess you’re aware that, prior to him discovering MMT, Steven taught finance to staff from the major UK banks / international banks / Bank of England back in the 90’s?
Yes
I didn’t say “at interest”.
Surely no one objects to allowing the private sector to save securely at no cost to the state?
I have lost you
I objected to saving with the central bank
NS&I and gilts exist to meet this need right now
Why engage a central bank which has a fundamentally different role, which you should appreciate?