It works for all sovereign floating exchange currencies not just "reserve currencies"
Yet Another Economist Throws Shade On The Disaster That Is MMT
- Thread starter Ponca Dan
- Start date
"Nor, I added, is there any other mechanism by which the Fed would be automatically compelled to accommodate the Treasury's needs."
They are automatically compelled to accommodate the Treasury's needs by their target interest rate.
Dan, would you be impressed by me linking you to a bunch of political scientists talking about why free market libertariainism is bad?
I'm not seeing where MMT is predictive nor prescriptive.
If it's purely descriptive, then it's insufficient for policy decisions.
Inflation is all around us, even if we refuse to admit it. How much was a new Cell phone 5 years ago? How about 10? What are they today? That's inflation. How about home values? That's inflation. Even the Fed has become worried about inflation (or were). That's why interest rates have been raised by nearly 2 points.
However, we artificially deflate CPI by choosing to use certain elements that face deflationary pressure due to the demand curve. For example, if you look at a gallon of milk, its relative unchanged in price for the past 20 years. So CPI's "basket of goods" reduces its inflation calculation by a small amount. Yet the reason a gallon of milk hasn't gone up 5-10 (or more)% like other items isn't because the dollar is still worth the same, its because the demand of the product has plummeted (without a corresponding drop in supply).
Meanwhile items in demand, such as cars, cell phones, property have seen significant price increases. A Honda Accord in 2000 MSRP'd for 18K. Equivalent in 2015 MSRP'd for 26K. That is inflation.
But answer me this, cause maybe I have this wrong in my reading: MMT assumes the Fed's role is to maintain low (or ideally near zero) interest rates, correct?
So Obama era inflation is the monster at the end if the MMT nightmare?Inflation is all around us, even if we refuse to admit it. How much was a new Cell phone 5 years ago? How about 10? What are they today? That's inflation. How about home values? That's inflation. Even the Fed has become worried about inflation (or were). That's why interest rates have been raised by nearly 2 points.
However, we artificially deflate CPI by choosing to use certain elements that face deflationary pressure due to the demand curve. For example, if you look at a gallon of milk, its relative unchanged in price for the past 20 years. So CPI's "basket of goods" reduces its inflation calculation by a small amount. Yet the reason a gallon of milk hasn't gone up 5-10 (or more)% like other items isn't because the dollar is still worth the same, its because the demand of the product has plummeted (without a corresponding drop in supply).
Meanwhile items in demand, such as cars, cell phones, property have seen significant price increases. A Honda Accord in 2000 MSRP'd for 18K. Equivalent in 2015 MSRP'd for 26K. That is inflation.
But answer me this, cause maybe I have this wrong in my reading: MMT assumes the Fed's role is to maintain low (or ideally near zero) interest rates, correct?
MMT only assumes that central banks control short term interest rates. Though an implication if MMT is that is permanent low policy rates can be consistent with stable prices and full employment.
You've demonstrated descriptive in images such as the one you have posted previously and the one @Medic007 posted above, but I haven't seen anything that rigorously address the thresholds referenced in the link I posted.
Calling it predictive given the lack of situations in which it's been observed seems reckless and a leap of faith.
So the only difference between a 2000 Honda Accord and a 2015 Honda Accord is the price?
If the US went off the dollar
If the fed or treasury set a fixed exchange rate
If the fed did not have a policy rate target
Definitely would not recommend using MMT to make predictions outside of those conditions.
You can't have full employment and stable prices. Full employment should mean increased wages due to scarcity of labor. Increased wages mean increased prices. Which of course leads to higher interest rates (but I know you know that). So yes, in an Obama economy that failed to actually achieve full employment until his final year in office, MMT can work (thanks to near zero interest rates), but once Full employment is achieved, MMT cannot be sustained as increased interest rates will lead to higher debt servicing costs, which will lead to an acceleration in the money being created to offset and thus a vicious cycle of inflation would be triggered.
Sorry, but full employment means maximum employment consistent with non accelerating inflation. (google NAIRU).
What is it that you think MMT is? Are we now seeing a vicious cycle of inflation since interest rates are no longer near zero?
Not yet, but its started.
https://www.thebalance.com/interest-on-the-national-debt-4119024
Under Obama, our debt load was pretty steady at 6% of our government budget, thanks primarily to the ultra-low interest rates, so even as our debt rose, our debt servicing costs mostly didn't. However, as shown in the chart, that % will double even if interest rates don't rise any further just with the simple increase in our servicing costs. And this doesn't even account for the fact that our government is still creating more debt on top of it (although MMT promotes this). If the government offsets this by 'creating' more money, that will drive inflation higher and thus interest rates will raise even further and thus the debt servicing ratio will increase further. Will the economy crater overnight? No. I never said as much, however, just like you believe that there is a point of no return in which we have to address global warming that's prior to the world cratering, I believe there is a point of no return where we have to address the our growing debt problem prior to the meltdown occurring.
So our MMT president kept debt service manageable? Wow.
MMT doesn't promote anything. It describes the current system and it predicts the result of policy changes. MMT is not normative.
If inflation increases, what happens to real interest rates vs. nominal interest rates? what happens to real debt service costs vs. nominal debt service costs?
Can you quantify that even a little bit? Even us alarmists give CO2 levels where the meltdown occurs.
