The Weekend Quiz – April 29-30, 2017 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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The destruction of Greece – “only a down payment” according to the IMF

On April 22, 2017, the Italian Minister of Economy and Finance, Pier Carlo Padoan presented a briefing to the 25th Meeting of the International Monetary and Financial Committee of the IMF in Washington. He spoke on behalf of Albania, Greece, Italy, Malta, Portugal and the Republic of San Marino. This annual event examines the “macroeconomic outlook” of the nations in question and conditions the IMF policy approach for the year ahead. Padoan, an ardent pro-Eurozone supporter, told the gathering that in the last year, the Greek economy was recovering and that “GDP remained stable in 2016, while for the first time since 2010 two consecutive quarters of growth were reported”. I wonder what data he was looking at. The official national accounts data for Greece doesn’t tell that story. With Greece still wallowing in the depths of recession, it is clear that the IMF hasn’t finished with the destruction of that formerly independent nation. The destruction to date (27 per cent contraction and increased poverty) are considered by the IMF to be “only a down payment” on what Greece has to do so satisfy the Troika. At what point do people start to realise that the on-going costs of this austerity dwarf the significant costs that would accompany exit? And the Troika is not done with Greece yet. They intend to screw it down even further. And the costs of remaining in the dysfunctional monetary union escalate by the day. At some point, the Greeks will realise they have been dudded. What is left is anyone’s guess – but it won’t be pretty. The destruction of Greece is “only a down payment” according to the IMF – keep that mentality in mind when you are working out whether Greece should remain obedient or tell them all to f*ck off and regain their currency independence and restore prosperity.

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Deutsche Bundesbank exposes the lies of mainstream monetary theory

On one side of the Atlantic, it seems that central bankers understand the way the monetary system operates, while on the other side, central bankers are either not cognisant of how the system really works or choose to publish fake knowledge as a means to leverage political and/or ideological advantage. Yesterday, the Deutsche Bundesbank released their Monthly Report April 2017, which carried an article – Die Rolle von Banken, Nichtbanken und Zentralbank im Geldschöpfungsprozess (The Role of Banks, Non-banks and the central bank in the money-creation process). The article is only in German and provides an excellent overview of the way the system operates. We can compare that to coverage of the same topic by American central bankers, which choose to perpetuate the myths that students are taught in mainstream macroeconomic and monetary textbooks. Today’s blog will also help people who are struggling with the Modern Monetary Theory (MMT) claim that a sovereign government is never revenue constrained because it is the monopoly issuer of the currency and the fact that private bank’s create money through loans. There is no contradiction. Remember that MMT prefers to concentrate on net financial assets in the currency of issue rather than ‘money’ because that focus allows the intrinsic nature of the currency monopoly to be understood.

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Blog goes on holiday today …

Today is a public holiday (ANZAC Day) where we remember the efforts of our past generations who fought in wars. I am not very enamoured by the hype that surrounds these days – commercialisation reigns and the black/white nature of the narrative (we were good they were evil) obscures the reality of war and the political machinations that typically accompany it. In Australia’s case our involvement in several wars has been the product of unnecessary colonial master-servant type arrangements (us being the servant) and/or ridiculous alliances with the war mongering US. But the soldiers certainly did it tough and I have sympathy with that – and personal association with my parents. But for me, I am travelling a lot today and am taking the work time to continue working on the completion of our Modern Monetary Theory (MMT) textbook, which is now in its final stages (2 weeks away). I expect it to be published later this year now through Macmillan. I will post specific information when it is available. While I am working today, I am listening to this …

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German trade surpluses demonstrate the failure of the Eurozone

The election of Donald Trump has stirred up the IMF and Germany, in particular. Trump’s trade advisor has claimed that Germany is manipulating the currency to maintain its competitiveness. A more general view is that the massive German external surplus is a reflection of a dysfunctional Eurozone, particularly the failed monetary policy stance of the ECB and the lack of a European-level (federal) fiscal policy capacity and willingness to expand domestic demand in the Member States. In fact, both views have credibility as I will explain. Last week (April 19, 2017), Eurostat released the latest trade data for the Eurozone – Euro area international trade in goods surplus €17.8 bn. It showed that Germany’s trade surplus continues to grow (it was 35.4 billion euros in January-February 2017, up 1.4 billion over the 12 months) in total. In 2016, Germany’s current account surplus was 8.6 per cent of GDP, which is obviously an outlier. What is required to redress this on-going dysfunction within the Eurozone would appear to be beyond the political mentality of the establishment polity in the Eurozone. And with Macron’s elevation to an almost certain Presidential victory in France, it is hard to see any dynamic for now emerging that will create change for the better. So as usual, the Eurozone muddles on – with a dysfunctional design architecture and an even more dysfunctional attitude to policy flexibility held by the powers to be. Germany is seriously responsible for a lot of this dysfunction.

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The Weekend Quiz – April 22-23, 2017 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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MMT is what is, not what might be

One of the things I have noted with regularity is that readers and other second-generation Modern Monetary Theory (MMT) bloggers often fall into the error which we might characterise as the “When we have MMT things will be different” syndrome. Or the “we need to change to MMT principles to make things better” syndrome. Thinking that MMT constitutes a regime change is incorrect and steers one away from the core issues. In this blog, I reflect on that syndrome and some other aspects of the development of ideas, which I hope will provide readers with a clearer picture of what the core (early) MMT developers (Mosler, Bell/Kelton, Wray, Mitchell, Tcherneva, Fullwiler) had in mind when we set out in the early 1990s to construct a better way of doing macroeconomics. The point is that while MMT constitutes a regime change in economic thinking within the academy it does not constitute a regime change in the way the monetary system operates. We need to separate the operational principles exposed by MMT academics from their ideological values to really come to terms with the fact that MMT is what is, not what might be.

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Subsidiarity – a European Union smokescreen to justify failure

One of the various smokescreens that were erected by the European Commission and the bevy of economists that it either paid or were ideologically aligned to justify the design of the monetary union around the time of the Maastricht process was the concept of subsidiarity. In 1993, the Centre for Economic Policy Research (a European-based research confederation) published its Annual Report – Making Sense of Subsidiarity: How Much Centralization for Europe? – which attempted to justify (ex post) the decisions imported from the 1989 Delors Report into the Maastricht Treaty that eschewed the creation of a federal fiscal capacity. It was one of many reports at the time by pro-Maastricht economists that influenced the political process and pushed the European nations on their inevitable journey to the edge of the ‘plank’ – teetering on the edge of destruction and being saved only because the European Central Bank has violated the spirit of the restrictions that a misapplication of the subsidiarity principle had created. It is interesting to reflect on these earlier reports. We find that the important issues they ignored remain the central issues today and predicate against the monetary union ever being a success.

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