The BIS is part of the problem

It is now 2.15 am in Boston on a Thursday morning (16:15 Thursday afternoon in Australia East Coast). I always try to stay on Australian time when I make these short trips. It is hard while you are away but easier to adjust back when you get home. No real jet lag. Yesterday (Wednesday) I gave a Teach-In on the concept of fiscal sustainability to an interesting group of participants ranging from those with an active role in the financial markets to those with more general business interests. The participants came from all around as far as I can gather – many from New York which is a fair hike for a single day workshop. The discussion that followed my presentation was very interesting and while the concerns reflected the usual issues – solvency, exchange rates, intergenerational issues – the standard of debate was civilised. I don’t know how many Warren and I convinced to probe deeper but I hope we planted some seeds of doubt in the minds of the audience that the mainstream macroeconomics position is wrong and therefore untenable. After the Teach-In I read the BIS Annual Report 2009/10 – which signalled to me that they are now firmly part of the problem that we face when dealing with the task outlining fiscally sustainable policy positions.

On June 28, 2010, the Bank of International Settlements released their Annual Report for 2009-10 – Full PDF available. In the Overview of the Economic Chapters their message is clear although seriously deficient in its understanding of the difference between sovereign debt and privately-held debt. It also fails categorically to understand what the fiscal options of a sovereign government are.

Their basic claim is that:

The financial crisis has left policymakers with a daunting legacy, especially in industrial countries. In setting policies, they must adopt a medium- to long term perspective while they cope with the still fragile and uneven recovery. Households have only just begun to reduce their indebtedness and therefore continue to curb spending. Extraordinary support measures helped to contain contagion across markets, preventing the worst. But some measures have delayed the needed adjustments in the real economy and financial sector, where the reduction of leverage and balance sheet repair are far from complete. All this continues to weigh on confidence. The combination of remaining vulnerabilities in the financial system and the side effects of ongoing intensive care threaten to send the patient into relapse and to undermine reform efforts.

Macroeconomic support has its limits. Recent market reactions demonstrate that the limits to fiscal stimulus have been reached in a number of countries. Immediate, front-loaded fiscal consolidation is required in several industrial countries. Such policies need to be accompanied by structural reforms to facilitate growth and ensure long-term fiscal sustainability. In monetary policy, despite the fragility of the macroeconomy and low core inflation in the major advanced economies, it is important to bear in mind that keeping interest rates near zero for too long, with abundant liquidity, leads to distortions and creates risks for financial and monetary stability.

So this opening gambit is replete with all the neo-liberal fallacies that are being used to undermine effective fiscal responses to the crisis. Here is another unelected body, which really is meant to be the central banker for the central banks, lecturing democratically elected governments about what they should be doing.

I also find interventions like this interesting because the BIS has promoted the independent central bank line that the mainstream economists try to argue is the only way to discipline inflation and keep the markets happy. But then they think they can pass comment on fiscal policy. Further, how does this square against the recent ECB “fiscal” interventions. The whole construction that the neo-liberals put on the separation of monetary and fiscal policy is deeply flawed anyway, but you would at least expect them to be consistently flawed.

Further, I agree that governments have not set in place the necessary policy changes to allow the private sector to consolidate precarious balance sheets and the banks around the world are still very shaky. The bank bailouts were a mistake. The government should have nationalised the ailing banks and dealt with the toxic assets as the owner not the benefactor.

The BIS is also pushing the emerging line that the crisis was somehow something to do with structural rigidities in the real economy which need to be eliminated. This is code for deregulation of labour markets, winding back of welfare and pension entitlements and cut-backs in public services generally. Whatever we might think about these things they had nothing to do with the crisis and its severity. The argument the conservatives push is that if employment entitlements and protections were reduced significantly unempoyment would not have risen by as much as it has in various countries.

This is a spurious argument in the extreme. It really rehearses the old arguments that excessive real wages and/or other labour cost imposts (protections etc) cause mass unemployment. The argument always encounters the fallacy of composition when applied at the macroeconomic level. What might apply for an individual firm will not apply at the macroeconomic level because in the latter case demand and supply relationships become interdependent. What does that mean?

It means that for a firm, saving on labour costs might induce it to hire more. It knows the lower wages (costs) will not impact much (if at all) on the demand for the goods and services it sells. But at the macroeconomic level, we have to realise that wages are both a cost (which affects supply) and an income (which affects demand).

So a cut in wages will reduce unit costs (assuming it doesn’t impact on productivity adversely – which it probably will) but also reduce aggregate demand. The conservatives do not understand that macroeconomic level changes are, by definition, big. Please read my blog – What causes mass unemployment? – for more discussion on this point.

The BIS also join the throng that try to define fiscal space (and sustainability) in terms of what the bond markets think is possible. The operational reality is that what the bond markets think is not a constraining factor for sovereign governments. Why?

This came up in the Boston Teach-In I conducted today. It was argued in the Q&A section by one person that the bond markets reactions can alter yields and make it hard for governments to finance themselves. My answer was obvious. Only if the government allows that to happen. All the power lies in the policy hands of the government.

The arrangements that see governments issue debt $-for-$ into the private markets to match their net spending are purely voluntary and can be changed virtually any time the government wants. The institutional machinery erected by sovereign governments to facilitate the debt-issuance provide no funds to the government. It is really a reserve draining operation.

If the outcomes from the bond auctions were preventing the government from doing what it thought was best for advancing public purpose then the government could assert their power and eliminate the bond markets from the picture. It could do this in a number of ways.

For example, the central bank could control rates along the yield curve or better still the government could just stop issuing debt instruments altogether and deny the private markets the benefits of the guaranteed return when otherwise the funds would just sit there as reserves earning nothing (preferably). Please read my blog – Who is in charge? – for more discussion on this point.

The only limits that macroeconomic support has reached in the sovereign nations are political and ideological in nature. There are no financial limits. My focus today at the Boston Teach-In was to emphasise the real limits on fiscal policy.

A sovereign government always has a choice:

  • maintain full employment by ensuring there is no spending gap – that is run budget deficits commensurate with non-government surpluses; OR
  • maintain some slack in the economy (persistent unemployment and underemployment) which means that the government deficit will be somewhat smaller and perhaps even, for a time, a budget surplus will be possible.

The difference between the two options manifests as good deficits in the first case (typically) and bad deficits driven by automatic stabilisers as the economy stagnates in the second case.

In option two, the automatic stabilisers ultimately close spending gaps because falling national income ensures that that the leakages equal the injections – so sectoral balances hold. But the resulting deficits will be driven by a declining economy and rising unemployment.

Fiscal sustainability is about running good deficits to achieve full employment if the circumstances require that. You cannot define fiscal sustainability independently of the real economy and what the other sectors are doing. So while deficits will be typically required given that external deficits are common and the private sector desires to save overall, there are circumstances where the government can fulfill public purpose and ensure the spending gaps are closed yet still run budget surpluses. When? Answer: when there is a strong net exports position.

Once we focus on financial ratios, we are effectively admitting that we do not want government to take responsibility of full employment (and the equity advantages that accompany that end). That is why fiscal rules as stand-alone goals are meaningless or ideological. So the BIS talk about macroeconomic limits – which is cast in terms of the financial ratios and the reaction of the bond markets to them – is really meaningless when you get down to the operational realities of a sovereign economy in a fiat monetary system. In other words, the BIS is part of the problem and should be largely ignored.

The public debate is littered with statements that conflate political and ideological concepts with economic concepts. This conflation all but renders the economic content of the debate meaningless. Fiscal sustainability is about real economic goals. Governments should always be brought to account on that basis. There is no basis in allowing private bond markets to determine fiscal policy in a democracy.

I will write a separate blog on the BIS claim that ” it is important to bear in mind that keeping interest rates near zero for too long, with abundant liquidity, leads to distortions and creates risks for financial and monetary stability”. This is largely nonsense. For example, when are we going to become clear that bank reserves are not lent and therefore have no implications for inflation. Please read the following blogs – Building bank reserves will not expand credit and Building bank reserves is not inflationary – for further discussion.

The BIS continue to emphasise the need for “fundamental reform of the financial system” which “should produce more effective regulatory and supervisory policies as part of an integrated policy framework”. I agree with the need to fundamentally reform the global financial system but the problem is that the narrative that the BIS and similar are developing is putting the power back in the hands of the financial sector which is then using that power to derail meaningful financial reform.

The BIS then talk about fiscal sustainability:

… GDP in most advanced economies is still well below pre-crisis levels despite strong monetary and fiscal stimulus. The rapid increase of government debt raises urgent questions about the sustainability of public finances …

The level of public debt in many industrial countries is on an unsustainable path. Current budget deficits, partly cyclical but also swollen by policy responses to the crisis, are large in relation to GDP. And expenditures related to ageing populations are set to increase considerably over the next few decades. Recent events in Greece and other southern European countries have shown how quickly investors’ doubts about the sustainability of public finances in one country can spill over to others. In addition, high levels of public debt may lower long-term economic growth and ultimately endanger monetary stability. These risks underscore the urgent need for credible measures to reduce current fiscal deficits in several industrial countries. Tackling the long-term fiscal imbalances requires structural reforms aimed at boosting the growth of potential output and containing the future increase in age-related expenditures. Such measures may have adverse effects on output growth in the short term, but the alternative of having to cope with a sudden loss in market confidence would be much worse. A programme of fiscal consolidation – cutting deficits by several percentage points of GDP over a number of years – would offer significant benefits of low and stable long-term interest rates, a less fragile financial system and, ultimately, better prospects for investment and long-term growth.

I agree that the private sector has to consolidate its balance sheet but there is no comparison between private debt and public debt. The fact that GDP is “still below pre-crisis levels” means that the fiscal stimulus was not sufficient across the board. There is still massive excess productive capacity in our economies which will only be brought back into use with increased spending. There is no legitimate analogy between government and private debt. We won’t find a definition of fiscal sustainability by drawing analogies with the household budget – “government budget constraint” – basis of mainstream thinking. The conflation between the household and government budget which is at the core of mainstream macroeonomics is flawed at the most elemental level.

A sovereign government is never revenue constrained because it is the monopoly issuer of the currency. It can always service and roll-over its debt liabilities. There is never a solvency risk. Please read my blog – Debt is not debt – for more discussion on this point.

But this is an extraordinary statement by the BIS.

First, there is no credible analogy between “Greece and other southern European countries” and any sovereign nation. I noted at the Boston Teach-In yesterday that coming to terms with the notion of fiscal sustainability requires that we initially define the monetary system we are talking about and the essential characteristics of each. Any notion of fiscal sustainability has to be related to intrinsic nature of the monetary system that the government is operating within.

Typically, commentators do not undertand either point. They conflate monetary systems and also fail to understand the opportunities and constraints that each poses for the government. It makes no sense to apply gold standard logic where the currency was convertible to another commodity of intrinsic value and exchange rates were fixed to a fiat currency system to a fiat monetary system with non-convertible currencies. Please read my blog – Gold standard and fixed exchange rates – myths that still prevail – for more discussion on this point.

Further, you cannot conflate the operations of the EMU or any pegged currency system with those pertaining to a sovereign nations. It is just pure misinformation to do that. I used the example of Reinhart and Rogoff today, which is a highly selective analysis that has been inappropriately applied to all situations.

Second, the concept of fiscal sustainability is intrinsic to the ageing population – intergenerational debate but not in the way that the public thinks about it and certainly not in the way the BIS is constructing it in this Report. There is no financial crisis ahead with respect to increasing health care and pension entitlements. The government will always be able to afford to pay these bills. The actual issue is about real resource availability. By focusing on the financial we are undermining the real capacity to deliver these goods and services.

Please read my blogs – Another intergenerational report – another waste of time – and Democracy, accountability and more intergenerational nonsense – for more detailed discussion on this point.

Third, I love their admission that austerity “measures may have adverse effects on output growth in the short term”. I read this in the light of the leaked UK Treasury Report that has now hit the public domain. The UK Guardian (June 29, 2010) that the UK – Budget will cost 1.3m jobs – Treasury. This leaked report shows that over the next five years 1.3 million jobs will be lost to the British economy as a result of the “Treasury assessment of the planned spending cuts”.

Five years is hardly short-term!

The Guardian reports that:

Unpublished estimates of the impact of the biggest squeeze on public spending since the second world war show that the government is expecting between 500,000 and 600,000 jobs to go in the public sector and between 600,000 and 700,000 to disappear in the private sector by 2015.

The chancellor gave no hint last week about the likely effect of his emergency measures on the labour market, although he would have had access to the forecasts traditionally prepared for ministers and senior civil servants in the days leading up to a budget or pre-budget report.

A slide from the final version of a presentation for last week’s budget, seen by the Guardian, says: “100-120,000 public sector jobs and 120-140,000 private sector jobs assumed to be lost per annum for five years through cuts.”

So the British government knowingly is inflicting massive damage on its citizens and then in its official discourse with the voters not admitting the same. I do not consider a loss of 1.3 million jobs to be consistent with the BIS assessment that austerity cuts “may have adverse effects on output growth in the short term”. The same pattern of losses will be felt in all nations that embark on this mindless and unnecessary policy path. Please read my blog – The Great Moderation myth – for more discussion on this point. In that blog I critique the logic used by central bankers (and the BIS) to defray their responsibilities in creating real damage.

The reality is that the losses will be large and persistent. Further, in the real world, it is clear that a prolonged period of reduced real GDP growth lasts beyond the formal disinflation period and that the potential real GDP growth path also declines as the collateral damage of low confidence among firms curtails investment (which slows down the growth in productive capacity).

And I haven’t even mentioned the pathologies that accompany high and persistent unemployment. They include not only the daily income losses which are huge but also the increased crime rates, the family breakdown, the increased incidence of mental and physical health disorders, the increased alcohol and substance abuse and the generalised misery that the victims of the failed policy regimes are forced to endure. Please read my blog – The daily losses from unemployment – for more discussion on this point.

You really get a feel for the bias in the BIS Report when they claim these losses – which all the credible research has shown to be huge and enduring – are only tentative (use of the word “may”) and not persistent and that “the alternative of having to cope with a sudden loss in market confidence would be much worse.” Please read my comments above on why the bond markets do not hold the power.

Governments clearly still apply voluntary constraints which have no intrinsic applicability to a sovereign government operating in a fiat monetary system. These constraints are ideological in origin and should be exposed as such. But given that fiscal sustainability does not require the national government issue any debt – public debt issuance is just corporate welfare. Further, debt-issuance has been seen as being intrinsic to the central bank’s liquidity management operations (reserve drains) – but that is even redundant with the recognition now that central banks can just offer a return on overnight reserves.

Financial Times economics writer Martin Wolf offers some useful insights in his recent article (June 29, 2010) – This global game of ‘pass the parcel’ cannot end well.

He is writing about the G20 meeting which concluded in Toronto at the weekend. He says:

The call for “growth-friendly fiscal consolidation plans” provides something for everybody. But it assumes what is to be proved: that rapid fiscal consolidation will now support growth, rather than undermine it.

This is exactly the problem – the fiscal conservatives who are pushing the austerity line assume it will work. They make some hand waving gestures about improved net exports as real exchange rates fall or suggest that businesses and households will be so relieved that the governments will be reducing the debt burden on them (allegedly this reduces future taxes) that they will start spending again. It is highly unlikely that any of this will happen soon enough or in sufficient magnitudes to provide sufficient spending offsets to the public spending cuts.

The leaked UK Treasury Report clearly doesn’t believe there will be offsets.

Wolf also offers some interesting commentary on the BIS Annual Report. He says:

The latest annual report from the Bank for International Settlements makes the point clearly: it shows that three important deficit countries – the US, UK and Spain – had what appeared to be well-contained public debt positions, so long as household debt was exploding relative to gross domestic product. In the case of Spain, the government debt even consistently improved. The ratio of household debt to financial assets also gave a misleadingly good impression of the healthiness of the underlying debt. Then, with the financial crisis and the bursting of asset bubbles, came household deleveraging and fiscal leveraging.

These are mirror images: if the private sector runs a financial surplus (an excess of income over spending), there has to be either a fiscal deficit or a current account surplus (or both). The bigger the private surplus, the bigger the fiscal deficit or current account surplus must be. If, in reverse, fiscal deficits are to fall, the private sector must spend more relative to income or the current account must improve. Evidently, this needs to happen with higher spending, not lower incomes, particularly after a deep recession.

So he is talking about the sectoral balances and is one of the few influential commentators to actually understand the import and meaning of them. We know that the goverment deficit has to equal $-for-$ the non-government surplus and vice versa. The non-government sector is the sum of the private domestic sector and the external sector (which may have foreign government elements within the transactions flows).

This means that if the non-government sector is to be surplus (excess of income over spending) the government sector has to be in deficit. As Wolf notes, a non-govenrment surplus can arise in a number of ways given the composition of the aggregate. An external surplus greater than the private domestic deficit or vice versa, or both sectors being is surplus.

In general though, once the private sector has made its spending decisions based on its expectations of the future, the government has to render those private decisions consistent with the objective of full employment for their to be what I call fiscal sustainability. The private sector typically desires to save over the business cycle and this has implications for the government sector when there are external deficits (the typical case). Non-government spending gaps over the course of the cycle can only be filled by the government sector. So we are back to those two policy choices: (a) run good deficits; or (b) allow the economy to stagnate and end up with bad deficits anyway.

If you want to reduce private debt and the nation in question runs external deficits then you have to simultaneously advocate increasing budget deficits. There is no other way that is orderly (you might advocate default as an option). The fiscal deficits support the desire to save by ensuring aggregate demand is sufficient to support high levels of output and employment and the resulting incomes then permit the private sector to save without damaging demand.

That support role that budget deficits play is always ignored by the “austerical” gang.

Wolf then concludes that:

… it is quite clear that an isolated discussion of the need to reduce fiscal deficits will not work. These cannot be shrunk without resolving the overindebtedness of damaged private sectors, reducing external imbalances, or both. The games we have been playing have been economically damaging. We will be on the road to recovery, when we start playing better ones.

I agree with this statement.

What the austerity lobby has to outline is how the balances are going to be redistributed if there is insufficient private spending support for output growth and excessive private debt levels, external deficits and the government is then mindlessly pushed towards surplus – that is, forced to withdraw its fundamental role in supporting private savings.

Their response to date reveals they don’t even understand these complexities.

Conclusion

My conclusion at yesterday’s Boston Teach-In was that there is a crying need for a new macroeconomics narrative which would help us understand:

  • The operational features of the monetary system.
  • The opportunities each monetary system presents to the national government.
  • The ability of a sovereign government to maintain continuous full employment.

I emphasised that to engage in that narrative we have to abandon the focus on financial matters and reorient the debate toward the real side of the economy. The new macroeconomic narrative is essential if the public is to be disabused of the myths that have been used to erode the collective will.

Governments that abandon full employment and then punish the victims of this policy failure including low wage workers should not be supported. A fiscally responsible government aims to maximise the potential of all of its citizens.
Public policy should always reflect that goal.

Finally, here is the fiscal sustainability checklist that I provided the audience:

  • Saying a government can always credit bank accounts and add to bank reserves whenever it sees fit doesn’t mean it should be spending without regard to what the spending is aimed at achieving.
  • Governments must aim to advance public purpose.
  • Fiscal sustainability is not defined with reference to some level of the public debt/GDP ratio or deficit/GDP ratio.
  • Fiscal sustainability is directly related to the extent to which labour resources are utilised in the economy – that is, full employment.
  • A sovereign (currency-issuing) government is always financially solvent.
  • You cannot deduce anything about government budgets by invoking the fallacious analogy between a household and government.
  • Fiscal sustainability will not include any notion of foreign “financing” limits or foreign worries about a sovereign government’s solvency.

That is enough for today!

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    40 Responses to The BIS is part of the problem

    1. Neil Wilson says:

      “This leaked report shows that over the next five years 1.3 million jobs will be lost to the British economy as a result of the “Treasury assessment of the planned spending cuts”.

      Five years is hardly short-term!”

      Bill. You’ve fallen for the party line in the Grauniad. It is supported by advertising for public sector jobs and it is spinning a line. If you refer the the Office of Budget Responsibility report, you’ll note that they are trimming 1.3 million jobs relying ‘structurally’ on the public sector (private and public jobs), but forecasting that 2.5 million jobs will be created in the private sector alone. That’s a net increase of 1.2 million jobs over 5 years, but of course the Grauniad would suffer badly due to reduction in advertising revenue. I say tough to that. They don’t deserve corporate welfare any more than anybody else.

      It is a rebalance of the economy away from public supported jobs to private supported jobs (in the sense that anything is entirely ‘private’ supported given our money system). Essentially the 1.3 million jobs eliminated is work that the current government considers to be inconsistent with its vision of public purpose. Political it may be, but that is what we elected!

      So arguably the money spent on 1.3 million jobs is to be spread across 2.5 million jobs instead, reducing income for some individuals and raising it for others. That’s redistribution, not destruction.

    2. Neil Wilson says:

      That’s not to say of course that the 2.5 million is a given…

    3. Greg says:

      Hello Neil.

      Could you expand or provide the source for how, where, from what policy action(s), etc the 2.5 million private sector jobs will be created? Is this through privatization or supposed elimination of crowding out effects? Enquiring minds need to know.

    4. Brianovitch says:

      Hi Neil,

      How do the Austerical Auks expect the private sector to create jobs in a period when private balance sheets are fragile?

    5. Aidan says:

      Bill –
      It means that for a firm, saving on labour costs might induce it to hire more. It knows the lower wages (costs) will not impact much (if at all) on the demand for the goods and services it sells. But at the macroeconomic level, we have to realise that wages are both a cost (which affects supply) and an income (which affects demand).

      There are two problems with that statement:
      Firstly, lower wages per worker does not mean lower total wages.
      Secondly, if a firm pays less in wages, it means more money is available to invest in equipment (which affects demand) or return to shareholders (which also affects demand).

    6. Burk says:

      Hi, Bill-

      You said-

      “So this opening gambit is replete with all the neo-liberal fallacies that are being used to undermine effective fiscal responses to the crisis. Here is another unelected body, which really is meant to be the central banker for the central banks, lecturing democratically elected governments about what they should be doing.”

      This is not so bad in principle, if only they knew what they were talking about. Suppose they were on the other side of the fence, telling European leaders that if they wanted economic recovery and growth, they would have to spend more and build up private savings. Then you would probably be all in favor of such an entity lecturing democratically … etc.

      As you have energetically written, this is an ideological battle that transcends the public-private divide, by virtue of some potent PR / misconceptions that are easily spread around by the self-interested, the doctrinaire, and their lazy acolytes in the media. As a biology blogger writing occasionally about evolution and climate change, I see similar lazy and cynical disinformation taking these debates by storm, as it were.

    7. Anas Jalil says:

      “Danger Danger Danger” (quoting from the late Steve Irwin). All Singaporean should Be Afraid and be Very Very Afraid, only if they believe in those ‘flat earth deficit terorrists’ propaganda.

      Singapore’s public debt currently has reached 117.6% of its GDP (2009).
      those terrorists and BIS folk must be upset if they look at this data;.
      Yeild for Singapore Govt Securities’ (govt bond)
      Maturity Yeild
      3 month 0.26%
      1 year 0.35%
      5 year 0.76%
      10 year 1.98%
      20 year 2.98%
      You could check for your self here https://secure.sgs.gov.sg/apps/goto/?app=prices
      Singapore’s unemployment rate is at <3%.
      is Persistently running budget deficit
      Commercial Bank prime lending rate = 5.38% (qouite low in comparison to other countries, where's the 'Crowding out'??)
      Inflation rate = 0.2%

      And now lets compare with the most fiscal disipline state in the world (EQUATORIAL GUINEA) that fit the discription of responsible goverment by those terrorists.
      Accumulated Public debt = 1.1% of GDP (lowest in the world)
      is Running budget surplus for nearly a decade
      unemployment rate is at 30%
      Commercial Bank Prime Lending Rate = 15% (this very high rate does not fit those terrorist's model that says budget surplus will increase more reserve that available to be loned out and interest rate will decrease, clearly they're "flat earthers", )
      Inflation rate 7.5% (2008), 4.5% (2009)
      E Guinea's percapita income (PPP) is at USD36600 even higher than Denmark, Germanay, Japan, Finland, South Korea, France, UK, and New Zealand.

      Can someone please tell the father of all deficit terrorists in South East Asia that is now living in Singapore, Jim Rogers to get his facts right. He just creating havoc here in Singapore and Malaysia by constantly appearing in radio, tv, news paper interview, and giving seminars and talks trying to terrorize our people. He warning our govt to be "financially responsible" and not to end up like USA with huge deficit (clearly he doesn't now how big Spore's public debt is). One of our minister in Malaysia even believes in his hype and said on tv that if our govt keep "borrowing" we would end up like Greece (nearly all of our deficit if financed in our own currency, our total public debt denominated in USD is only 1.5billlon). Lucliky we had ample experience in 1997 crisis to rejects those rubbish warning.

      Jim Rogers latest interview.
      http://www.richdadwisdom.com/2010/06/jim-roger-warns-against-too-much-stimulus/
      I hope Lee Kuan Yew would deport him soon.
      Jim Rogers should go and live in Equatorial Guinea then, that country suits his ideology . . . and the govt over there also seems to listening to the people of his type. . .

      Cheers
      Anas

    8. /L says:

      “Anas Jalil say”

      Frightening stuff, one does understand that the market is so paralyzed by Singapore’s debt that it even forgot to raise the interest.

      I believe there some European fellows that should be given a one-way ticket to EQ, Trichet, Cameron, Osborne, Merkel and to fill the plane so it will be more efficient I know of quite a bunch of so called labor friendly social democrats that could join in. I’m sure such thrifty persons should have no problem to find some appropriate temp work at some cacao plantation.

      BTW
      I want to ask the sector balance experts here, is this the right way to put it:

      http://www.bokeh.freei.me/sect_bal.html

      I “borrowed” the image from somewhere.

    9. Charles Monneron says:

      If I take your bullet points :

      “1) Saying a government can always credit bank accounts and add to bank reserves whenever it sees fit doesn’t mean it should be spending without regard to what the spending is aimed at achieving.
      2) Governments must aim to advance public purpose.
      3) Fiscal sustainability is not defined with reference to some level of the public debt/GDP ratio or deficit/GDP ratio.
      4) Fiscal sustainability is directly related to the extent to which labour resources are utilised in the economy – that is, full employment.
      5) A sovereign (currency-issuing) government is always financially solvent.
      6) You cannot deduce anything about government budgets by invoking the fallacious analogy between a household and government.
      7) Fiscal sustainability will not include any notion of foreign “financing” limits or foreign worries about a sovereign government’s solvency.”

      1&4 are contradictory : There are some people in the workforce who are not qualifying to do ANYTHING productive. It is a waste of government money to try to hire them (I.e. one has to have regard to what is “aimed at achieving”). Statistics don’t include students in the workforce but it is mainly a convention. Students indeed can and do work hard especially under financial pressure, and lots of unemployed are in reality students learning new skills. Just look at the professionalism and dedication some put in their job seeking process : it will translate into better efficiency once they land a job. One of the biggest mistake of economist is to refuse to consider that for some people, the price for their skill level is simply negative.

      5, 6, and 7 are only valid for self-sustaining economies, especially from an energy and food resources standpoint. It is close to be the case for countries like Australia or the US, but it is wrong to generalize. Whenever there is a foreign sourced commodity or product that is compulsory to get the economy working (and maintain the taxation base), terms of the exchange become important and are affected by 5, 6 or 7. Generally, autarchy achieves a much lower output than economies than trade, so the price for the complete budgetary freedom that you advocate may be too high.

    10. Charles Monneron says:

      Anas,

      You seem to forget that the Singapore Govt has a lot of assets in Temasek and GIC that make this debt completely sustainable. The dividends from the investments more than pay for the interest costs. Gross GDP ratios are like balance sheet sizes : not really an indication by itself of the creditworthiness of the company. Tangible equity is a much more appropriate measure.

    11. Adam (ak) says:

      I am convinced that the policies prosecuted by David Camoron will bring exactly the same results as Polish disinflation 1998-2003. Public sector jobs will go but a few private sector jobs will be created.

      Unemployment reached 20% in Poland in 2003 and as a consequence a few million people left the country. Only when massive EU subsidies started arriving the situation improved but few new jobs were created. This topic is not widely discussed so I even wasn’t able to find the data past 2003.

      All the focus is on the number of unemployed receiving benefits and on GDP growth not the number of employed.

      I cannot believe the West is poisoning itself with precisely the same ‘medicine’ which was used against developing countries for the last few decades. As to Malaysia I believe that Dr Mahathir bin Mohamad may still have some influence there so I wouldn’t be too much concerned even if some “reformers” would like to give Jim Rogers the favour.

    12. Anas Jalil says:

      Dear Adam

      Since the Asian financial crisis in 1997 was not a global crisis, we could recover by adopting ‘export led growth’ strategy.
      Could you please tell me how David Cameron’s policy would make UK’s economy better by cutting spending?? Clearly UK could not adopts the export strategy under current global recession, who would import?? Hence, you have only one option, that is only if the private sector go further into debt, and given the current scenario, I don’t think many people would follow that path. Even banks are reluctant to extend loan to business and private borrower… where’s the money for growth then???

      Not many Malaysian sided with the ruling party anymore nowadays, even me. Jim Rogers has nothing to do and never has interest in any political reform, he is only interested to propagate his ‘Flat earth economic ideology’ here. No serious economist even among the ‘reformist’ ever quoted him. One prominent economist here repudiated his argument as “not understanding the real situation”.

      Marshal Plan and Colombo Plan introduced to us by the Westerners (with more logical economic thinking) in 1950s till 1970s that emphasised on fiscal policies via direct government spending had brought us much more prosperity with more positive result. The British introduced us with every 5 year comprehensive economic plan (Reid Commission).
      There were Not much and none serious corruption in this period. Among our older generation (old villagers and retired govt officials) who saw how the fiscal policies initiated by the westerners had brought prosperity to us, they said we are lucky to be colonised by the British, because the British had helped us to formulate our economic policy and train our officials, teachers,lawyers, helped us with our land reform act, set up hospitals, schools and universities that have very positive effect until now etc. (all this was paid by our natural resources but at least we had a symbiosis relationship, the British didn’t just rob and left like what did by the Dutch in Indonesia)

      If you look at our economic history, massive corruption in our country only happen after the new ‘economic’ policy was introduced in the 90s, it was massive privatisation of government asset to private hands. Our government had only ran budget surplus between 1992 to 1997, how we did it? By liquidated much of public assets that then were bought using credit money and foreign loaned, this privatisation policy only benefited few people and many politicians that belonged to the ruling party.

      We are not hate the westerners, we only hate their current economic ideology. We still speak positively of the old policy introduced to us by your older generation, it is in our history textbook, been taught to all of us in secondary school here. So the ‘colonised love the colonizer’ in the old days, that how you could win heart and mind of the people.

      BTW’ I’m currently studying in the UK and looking forward to see how this new experiment would work. If Cameron’s budget cut led to economic growth I would consider converting myself to the neo-liberal camp.

      Regards
      Anas

    13. CharlesJ says:

      Adam, Anas,
      The GDP figures have apparently been withheld in the UK, and conspiracy theories – no genuine questions, about this are already being asked. Apparently, there were some mistakes about the previous figures, and the media seem to be keeping silent about this, which is not like the media in the UK.

      Let’s see what this is about.

      Kind Regards
      Charlie

    14. Anas Jalil says:

      Dear Adam,

      You are correct.
      For me, although corruption was rampant during Mahathir’s period but he got it right by no adopting IMF programs in 1997.
      He immediately imposed the capital control, kept the interest rate low and increase govt spending during the recession.
      This is contrary to what the Indonesian and Thai’s govt done, they blindly followed the IMF propaganda and did the reverse, then they have both severe economic and political crisis.

      This is interesting report about Iceland taken from Paul Krugman’s blog.
      http://krugman.blogs.nytimes.com/2010/06/30/the-icelandic-post-crisis-miracle/
      although with more severe financial crisis, Iceland did much better than Latvia, Ireland and Estonia by imposing capital control and not adopting policies advice by the ‘flat earth terrorists’

      Cheers
      Anas

    15. Adam (ak) says:

      Anas,

      I agree with your comments. In fact the prospect of Asia are much better that the West.

      Here’s the the employment data for Poland. It is available on www (dot) stat (dot) gov (dot) pl , search for “zatrudnienie” (If there is enough ineterest I may translate the comments and create graphs)

      Sorry for lack of formatting.

      2002 1st quarter, Average paid employment in 1000s = 7588.2, unemployment rate=20,1%
      2007 1st quarter, Average paid employment in 1000s = 7699.0, unemployment rate=14.4%
      2008 4rd quarter, Average paid employment in 1000s = 8142.9, unemployment rate=9.5%
      2009 2nd quarter,Average paid employment in 1000s = 8046,1, unemployment rate=10,7%

      (employment data excludes enterprises employing fewer than 10 employees what may skew the data slightly)

      This is called “jobless recovery” – people simply moved away. The GDP growth during that period was impressive but was it a real recovery?

    16. Anas Jalil says:

      Dear Charles Monneron,

      You said,
      QUOTE
      “You seem to forget that the Singapore Govt has a lot of assets in Temasek and GIC that make this debt completely sustainable. The dividends from the investments more than pay for the interest costs. Gross GDP ratios are like balance sheet sizes : not really an indication by itself of the creditworthiness of the company. Tangible equity is a much more appropriate measure.”
      UNQUOTE

      I could not see the logic for Spore Gov to create a sovereign wealth fund and use the dividends to pay for the interest cost. Don’t you think that’s redundant? The sovereign wealth fund is a new disease been inflicted to us by the west in 1990s (just using financial gymnastic) not only in Singapore but also in Malaysia, if there is no sovereign wealth fund where we want to put all those MBAs coming back from US’s and UK’s Universities. :) (those business schools really good at their marketing strategy). Sovereign wealth fund just crates havoc between ASEAN countries, there are many cases against TEMASEK in Thailand and Malaysia that had created political backlashed.

      Why I never heard those deficit terrorist ever said that “Gross GDP ratios are like balance sheet sizes : not really an indication by itself of the creditworthiness of the company” – Never heard that from Cameron and Osborne or among those professional “useful idiot” economists working for he benefit of those terrorists at the IMF???

      Cheers
      Anas

    17. Gareth says:

      Ah, Bill, another howl at the moon!

      I really don’t think you are ideologically as far from the neo-liberals as you like to make out.

      You both want the foot flat on the economic accelerator with not a care about the increasing global imbalances between the developed and developing world, or sustainable use of diminishing resources and habitat destruction.

      Were you criticial of the BIS when they were advising caution earlier this century?

      As I’ve stated here before, without a rebuttal comment, MMT applied now simply maintains the deeply distorted financial status quo, and on that basis alone it cannot be suppported.

      Harsh as it is, the system is so rotten it needs to be torn down before it can be rebuilt.

      I advocate a “Bail-up” approach, where any deficit spending should be purely targetted at poverty relief via food, medical and housing support.

      @Anas Jalil

      Do you have any idea about the brutal dictatorship in Equatorial Guinea that is funded by oil wealth. The elites are super wealthy and the poor are super poor; it epitomises the global imbalances.

      To try and draw any comparison between it and Singapore is simply absurd.

    18. Anas Jalil says:

      Dear Adam (ak)

      Totally agree with you on “jobless recovery” in Poland,

      I shows that in Poland, by consequences, is trying hard to adopts ‘export led growth’ strategy. But not by exporting goods and services, instead Poland is exporting its citizens abroad.

      Cheers

    19. Anas Jalil says:

      Dear Gareth

      You asking me, QUOTE
      “Do you have any idea about the brutal dictatorship in Equatorial Guinea that is funded by oil wealth. The elites are super wealthy and the poor are super poor; it epitomises the global imbalances.
      To try and draw any comparison between it and Singapore is simply absurd.”
      UNQUOTE

      But from my memory, during the economic reforms using neo-liberal free market policies in Chile under the brutal dictatorship of President Augusto Pinochet – non of those ‘political repression’ issue ever been questioned by the freedom loving market fundamentalists, contrary to that, Chile was paraded as an example to be copied throughout Latin America and Asia. As they said back then, ‘sound economic should be kept separate from politics’, that was their ideology and maybe still is. ;)

      Cheers
      Anas

    20. bill says:

      Dear Gareth

      I think you should the full body of my work – both academic and popular – before you make statements about what I advocate. I have never advocated the policy “foot flat on the economic accelerator”, That is total distortion.

      I also advocate deep financial market reforms – there are not many commentators or professional economists who would go as far I would in eliminating investment banks etc.

      My fundamental evaluation principle of public policy which I have advocated for many years and it is all through my work is: I judge the effectiveness of public policy by how rich it makes the poor not how rich the economy becomes per se. And that process has to take place in an environmentally sustainable state. I have never distanced myself from environmental concerns.

      Better to read my work if you want to make such sweeping judgements. If you don’t want to read it – that is fine – but keep your tongue silent or be exposed as otherwise.

      best wishes
      bill
      ps I am San Francisco at present – so I am writing this reply in the spirit of peace, love and harmony.

    21. Gareth says:

      Anas,

      I have yet to see any claims that Equatorial Guinea is pruported to be applying a free market approach, and my point is that it is anything but that. It just happens to have a lot of oil, the revenue from which completely disorts its economic picture from the reality on the ground.

      You then use this data for your arguments. Two wrongs don’t make a right.

    22. Patrice Meursault says:

      I made the mistake of reading the Jim Rogers interview linked above. In it, he asserts that “Franklin Roosevelt who was the American president then [during the Great Depression] did everything you’ve just gone through saying [“Government pumping money into the economy”], and what idea of doing and what’s he in now? But in 1940 the unemployment in America was higher than it had been in 1931. You know, more or less in the problems of the recession.”

      I’m sure Bill has covered this himself, but a very good analysis of the effect of the New Deal on reducing unemployment is available here.

      It’s quite something when someone accuses the Director of something called “The Centre of Full Employment and Equity” of not caring “about the increasing global imbalances between the developed and developing world”. :)

    23. Neil Wilson says:

      “How do the Austerical Auks expect the private sector to create jobs in a period when private balance sheets are fragile?”

      By the sheer power of ideology obviously. :)

    24. Neil Wilson says:

      “Could you expand or provide the source for how, where, from what policy action(s), etc the 2.5 million private sector jobs will be created? Is this through privatization or supposed elimination of crowding out effects? Enquiring minds need to know.”

      Including mine.

      I was rather hoping that one of the people on here who are better plugged into the data, rather than the inaccuracies reported in the press, would be able to shed some light on this amazing prediction.

      The sole ‘data’ is the forecast by the Office of Budget Responsibility that UK employment with rise from 29.1 million in 2010 to 30.2 million in 2014. Given that 1.3 million are disappearing due to public sector cuts, that means 2.5 million jobs will be created in the private sector if the forecast is to be in any way accurate.

      Richard Murphy makes the point well http://www.taxresearch.org.uk/Blog/2010/07/01/where-would-25-million-new-private-sector-jobs-come-from/

      (Richard is public sector oriented as Bill appears to be and you have to read his comments on that basis).

    25. Grigory Graborenko says:

      Dear Aidan,

      “Firstly, lower wages per worker does not mean lower total wages.”

      In order for total wages to stay still or rise, total employment would also have to rise by the same amount wages were cut by. This is a pretty big assumption. Why would a company hire more people because wages dropped? Companies generally make a profit off every worker they employ (at least in aggregate). Otherwise, why hire new people if they don’t mean more sales/revenue/whatever than they cost in wages? This suggests companies will hire as many workers as they can make money off. So I’m thinking the only way a company would employ more people with lower wages is if the new jobs had a razor thin profit margin – a position that suddenly goes from negative to positive net profit. This would then have to go both ways – for example, a raise in minimum wage would mean razor’s edge jobs would suddenly become a net loss and people would get fired.

      Funny thing is, though, that empirical studies show that increases in minimum wage don’t cause unemployment. Why then no link? I suspect that most jobs are nowhere near close to being a net loss for companies – they are making huge profits off workers. Any drop in wages would just go straight into the companies’ coffers, not to new workers.

      “Secondly, if a firm pays less in wages, it means more money is available to invest in equipment (which affects demand) or return to shareholders (which also affects demand).”

      Sure, that money has to go somewhere. It would be lovely to believe that it would then immediately get recirculated – or perhaps, “trickle down”. The problem is, the people who save the most? They happen to be the people with the most money. They also happen to be the people who buy stocks and get huge multi-million dollar salaries and bonuses – the main beneficiaries of booming company profits. Do they go out then and buy ten thousand flat screen TV’s each to make up for lower wages? No. They save that money and get richer. Deflation and mass unemployment results.

    26. Paul Andrews says:

      Bill,

      You state: “The operational reality is that what the bond markets think is not a constraining factor for sovereign governments.”

      You cannot escape the fact that what we have now is debt-based money.

      MMT advocates fiat money not backed by debt, but by a theory. I agree mainstream economics got it dead wrong (it ignored the role of debt), but that doesn’t make MMT right. It’s just another theory.

      MMT claims to describe the “current operational and accounting reality”. It may in some way describe current monetary dynamics, as creditors are yet to start calling in their taxpayer debts. However it misses the fact that under the current system real debtors (taxpayers) have promised money to real creditors, and have an obligation to pay those debts. Do you not place any store in this moral obligation? Is that not a part of “reality”, operational or otherwise?

      If governments, on behalf of indebted taxpayers, were to suddenly create money not backed by debt, this would represent a partial default on that debt. This would likely lead to many creditors being wiped out. If bonds were still “honored” by taxpayers in some way creditors would immediately take a haircut. If the government persisted in selling bonds, the interest rate would obviously increase. The interest rate demanded would be in proportion to the amount of non-debt HPM issued. So what the bond markets think, or more accurately, how creditors think their better interests will be served, will very likely be a major constraining factor.

    27. Gareth says:

      Bill,

      You still do not refute the point that deep deficit spending as advocated by your accolytes on various blogs would not retain or more probably intensify, the status quo in favour of the banksters. Where does that leave the poor and unemployed?

      In this profligate world hammering home the point that “sovereign governments can never be revenue constrained or default on their own debt” by calling those opposed to such a view “deficit terrorists or flat earthers” is, in my humble opinion, dangerous indeed. You need look no further than Robert Mugabe for the dangers of that.

      To quote one of your recent posts, “Be careful what you wish for!”

      I have had another flick through them, but your blogs are long and my time is limited, so please point me to where you discuss how you propose to target and control defcit spending so it benefits those that really need and deserve it.

    28. Andrew says:

      Some comments on Ireland: after its austerity Ireland’s budget deficit was the highest in EU in 2009:

      Ireland officially recorded the biggest government deficit in the EU [in 2009]. Revised figures, published today by the EU’s statistical agency, Eurostat, show Ireland’s deficit for 2009 at 14.3% of Gross Domestic Product – higher than Greece at 13.6% and Britain’s 11.5%.

      http://www.rte.ie/news/2010/0422/economy.html

      As for the budget deficit, in 2010 it will be even worse:

      Ireland’s budget deficit could rise to 24% of GDP (gross domestic product) in 2010 or about €40bn, following a ruling by Eurostat, the statistics office of the European Commission, on the treatment of public spending on the State nationalised Anglo Irish Bank.

      http://www.finfacts.ie/irishfinancenews/article_1019526.shtml

      So all that austerity just leads to higher unemployment and increased government spending on welfare and automatic stabilizers.

      As the markets, they have less confidence in Ireland than they do in Spain where austerity has not been so deep:

      [sc. Ireland has a CDS [credit default swap] spread of 226 basis points, compared with 206 points for Spain; not to mention a 10-year bond rate of 5.11 percent, compared with 4.46 percent for Spain.

      http://krugman.blogs.nytimes.com/2010/06/13/does-fiscal-austerity-reassure-markets/

      We keep hearing the relentless mantra that governments have to “appease” the bonds markets, and yet there’s not one iota of proof that severe austerity will “appease” them at all.

    29. Brianovitch says:

      Thanks Neil

      “by the sheer power of ideology”

      I was beginning to wonder when the square of the velocity of darkness would make its appearance.

    30. Anas Jalil says:

      Dear Gareth,

      To understand Bill’s point pls spend a week reading his archives. You could understand the mechanics of MMT much easier (since it is more logical) than the mainstream models.

      I am a student of economic myself, when I asked other ‘professional academic economist’ (mainstream) what made this crisis so severe. Nearly all said, although the mainstream model could not capture the shock but still, it is best to relies on the market adjustment since political solution (fiscal policy) is highly dependent on the simple uninformed judgement of untrained politicians, this would distort the ‘market’ and miss allocated resources. So according to them there is more chances for fiscal policy formulated by politician failing to increase the net benefit of the societies and would even cause negative externalities (no explanation by them beyond this argument)

      When I asked, why we should still using this erroneous metamathematical model if the economic shock could not be captured and explained what is happening.
      They said, It is due to ‘asymmetric information’ and now the’re much effort being done by serious economists (as if other non mainstream economists are not serious) in trying to model those ‘asymmetric information’ hence the current model would be more dynamic in the future.

      When I point to ;
      1) low interest rate in Japan despite its high public debt the answer I get was antisymmetric information.
      2) low interest in US Govt borrowing, they again said, antisymmetric information made economic agent flock to hold the safe financial asset of US Govt Bond
      3) When I point to the very low Libor rate in UK, they again said antisymmetric information made banks reluctant to borrow from each other (opposed to what happen in US prior that, where antisymmetric info has made banks reluctant to lent to each other)

      Their argument never have any logical consistency though the answer I get is very consistent, that is ASYMMETRIC INFORMATION.

      When I gave and alternative explanation to what happened in Japan from the perspective of Japanese economists (more or less similar to what MMT is saying), One of them even said to me, that I should not look at economic data “in aggregate” (macro level) since I would end up with wrong conclusion (so fallacy of composition has different meaning for this folk).

      One of my senior (a Phd monetary Student) then brought me to his room and gave me few highly mathematical monetary books to read, he then point me to his computer showing his complex mathematical model, modelling the behaviour of banks in US. He said that he is modelling the behaviour of 5600 individual banks to understand what actually happening between banks. According to him, understanding each and individual bank’s behaviour is the key to explained what happening at the macro level. I then asked him what is his conclusion, I almost banged my head to the wall when I heard his answer, it was AGAIN! ASYMMETRIC INFORMATION!

      My conclusion was “If the only tool you have is a hammer, you tend to see every problem as a nail”

      After i finished my and Msc went back to Malaysia in 2009, I then spent 6 months to finds a progressive school to continue my Phd. And now I am happy since I’ve been surrounded with different type of economist who doesn’t believe that market is perfect and there are larger role that could be played the policy makers. This centre and its economists has collaborated with many developing states to formulate progressive energy policy. The funny thing is now I’m doing energy economy under the progressive energy economic centre up north in UK and not under the faculty of Economics anymore.

      Cheers
      Anas

      Cheers
      Anas

    31. Gamma says:

      “» Saying a government can always credit bank accounts and add to bank reserves whenever it sees fit doesn’t mean it should be spending without regard to what the spending is aimed at achieving.
      » Governments must aim to advance public purpose.
      » Fiscal sustainability is not defined with reference to some level of the public debt/GDP ratio or deficit/GDP ratio.
      » Fiscal sustainability is directly related to the extent to which labour resources are utilised in the economy – that is, full employment.
      » A sovereign (currency-issuing) government is always financially solvent.
      » You cannot deduce anything about government budgets by invoking the fallacious analogy between a household and government.
      » Fiscal sustainability will not include any notion of foreign “financing” limits or foreign worries about a sovereign government’s solvency.”

      Bill, do you believe governments should be concerned with price stability at all? Do you believe that fiscal sustainability should have anything to do with the level of inflation (in the MMT world in which monetary policy as we know it does not exist).

      In all truth, unless you start seriously talking about inflation and how it will be controlled in a “MMT” economy, I think many minds will remain closed to your ideas.

      If your response is simply something along the lines of “unemploment is a greater problem than inflation, we shouldn’t be too worried about it” it is too easy to dismiss your arguments as idealogically motivated.

    32. CharlesJ says:

      Gareth,
      Bill proposes MMT as framework within which a ‘Job Guarantee’ can function, which provides a job, paid for by the state, at a reasonable minimum wage for anyone who wants one. It acts, as far as I can tell, like a super-automatic stabilizer for the economy.

      Follow the link CofFEE for more details.

      This clearly, and directly helps the unemployed, and requires MMT to be optimal in effectiveness.

      Kind Regards
      Charlie

    33. Anas Jalil says:

      Dear Gareth

      Referring to my point above it is not ANTISYMMETRIC information it should be ASYMMETRIC INFORMATION
      sorry for the wring spelling

      Cheers

    34. CharlesJ says:

      Gamma,
      Bill does talk about inflation a great deal – you would need to look through more of his blogs. He supports the idea the price stability should ideally be controlled by fiscal policy. His Job Guarantee has anti-inflation measures built in, and his team research other measures. He also indicates that many things which are thought to be inherently inflationary are not.

      There’s no substitute to reading Bill’s Blogs – you can click on the tab ‘One Page Archive’ above.

      Kind Regards
      Charlie

    35. MDM says:

      I’m amazed that so much discussion is revolving around concerns regarding inflation and ‘how much government’s should spend’ with suggestions that governments will always spend so much.

      If you read ‘Understanding Modern money’ the case is made that MMT proponents believe that a job guarantee, whereby the government acts as the employer of last resort also is a process for stabilising prices (inflation).
      If you start from:

      http://bilbo.economicoutlook.net/blog/?cat=11&paged=4

      and consult “Understanding Modern money”

      You’ll see these points addressed.

      (sorry to be brief I am really tired)

    36. Min says:

      Adam (ak): “I cannot believe the West is poisoning itself with precisely the same ‘medicine’ which was used against developing countries for the last few decades.”

      It is not poisoning itself. The attack is on labor and national sovereignty, just as with the developing countries, by multinational corporatists and ideologues.

    37. Adam (ak) says:

      Min,

      Things are not so rosy for the “multinational corporatists and ideologues”.

      From the horse’s mouth:

      There is a recent interview with Zbigniew Brzezinski (in Polish) where he openly admits that the West is in a rather irreversible decline. Since he probably wouldn’t dare to say the same in English I have no choice but to translate a few of his pronouncements as the automated translation is too difficult to read. This puts the MMT in the proper context and partially answers concerns raised by other commentators on this blog.

      Title “The decline of the West”

      Q. Is the current crisis changing the world?
      A. Without any doubt. We live in times when something fundamental is changing.
      Q. This year or this century?
      A. Not in one year. But for sure this century. What is relevant is that the Western global domination is nearing its end. This domination has been in place for the last 500-600 years.

      Then he states that there is a political awakening affecting the most of the humanity and there are negative feelings towards West and especially America which used to be the “conscience of the West” (sorry this is his term I am not a psychoanalyst to help)

      then Zbig becomes sentimental

      “This is very dangerous as if the America lost its leading role in the world any other state would not be able to replace it”

      He also shares with us his past concerns about the nuclear war when he was working at the White House. “there is no such danger now but there is an uncertainty about the stability of the West and the politically engaged world passes negative judgements about the role of the West”, “Colonialism, imperialism and exploitation are essential parts of the historical narrative dominating the world.”

      Brzezinski then states bluntly “the military equilibrium is the slowest to change. America’s military budget is larger than the sum of the military budgets of all other countries in the world” … “the supremacy is thumping and this will stay for long, America is not threatened by any major war but tiny wars endanger her, they are economically, financially and morally costly.”

      then he says that

      “I support the principles of President Obama’s policy, if he is able to push America in a slightly different direction in internal and foreign politics the US will have enough potential to play a predominant role in the world. Otherwise if he fails, the changes will accelerate and may be more dramatic”

      I won’t translate the usual rants about Russia as this is a waste of time. The automated translation is at the bottom. Zbig was in fact a one-trick pony and he still seems to be obsessed by the former Soviet Union even when much more interesting things happen around.

      I would summarise my post about the interview by quoting a famous anthem:
      “And the last fight let us face”

      _REMOVE_THIS_TO_GET_THE_LINK_http://translate.google.com.au/translate?hl=en&sl=pl&u=http://alfaomega.webnode.com/news/zbigniew%2520brzezi%25C5%2584ski%253A%2520schy%25C5%2582ek%2520zachodu%2520%28rozmowa%2520jacka%2520%25C5%25BCakowskiego%29/&ei=IFsuTMqhBcixcZeazOID&sa=X&oi=translate&ct=result&resnum=2&ved=0CCQQ7gEwAQ&prev=/search%3Fq%3DJacek%2B%25C5%25BBakowski%2BBrzezi%25C5%2584ski%2Bpolityka%2Bwywiad%26hl%3Den%26prmd%3Do

    38. Gamma says:

      Charlie,

      “Bill does talk about inflation a great deal – you would need to look through more of his blogs. He supports the idea the price stability should ideally be controlled by fiscal policy. His Job Guarantee has anti-inflation measures built in, and his team research other measures. He also indicates that many things which are thought to be inherently inflationary are not.

      There’s no substitute to reading Bill’s Blogs – you can click on the tab ‘One Page Archive’ above.”

      I would not agree that Bill or other MMT advocates talk about inflation a great deal. There is a huge amount of repetition of certain ideas, for example:

      – the mechanical workings of the monetary system
      – the way a sovereign currency issuer is never revenue constrained
      – that unemployment is the result of insufficient aggregate demand

      ….and so on, but the ways in which inflation would be restrained in a MMT world is not often mentioned in the general repetition of the theme. Of course I have read a number of Bill’s posts specifically devoted to inflation, which I found to be not entirely convincing (with all respect to the author), including amongst others Zimbabwe for hyperventilators 101 (http://bilbo.economicoutlook.net/blog/?p=3773).

      Cheers

    39. Min says:

      @ Adam (ak)

      Thanks for the Brzezinski interview. :)

      “We have met the enemy and he is us.” — Pogo (Walt Kelly, satyrical cartoonist)

    40. Grigory Graborenko says:

      Gamma:

      Then request a blog dedicated to bringing together the various discussions on inflation. Actually, I would love to see Bill write something like that so I could easily link to it. Until then, read the first part of http://bilbo.economicoutlook.net/blog/?p=7591, or http://bilbo.economicoutlook.net/blog/?p=6624.

      Paul Andrews:

      “You cannot escape the fact that what we have now is debt-based money.”

      Actually, you can. Money is not “backed by debt”. That’s not what gives it it’s value. After all, if all public debt was paid off, money would still be valuable. This happened in Australia, where the government was running huge surpluses. I could still buy tic-tacs with my currency even then!

      On a more practical note, if you want to pay bond holders the money they are owed, fine. That can be done by adding numbers to a bank account – without issuing new bonds. Bill NEVER advocates default on debt in your own currency – in fact, he often states that a fiat currency means domestic default is never forced, always voluntary (ie 90’s Russia). Debt holders don’t “call their debt in”. They wait for the bonds to mature and then get their money back. It’s a long term contract with the government. In short, pay off old debts and don’t bother creating new debts.

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