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Australia to become Greece – all within the limits of human idiocy

Yesterday, the Australian Bureau of Statistics published the August 2012 data for – International Trade in Goods and Services, Australia – which provided further evidence that the so-called once-in-a-hundred years mining boom that was meant to bring employment security and strong growth for years to come is waning – and quickly. Today’s retail sales figures are also in this vein. The Treasurer continued his bluster that they had to go for a surplus. And a prominent (former) banker came out and claimed the surpluses should be bigger – even though the economy is going backwards and non-government spending is incapable of supporting strong growth. He thinks were are on the path to Athens. He thought we could easily become Greece. When you think about it the transition from Australia to Greece is within the limits of human idiocy.

The data showed that in August 2012, the “the balance on goods and services was a deficit of $2,027m in August 2012, a rise of $497m (32%) on the deficit in July 2012.”

The reasons for the increase in the goods and services deficit are two-fold – “goods and services credits fell $844m (3%)” (that is, exports fell) by more than the decline in imports (“goods and services debits fell $348m (1%) to $26,615m”).

Both pieces of information spell a bad National Accounts result is looming for the September quarter. A fall in export income means a drop in aggregate demand coming from the external sector has occurred. But the decline in import spending means that domestic national income growth is faltering.

Taken together – the results reveal that in August there was a large aggregate demand drain on the domestic economy emanating from the external sector.

The trend data provided by the ABS has been pointing to a decline in exports for some months now.

Clearly a decline in exports can occur in two ways – the volume exported can drop and/or the price per unit can drop. The evidence as to which of these impacts drove the downward surge in exports is mixed. The ABS publish detailed data on “Selected commodities”, which helps us understand what has been going on.

The following Table is taken from the latest ABS publication. You can see that base metal commodity prices have fallen across the board, whereas volumes for Iron ore lump and Iron ore fines rose as did Hard coking coal. The main factor explaining the decline in exports is thus a softening of commodity prices.

But the message is clear – while volumes will stay up for a while, our record of terms of trade (export prices relative to import prices) are now falling and that will undermine domestic growth. The RBA in cutting the interest rate on Tuesday signalled very clearly that they are worried that growth is declining.

In the official statement accompanying the decision (October 2, 2012) – Statement by Glenn Stevens, Governor: Monetary Policy Decision – we read that:

The outlook for growth in the world economy has softened over recent months, with estimates for global GDP being edged down, and risks to the outlook still seen to be on the downside … Key commodity prices for Australia remain significantly lower than earlier in the year, even though some have regained some ground in recent weeks. The terms of trade have declined by over 10 per cent since the peak last year and will probably decline further … Looking ahead, the peak in resource investment is likely to occur next year, and may be at a lower level than earlier expected. As this peak approaches it will be important that the forecast strengthening in some other components of demand starts to occur.

That is why they cut the interest rate. They think that growth is now likely to slow – “the growth outlook for next year looked a little weaker” – and while they didn’t say it explicitly for political reasons, they are fully aware that the government’s fiscal austerity stance is explicitly undermining economic growth.

That puts the statements by the Treasurer in response to the RBA decision in a different light. He told the ABC News – that the credit for the cut should be taken by the Government:

I think it’s pretty fair to say that working Australians and small businesses deserve cost of living relief, and today that’s what they got …These cuts have been made possible by our responsible budget policy … The government’s position has been and remains that with an economy that’s growing around trend we should be coming back to surplus … What we are seeing here is what the government has been putting in place which is a greater capacity for the Reserve Bank to respond with financial policy …

Which is his familiar mantra – the sort of wind-up doll approach he takes whenever a microphone is thrust under his chin. We are going to run a surplus and that is anti-inflationary so the RBA can cut rates.

But in the RBA Governor’s speech you see the lie in the Treasurer’s statement. The RBA concluded that “The Board therefore decided that it was appropriate for the stance of monetary policy to be a little more accommodative”. That is, they are, in their own logic, seeking to stimulate the economy.

The fact is that the Government is killing growth and the RBA knows it is the only other macroeconomic policy arm that can work against the fiscal vandalism.

It is a strange twist of reason to claim credit for policy positions that undermine employment and cause unemployment to rise.

The other point that the Treasurer appears to forget about is that it is increasingly unlikely that they will actually achieve their budget surplus given the decline in tax revenue that is on-going. It brings into relief the key insight that pro-cyclical fiscal policy strategies (in this case, fiscal austerity) will rarely achieve their targets because they undermine the very thing that is required for the strategy to work – increased tax revenue via economic growth.

It also highlights why the budget balance should not be a policy target in its own right. The government in fact has very little control over the final budget outcome in any period. It is private spending and saving decisions that drive the budget balance. The government can try as it might to reduce its deficit via spending cuts but if private sector spending does increase commensurately to offset the loss of aggregate demand then it is likely the deficit will increase (or not fall by as much as intended). And what is left is rising unemployment and stagnant growth.

Of-course, one doesn’t want to get ahead of oneself – in any displays of self-importance. That happened last night when the former head of the Future Fund and Commonwealth Bank (David Murray) claimed that it was “easily possible” for Australia to become like Greece (in economic terms).

Hello out there – currency issuer versus currency user! Seems these self-aggrandizing business types who command far too much air time on the national media haven’t really understood the difference.

The danger is that in thinking we could become like Greece, the national government will undermine growth and employment and bring on a recesion and/or period of persistently high unemployment (unnecessarily).

For some background on what this character did while chair of the so-called Future Fund (which would be better named the Undermining the Future Fund), please read the blog from 2009 – The Futures Fund scandal.

On the ABC national current affairs program 7.30 last night – Former Future Fund chair measures economic health – David Murray was interviewed in the light of the RBA’s decision to cut rates.

He claimed that Australia is facing a period where “we’ll be left with debts that have to be repaid and a tougher time” and he considered “belt-tightening” to be an appropriate strategy. It depends on whose belts are to be tightened.

Australia is now slowing – which means aggregate demand is deficient. But the private sector is carrying record levels of debt courtesy of the relatively unfettered credit binge that the financial free-for-all fostered. So that sector overall has to tighten its belt.

But with a growing current account deficit draining growth and the private domestic sector having to tighten its belt, the only way growth can be maintained is if the government deficit expands. The government should definitely not be belt tightening.

But Mr Murray disagrees.

He claimed in relation to the conduct of government policy that:

… we have a high operating leverage problem in the budget, that is, the welfare costs in Australia are so high … we have a high fixed-cost in our budget, mostly in welfare, which is now up to 100 per cent of the personal tax take. So, with those problems and a persistent current account deficit, Australia is not a country that can afford very much public debt, yet the public debt’s been rising.

So he was thinking the government should be belt-tightening. Of-course, Australia, as a currency-issuer, can “afford” whatever public debt it cares to issue. There is never a shortage of willing purchasers of the debt lining up for their dose of corporate welfare.

I would stop issuing public debt altogether and just credit bank accounts (government spending) as usual and do some accounting entries with the central bank so the books balance – yes, force the central bank to “fund” the deficit spending.

The reference to welfare being 100 per cent of the personal tax take is also irrelevant. Welfare spending in Australia is way below what it should be given the rising inequity and lost communities that have developed over the last 20 years.

When assessing the “level” of government spending at any point in time the only question that is of relevance is how close the economy is to full employment (the inflation barrier). If it is close then that is about the right level of government spending relative to non-government spending decisions. If there are still concerns about equity at that point, then the composition of net spending has to change to redistribute more to those in need.

He then raved on about the need for bigger budget surpluses. Which then led to this question and answer sequence:

ABC 7:30: So given the sort of strengths that we have in the economy, does that mean we will avoid the situation we’ve seen somewhere like Europe?

DAVID MURRAY: No, because Australia’s far too dependent on the rest of the world, both for trade and capital.

ABC 7:30: Given though that we have so many differences in the way our economy is structured though to somewhere, say, like Greece, how would it be possible for us to end up going down that route?

DAVID MURRAY: Ah, how would it be possible?

ABC 7:30: Yeah. For us to experience a downturn of that magnitude.

DAVID MURRAY: Easily possible. If we keep doing what we’re doing, we’ll get there.

ABC 7:30: But we’ve got so many things that are different – Australians pay more tax than Greeks, our public sector’s more accountable, we have our individual currency, so, what would be the par?

DAVID MURRAY: We’re not a highly productive economy, our net foreign liabilities as a percentage of GDP are very high in the world, they’re not low and we have this persistent current account deficit. In short, all the entitlements we want to have are not ours; they’re being funded at the pleasure of some people who save and live offshore. And there comes a time if you work that way that these people say, “No, I don’t want to finance that anymore,” and that’s what’s happened to Greece and Spain and Italy.

Of-course, that is not what has happened to Greece, Spain and Italy. The three Eurozone nations are not even comparable themselves bar the fact they all surrendered their currency sovereignty.

Greece, Spain and Italy are in trouble now because basic rules of macroeconomic policy are being deliberately violated. They are plunging into Depression because the fiscal capacity that can arrest a sharp decline in private aggregate demand is being denied to them.

It is clear that the current account can only remain in deficit for as long as foreigners seek to accumulate financial claims in the currency of the nation in question. That desire can change – and sharply at times.

But while the trade component remains in deficit a nation enjoys the real terms of trade in their favour – which means it has to ship less real goods and services abroad to get more from abroad, presumably of things they do not produce themselves and which bring use.

From an Modern Monetary Theory (MMT) perspective, it is the local residents that are “financing” the foreign desire to accumulate financial claims in the local currency, not the other way around.

If that desire changes then the real terms of trade can turn quickly against the local nation. That can be painful and reduce the real living standards of the nation.

But those movements do not negate the fact that the government can always maintain sufficient aggregate demand to avoid recessions and sustain high employment levels.

It is the failure of governments to fulfill that responsibility in Spain, Greece and Italy that is the problem. And then you ask why? And the internal failures of the Euro monetary system become the main topic of discussion.

Only with the ECB’s explicit consent (via funding the net spending) could the Eurozone nations offset major private sector spending collapses. The politics of the Eurozone are currently preventing that commonsense fiscal option from being pursued and the consequences are obvious and tragic in their fullness.

But Australia does not face these problems. Note he didn’t answer the question about “our individual currency”. The Australian government always has the capacity to run deficits to offset non-government surpluses and maintain growth should it so choose.

It is impossible on financial grounds for us to become like Greece. It is possible that our standard of living might decline in real terms if our rising dependency ratio is not met with plans to increase the productivity of the workforce. But that is an entirely separate issue.

Even if Greece was highly productive it would still be in bad shape given it is facing a full frontal attack from the Troika on its aggregate demand growth.

From another perspective, it would be relatively easy for Australia to become like Greece.

First, we could join a currency union with say New Zealand. Second, we could scrap the RBA (and the RBANZ) and introduce a new central bank which was unaccountabile to any elected government in the union.

Third, we could impose rules that say that budget deficits must remain below a threshold that is incapable of even coping with cyclical swings in net spending (driven by the automatic stabilisers).

Then we could make sure the new central bank joins forces with foreign institutions, which are equally unaccountable and impose harsh pro-cyclical fiscal austerity conditions of us at a time when non-government spending has collapsed.

Come to think of it we would have to invite China or Japan to join in the union to ensure the currency remained strong as we imposed a Depression on ourselves.

But all that is within the possible limits of human idiocy.

The ABC News article (October 4, 2012) – Comparing Greek economy to Australia’s is ‘absurd’ – followed up the 7.30 interview.

It quoted the Federal Opposition leader Tony Abbott as saying:

The lesson of Europe is that countries can go very quickly from a strong position to a parlous position if things aren’t well managed … At the moment, we’ve got a Government which has completely mishandled the mining sector which is the one sector which above all else has kept Australia going. With its endless taxes, this Government is putting the economic future of our country at risk.

Note, the mining sector contributes less than 5 per cent of total employment and less than 10 per cent of total output in Australia. During 2008 and 2009, as the financial crisis was spreading, the mining sector went backwards like many sectors. The only reason Australia avoided an official recession was because the fiscal policy response was quick and, largely, effective.

The only lessons that can be drawn from Europe are those outlined above – spending equals income equals output. If you cut overall spending you cut growth. If the non-government sector spending cannot support growth then government spending has to fill the gap. Beyond those simple macroeconomic facts there are no lessons for Australia from the Euro crisis.

We issue our own currency and float it on international markets.

As an aside, Mr Abbott was on my flight to Melbourne on Tuesday and I spoke to him at Melbourne Airport when we arrived. I have had dealings with him in the past when he was in government as the Federal Minister of Employment. I reminded him that a Job Guarantee is still a policy that all political parties should endorse and I hoped he would introduce it when he became Prime Minister.

The ABC report also quoted the Prime Minister’s response:

It is absurd to be saying that our economy is in the same circumstances as the economies of Europe or Greece … From the Leader of the Opposition, that’s a grossly irresponsible thing to say. I mean, markets listen to what political leaders say, this can have repercussions in the real world that matter for the Australian economy.

Our economy is growing – it’s going to grow at around 3 per cent this year, we’ve got unemployment just over 5 per cent, we’ve got low inflation, low interest rates, strong public finances – AAA-rated by every major credit agency for the first time in our nation’s history ….

Which tells you that she missed the point altogether and doesn’t understand the basic fact that the AAA-ratings are irrelevant to a currency-issuing nation.

Conclusion

And I didn’t even get to Mitt Romney’s attempt at prudence (Source):

What things would I cut from spending? Well, first of all, I will eliminate all programs by this test, if they don’t pass it: is the program so critical it’s worth borrowing money from China to pay for it? And if not, I’ll get rid of it.”

Which just means Americans should hope that he doesn’t win the election. Last time I checked China did not issue US dollars, which makes it impossible for them to “pay for” US government spending.

That is enough for today!

(c) Copyright 2012 Bill Mitchell. All Rights Reserved.

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    This Post Has 16 Comments
    1. According to an opinion poll reported on ABC radio today, around 60 percent of those polled believe that the Australian economy is moving unavoidably down the Greek road. It seems that a large part of our population continues to gullibly accept at face value the nonsense pedalled by bank economists. If the general public and the media ever get to understand the truth, then the outpourings of mainstream economists – and bank economists in particular – would be treated with the scorn and derision that it richly deserves.

    2. Another fine post detailing just a little of the multifaceted idiocy of our Australian hierarchy.

      With advance apoligies to Esp Ghia (who is rather fond of sheep,apparently) these clowns remind me of the sheep I had to deal with many years ago in a farming life.
      In the wild state sheep probably had a degree of sense otherwise they wouldn’t have survived. The domesticated animal has had any sense bred out of it. Domestic sheep are what I call smart/stupid.
      Smart enough to yield a dividend for the farmer who cares for them but monumentally stupid when confronted with anything out of the narrow concepts of their little sheepie brains.

      I hereby nominate our Treasurer for a name change – henceforth to be known as Wayne Sheep.

    3. I submitted the following to the letters editor of the SMH about lunch time.

      The now retired former CEO of the Commonwealth Bank and former head of the Future Fund was on ABC-TV Wednesday night. He obviously had no idea of the differences between the PIIGS’s economic problems and Australia’s. No one of that group, Portugal, Ireland ,Italy, Greece and Spain, is issuer of a sovereign currency so each is far more policy constrained that the Australian Federal Government. Those countries are now much like the Australian states, they are revenue constrained and often have to rely on handouts.

      The Federal Government can readily afford to take whatever fiscal and monetary actions are necessary to reduce the effects of external pressures. The FG can afford to buy anything available for sale for $Aus whether that be labour and material to build necessary infrastructure or whatever. That is exactly what the FG did, promptly, with the Christmas handout and the school building programme etc., when the GFC loomed. The only time they cannot do so is if there is nothing for sale at the price the FG is prepared to pay and that is when resources are fully employed, the economy is booming, and therefore inflation is likely to bite.

      Groups at two universities, one in Kansas, Missouri and the other Newcastle NSW, are leading the world in providing an understanding of how the economics of the world actually can work or do work when politicians understand the levers. Abbott, Hockey and Robb are not among those who understand or, if they do understand, don’t want the knowledge to become widespread.

    4. I suspect that the reason Mittens focused on “Chinese debt” was to take people’s attention away from the damage he and his Wall Street buddies are doing to the world. After all, when people are haranguing China they aren’t focused on the real culprits.

    5. @Bill
      You should check out this Irish committee debate…….its all very sad but interesting.

      http://oireachtasdebates.oireachtas.ie/Debates%20Authoring/DebatesWebPack.nsf/committeetakes/FIJ2012092700004?opendocument

      (to see the video of these very strange debates click on the watch and listen box ,Committees Playback & 27 September 2012
      Committee Debate – Joint Committee on Finance, Public Expenditure and Reform – Thursday, 27 September 2012 – Webcast Recording

      The eurozones strange dynamics seems to promote these creeping Jesus like characters of moral rectitude…..with little will to understand why Jesus got slightly violent in the temple.

      In particular former IMF man Donal Donovan who claimed the “growth” in sub saharan Africa was a result of IMF like Structual adjustment programmes and not the decade long rise in commodity prices.
      (1H 25 m)
      Meanwhile the socialist Joe Higgens is happy taxing trapped domestic wealth and then leaves the building……..

      Mchale is of course another rep for the banks – with him or others getting in very strange and very young economists to justify his position. (Mr. Sebastian Barnes, BoE rep ?)
      Our man in Havana ?, our platoon in Dublin.
      Alas this is how Dublin Castle has always worked………its a alien presence in Ireland.
      Dublin was always a ancient slave town of some importance……it is a very nasty little capital , much more dangerous then Glasgow for example.

      Irish debate must alway orbit tax issues as it is a non sov entity.

      Peter Mattews contribution at 1.40 is fantastic but he is dealing with former teacher pets on the Irish fiscal council who above all things require their teacher gives a pat on the head.
      He is eventually silenced by the chair.

      We live in a very sick society made worse by the addition of another church – the Euro Sect.

    6. Mathews worked for the former State Bank ICC so looks at the world from a collateral money perspective rather then a Fiat perspective.
      http://en.wikipedia.org/wiki/Peter_Mathews_(politician)

      Although he did mention turning the Grot Private debt stuff on the books into goverment counsols.

      2H 19m 30s……….( look at the Body language of Donovan…….I have seen guys like these working in the Catholic church – there is a forced niceness about these guys in public forums but you can see how nasty they are underneath the facade of Christianity.)

      Mathews – “I ask the leaders and finance Ministers of all countries to come together to honestly add up the bill and possibly mutualise and perpetualise it in 2.5% consoles. They should add up the bill – be it €3 trillion or €4 trillion or perhaps €5 trillion – sweep out the balance sheets and start from scratch.

      As regards the macroeconomic wheels, we know society likes to have three platforms in providing support – education, health and social welfare – for those who are temporarily out of work. If one thinks it through, this can only be funded from income – corporate, individual and household. In conurbations and places where people live, they live in properties which command a market rent. Every property does, regardless of whether it is a farm, a factory, an office or a school. There is an economic rent. The site values of these properties are the residual values from the capitalisation of the yields—–

      Vice Chairman: I ask the Deputy to, please, not start again.

      Deputy Peter Mathews: This is very simple, although nobody is saying it.”

      He also made some comments at 2H.00m

      Deputy Peter Mathews: What is the validity of the debt?

      Professor John McHale: That sounds like a philosophical question.

      Deputy Peter Mathews: No; it is a truthful question. Since it was legal for people to own slaves in the Congo, they could argue that it was right to have and crush slaves. The debt has no validity.

      Vice Chairman: Dr. Donovan wishes to comment………………….

    7. GLH: If it makes you feel better they have done plenty of damage in the US and very little to China. Europe’s pain is mostly (entirely?) self-inflicted, as explained by Professor Mitchell many times.

    8. Aside:
      I have just learned that some African countries share a common currency (CFA franc) which is pegged to the Euro:

      What can Africa teach the Eurozone
      http://www.bbc.co.uk/news/world-africa-19743551

      As European leaders battle to control the eurozone debt crisis, 14 sub-Saharan African countries could teach them how to maintain a disciplined and stable currency union.

      I suspect this article is focusing on the wrong things.

    9. I hold no hope at all that the West can logically and rationally escape the thrall of fallacious neoliberal macroeconomics. This ideology is too deeply entrenched and all the propaganda outlets (Western corporate media) push it unceasingly. A long and deep economic depression and outright revolts by the impoverished and dispossesed would seem to be the only way this situation can be resolved.

      Meanwhile, China sits in the wing but does not simply wait. I suspect that China in various clandestine ways aids, abets and feeds neoliberal views from afar while being far too clever to apply such foolish ideas to its own economy. Once China has completed its project of transferring the bulk of world manufactures to Chinese soil, what a mess the West shall be in then!

      But then, we in the West have long had a penchant for thinking we are more important than we actually are. Soon the West will be an irrelevant backwater.

    10. I hope everyone now sees the folly of EVER allowing the monetary sovereign to borrow.

      The rich rules over the poor, and the borrower becomes the lender’s slave. Proverbs 22:7 New American Standard Bible (NASB)

    11. Dork from Cork:

      I’m from Ireland too, and I’d like to take the opportunity to endorse your condemnation of the charlatans frequently called upon by the political and media class in this country, such as McHale and especially Donal Donovan, who used one of his many op-ed pieces granted to him by the Irish Times over the years to pat himself and the IMF on the back for their wonderful work in Mexico and other places over the years. No-one should be taking these fools seriously, and yet, they’re on every TV and radio discussion programme, and given the lion’s share of op-ed space in the newspapers. They parrot the austerity terrorists and the other freaks comparing national economies with corner shops, while supporting the destruction of social support and any part of the educational system that does not entirely serve the stated desires of ‘Ireland Inc.’ (i.e., politically well-connected builders and/or multinational money-launderers).

    12. @Ciaran
      I am not so sure they are fools…….perhaps the local TDs laughing at Mathews are fools but not the guys on the Irish fiscal council.
      However Those TD cretins are needed for the system to work as it is and not have some limited understanding and action as in Iceland.

      As I said this is a very sick society since the days of Cromwell at least.

      My last contribution on the Irish economy blog was questioning these guys false logic

      Fiscal Responsibility Bill
      18th July 2012

      “The Duty of Goverment is to endeavor to comply with fiscal rules”!!!!!!!!!!!! (quote from the paper)

      “They need to look up the words Goverment & Duty.

      Extreme Orwellian Stuff.

      The First duty of goverment is to supply the optimum amount of script to facilitate commerce , not to facialte debt production and the various pump and dump merchants who extract pounds of flesh using subterfuge via the dark arts of Central banking.

      And as for the very word Duty……….”

      Its really pretty simple in Ireland – its a straight up banking oligarchy with guys like McCarthy stating its a external enemy……but is it ? me thinks thats a very narrow nationalism he is sprouting and the last refuge of a scoundrel.
      The banks must control all money production…….
      The European commission spring time and summer reports are more direct then the IMF which makes them more honest at least.
      They stated quite openly they must take money off of people so as to make private banks profitable.
      This is exactly what Micheal Hudson has been talking about.

      I follow car sales mostly now as it tells you much more of what is going on then the figures……the biggest selling car this September was the BMW 3 at 130 units…..somebody is extracting from the system and that extraction is not feeding back into domestic demand.
      Audi is also doing well
      Despite a 12 % drop in car regs from last year (Jan – Sep ) Audi is doing OK
      Y2010 : 2,796
      Y2011 : 3,317
      Y2012 : 3,577
      With a 50 % increase in the large prestige segment with 703 units sold in the Jan -sep 2011 period and 1,052 units sold in 2012.
      And 527 Jeep /SUV prestige Audis in Y2012 rather then the 203 units in Y2011

      The truely Absurd Nissan Qashqai
      http://en.wikipedia.org/wiki/Nissan_Qashqai

      is the number 2 top selling “car” model in Ireland so far this year with 3,256 units sold (2,611 Jan -Sep Y2011)
      Who the hell is buying these capital & fuel intensive cars ?
      Back in the early 80s depression people were mainly buying cheap 1 litre petrol cars…..
      Indeed the Quashqui sales alone outstrip the entire Irish 1 litre car market today.

      Toyota Yaris dominates the small Irish 1 litre petrol segment.
      http://en.wikipedia.org/wiki/Toyota_Vitz
      With 1,908 units sold out of a total of 3,175 units (Jan to Sep)
      Volks UP : 248
      Opel Corsa : 240
      Kia Picanto : 186
      Toyota AYGO :124
      Skoda citigo : 69

      I first became aware of the Irish petty oligarchy while on holiday down in Glandore (a west cork town frequented by the rich of Cork city) in 1990.
      This was the first post 1987 credit boom while people were still leaving the country…cut short by the first Gulf war and the first EMU crisis which followed.
      Its a privatised money system – the connected get the spoils and socialise the losses.
      Enter Mac the Knife ( the finance minister of the time who brought in the fiscal austerity /consumer credit hyperinflation polices)
      At least during the early 80s depression ( partially caused by the banks creating credit for agricultural land on the strength of the Farmers new fiscal income from Europe)
      People generally bought modest 1 litre cars if at all during the 80s depression.
      Post 1987 something very nasty was created.
      Londons big bang of 1986 was all about flooding countries such as Spain & Ireland with oil / credit so as to earn a yield from the waste production.
      When the banks can’t earn a yield these human conduits they must push entire countries into current account surplus so that they can remain in real goods deficit.

      The real goods trade deficit (inc oil) of the UK was a record £100 billion in 2011.
      Trade of goods balance : – 88,505m
      Trade of oil Balance : – 11,509m

      Is Europe a victim of unsustainable international trade /energy connections which reduces rational internal / national demand and rational investment ?

      If you compare this to the year 2000 in the UK
      Trade of goods balance : -39,512 m

      Trade of oil balance :+6,536m (peak)

      And Y1991

      Trade of goods balance : -11,497m
      Trade of oil balance : + 1,274m

      Some records set during the UK Q2 period in its balance of trade and current account figures.

      Current account Net

      Trade in Goods : £ -28.1 Billion ( largest deficit ever recorded)
      Trade in Services : £+ 17.9
      Income : £ -5.2 Billion (largest deficit ever recorded)
      Transfers : £ -5.5 Billion

      Current balance £ -20.8 Billion (largest deficit ever recorded)

    13. PS – to add Glandore was full of brand new Audis ,BMWs , Mercs and Volvos in that summer of 1990…………..car sales never lie.

    14. Great article again.

      There is a great deal of misunderstanding/misinformation at play. For example, in the UK, politicians regulary say the fact the country’s borrowing costs are not the same as Greece’s are because of the coalition’s commitment to austerity. This ignores the fact that 375 billion of QE has effectively funded the government’s entire deficit since 2009.

      I find I agree with most of the content on your blog and I wish these arguments were given more prominence in media debates simply to raise awareness. However, I do struggle to agree with the proposed cure on this blog.

      My (constructive) criticism of MMT is that it exists within a field, economics, which is defined as the study of how best to allocate scarce resources. What troubles me with MMT is I struggle to understand how scarce resources can be allocated effectively when money is unlimited.

      Is there really no way that resources under the existing system can be allocated in a more efficient way (ie towards job guarantee) without the need for extreme deficit spending?

    15. Art: Is there really no way that resources under the existing system can be allocated in a more efficient way (ie towards job guarantee) without the need for extreme deficit spending?

      There are good deficits (spending) & bad deficits (spending).
      This criticism is more aptly aimed at old-fashioned postwar “Keynesianism”. Basically dump the money, generally into the private sector, usually at the top and try to get to let full employment trickle down. Though it was a lot better than its replacement – Neoliberal, neoclassical “economics” , which meant “Hey, let’s return to sacrificing humans to good ole Huitzlpochtli. Worked fine, and when it didn’t, it was obvious that we weren’t feeding him enough”. Postwar Keynesianism had an obvious inflationary bias, so wilited at the first breath of serious inflation.

      The “more efficient way” is the Job Guarantee, which does NOT imply deficit spending, let alone extreme deficit spending. The JG spends the least amount to get to full employment. It’s the most austere, Austrian, laissez-faire, non-interventionist way to get to zero unemployment, which one must always remember is caused by the government intervention of setting up a monetary economy in the first place. So the least “interventionist” monetary economy is one with a small night-watchman government AND a JG, not one without a JG.

      The “extreme” about deficits in MMT is that one should be extremely insouciant about deficits, (or even surpluses in very rare conditions). Just look at what is happening in the real economy, make sure you are getting good value in your government expenditures for your money. And make sure what your government charges its people, the taxation & prices for stuff the government sells is not onerous & irrational. But adding and subtracting them up is silly. What will tend to happen is that there will be continual, but not very big deficits. (Unless your currency is being saved abroad as a “reserve currency”). Extreme deficits are/were caused by returning to the nonsense of neoliberal/neoclassical economics. Take care of the real economy, in particular, above all, employment, and everything else takes care of itself.

      Extreme deficits just mean that the people trust the government so extremely much that they want to save up one kind of promises it makes: its debt, its currency. Might indicate that the government isn’t delivering on other sorts of promises it can and should make: health care, social security, bridges etc and money is the only promise they trust, but it could just mean extreme trust, a rich nation or rich savers that can’t think of much else to do with their money for a while.

      I like the way you brought up about how to “allocate scarce resources.” Mainstream theoclassical quackonomics identifies money with the “scarce resources” part – commodities, things part. MMT & its forebears: Institutional economics, (Post)Keynesian economics, Monetary analysis through the ages correctly identifies money with the “allocation” part.

      Society as a whole cannot run out of allocations, coordinations, allocation orders = money. The idea is absurd. The true problem is getting people to see how absurd anti-MMT is, and get them to start laughing.

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