skip to Main Content

These worn out debt narratives – Stop It! It’s ridiculous!

Today is Wednesday and I have been tied up a lot with various meetings – all on-line these days. I don’t enjoy them as much as face-to-face, given that I spent a considerable part of each day in front of my computer or with my head in books and so the human contact is a welcome variation. But needs must, as they say. Anyway, just a few snippets today, being Wednesday. I can say that in between all this Zooming and writing, I have now nearly put together a complete on-line learning system which I am now trialling. This will be the support platform for – MMTed – which I hope to make operational sometime in the coming months. One of the issues that I touched on yesterday, which is now starting to crawl out of the slime, is the “what will happen to all the debt when the crisis is over” story. And, it is not just a narrative being promoted by the Right or the conservatives. The Federal Labour Party spokespersons and those hanging around the edges have started to push the narrative. As the Prime Minister told us the other day in relation to the people who are panic buying “Stop it! It’s Ridiculous!” I think he was actually talking about those (morons) who are starting the deficit hysteria before the deficits have even actually risen much. For their own health, I urge them to “stop it”. Imagine how apoplectic they are all going to be once the deficit goes to 10 per cent or more and the RBA is buying up all the debt. My god.

The Canberra Bubble – People need to get out more!

The Prime Minister said last week during a press conference:

On bulk purchasing of supplies: Stop hoarding. I can’t be more blunt about it. Stop it … It is not sensible, it is not helpful and it has been one of the most disappointing things I have seen in Australian behaviour in response to this crisis … Stop doing it. It’s ridiculous. It’s un-Australian, and it must stop …

He was obviously talking about the Treasurer, who on Monday, when announcing his $A130 billion JobKeeper wage subsidy plan, was asked “how are you going to pay for it” (yes, that one, again).

He said:

This will be paid back for years to come. There’s no secret in that. Of course, we will enter into discussions with the credit rating agencies over due course. Australia has entered into this crisis from a position of economic strength. Our debt to GDP ratio is around 20%. That’s a quarter of what it is in the United Kingdom, and in the United States and one 7th as Japan. That’s given us the fiscal responsibility to respond. We have delivered the first balanced budget in 11 years. That’s been important in allowing us to provide this level of support at at time of critical need.

The Prime Minister was clearly trying to stop his Treasurer lying to the people – stop it!

1. The deficits will not be paid back. Deficits are flows that exhaust. Any matching debt will be paid back upon maturity. Like is it regularly without consequence. The Australian government never has an issue meeting all its financial liabilities.

2. The credit rating agencies should be declared illegal. They provide no helpful input to any discussion about fiscal policy, and, rather, just distort the truth.

The Australian government debt has no credit risk. It is 100 per cent safe. No matter how large the outstanding debt is. 100 per cent safe.

So what value can a credit rating agency add to that?

I should charge the government heaps for that last credit rating. 100 per cent safe, zero credit risk. That is all anyone ever needs to know.

As we learned during the GFC, the credit rating agencies were found to have behaved corruptly and criminally. Many of the bosses of those agencies should have been imprisoned for their criminal behaviour.

The fact Mr Frydenberg mentioned them should disqualify him from office.

3. The story that a low deficit or low debt ratio makes it easier to support an economy during a crisis is well-rehearsed but is plain wrong.

It would not have mattered if Australia had Japanese-style deficits and debt ratios.

The Government would still have been able to announce its $A130 billion stimulus. No issues would have arisen.

And it is a lie to say that they delivered a “balanced budget” – they did not. They tried, but in doing so, the fiscal drag that they created coming up against negative growth in business investment and declining growth in household consumption expenditure, meant that the economy was slowing rapidly (labour underutilisation is at 13.7 per cent), and tax revenue was not going to grow fast enough to get them over the line.

As is usually the case.

Austerity backfires and just leaves a trail of damage to things that matter – employment, incomes, poverty reduction, etc – and doesn’t even achieve the things that do not matter (the financial ratios).

So he also lied about entering the medical crisis from a position of economic strength.

So, Josh, “Stop it! It’s Ridiculous!” Listen to your Prime Minister.

And I also think the Prime Minister was referring to the inane comments from the Labor Party Treasury spokesperson, Jim Chalmers, who has been doing the rounds telling the media that Australia:

… will be saddled as a nation with a generation of debt. It might be something like a trillion dollars by the time the government’s finished

Whew!

Sounds bad. A ‘generation of debt’. Which generation actually hasn’t grown up with government debt being positive.

And what does it matter if it is a trillion dollars or less?

A trillion dollars in risk-free, interest-earning non-government wealth, which would provide a portfolio choice to savers.

Although, of course, it is likely to be vacuumed up by the RBA, which has now decided to embark on large-scale purchases of government bonds.

Here is – Today’s data – the RBA purchased $3,000 million worth of Commonwealth Government Bonds across the yield curve.

Since March 20, 2020, they have purchased bonds worth $A29,890 million.

Getting up there!

Conniptions turning into apoplexy.

But be warned – the ICU beds are filling up in our hospitals and there won’t be emergency beds to accommodate your breakdown!.

So follow the Prime Minister’s advice, “Stop it! It’s Ridiculous!”

To be clear, I am not advocating any debt being issued, but the RBA hoovering operation will ultimately result in the deficits being matched by central bank bond purchases.

The difference between what I would do and what QE does in this context, is that the latter delivers capital gains to those who sell the bonds back to the RBA.

Why hand out corporate welfare like that?

Finally, we are drilling down to commentators who are not elected MPs. The Prime Minister also has a message for them – “Stop it! It’s Ridiculous!”

He was clearly referring to the Op Ed writers who are pushing the debt narrative.

For example, the Canberra Times published an Op Ed yesterday (March 31, 2020) – Before anyone asks: no, Australia does not have a debt problem – written by an academic at ANU who was a former advisor to current Labor Party MP, the latter has been particularly vocal in his hostility towards MMT.

Clearly, wanting to be on the wrong side of history.

As to the academic character, I have written about him before, unfortunately – see How social democratic parties erect the plank and then walk it – Part 1 (June 6, 2019).

A stuck needle on an appalling record.

We encounter the usual, weak-kneed faux progressive line.

‘Oh deficits are okay now because the economy is collapsing’ but ‘we shouldn’t worry yet’, why? ‘because:

… the costs of increased government spending are very low.

Adam Triggs then gives us a lecture on these costs:

1. We get a lesson in the classical loanable funds doctrine and crowding out.

So Triggs thinks that governments have to borrow to run deficits and that means “money is no longer going to other worthy investments” – clearly he has never understood the banking system – loans create deposits Adam. Its quite basic really.

He then tells us that in “normal times” there is “a limited pool of savings”, the extra borrowing will mean “higher interest rates”, which increase the cost of borrowing and “crowd out” all these other worthy investments.

There is no “limited pool of savings”. His former employer, Andrew Leigh likes to tout his “Keynesian” credentials. Well Keynes didn’t believe that there was a finite pool of savings.

Savings are a function of income. If income grows as a result of fiscal expansion or business investment or increased export revenue or household consumption, then saving will rise.

Luigi Pasinetti once noted that “investment brings forth its own saving” – an astute observation that applies to all spending sources.

And bank loans are not reserve-constrained. They don’t just sit around waiting to dollop out their current deposits to lenders in some sort of weird rationing plan.

They make loans when there are credit-worthy borrowers requesting them. They worry about whether they have the reserves to cover the transactions that will follow from the deposits the loans create later. They always know they can get reserves, if not from any other source, from the central bank.

There can never be ‘financial crowding out’ in a modern monetary economy.

And then the “increased government spending stimulates inflation” so “increased government spending can hurt businesses, households and individuals”.

Anyone who submitted that sort of logic in any of my macroeconomics classes without noting how flawed it was would be instantly failed.

All spending carries an inflation risk. Any growth in spending (private or public) can push nominal demand faster than the capacity of the productive side of the economy to respond to it in the form of production of real goods and services.

There is nothing special about government spending in this regard.

2. “The second potential cost of increased government spending is the future cost of paying interest on that debt.”

This is the ‘it is okay to borrow big when rates are low’ story that people, even progressives propagate, presumably to make them feel more comfortable.

And Triggs claims that because the Australian government can borrow cheaply then it should be the stimulus agent.

You cannot make this sort of stuff up.

Think about what is going on.

The government gets the central bank to type in some numbers (at present with lots of zeros after them) into various bank accounts – buying things (medical supplies), paying wage subsidies, unemployment benefits, etc etc.

That’s it. Spending accomplished.

Where is the borrowing in this story?

Nowhere significant.

The deficits add net financial assets to the non-government sector, which is making decisions all the time about how they will manage their overall portfolio of financial assets, with government bonds being part of the mix.

But the funds used by the non-government sector to purchase the bonds, ultimately came from the prior government deficits. In crude terms, bonds are just the accounting record of the spending that was not fully taxed away in the period it arose.

The current interest rates or bond yields are completely irrelevant to the capacity of the government to run deficits.

And whether it is desirable to run deficits is not determined by the current bond yields across the maturity range of the yield curve.

The purpose of fiscal policy is to advance well-being and this requires the government to ensure that spending growth in the economy is matched to the growth in productive capacity so as to achieve full employment and price stability.

That is how we should appraise the size of the deficit. All the neoliberal measures that Triggs seems obsessed with are irrelevant and just disclose a deep ignorance.

Poor Canberrans, waking up to this nonsense.

But the Prime Minister had the right call on this. Stop It! It’s Ridiculous!

Call for MMTed Support

I imagine the current crisis will put a halt on people donating to causes.

But we are making progress in developing the program that will become – MMTed.

I ran my first Masterclass in London recently and it was well attended. I received good (useful) feedback from several people which will help tune the way we run these face to face classes.

The planned further Masterclasses (May in Australia, June in Europe, September in the US) are on hold while we assess the state of the world. But I hope we will be able to offer them sometime this year.

And on-line curricula is being developed.

But we still need significant sponsors for this venture to ensure that we can run the educational program with negligible fees.

If you are able to help on an ongoing basis that would be great. But we will also be appreciate of once-off and small donations as your

You can contribute in one of three two ways:

1. Via PayPal – which is our preferred vehicle for receiving donations.

The PayPal donation button is available via the MMTed Home Page or via the – Donation button – on the right-hand menu of this page (below the calendar).

2. Direct to MMTed’s Bank Account.

Please write to me to request account details.

Please help if you can.

We cannot make the MMTed project viable on a sustainable basis without funding support.

We will always maintain strict anonymity with respect to donations received, except if the donor desires to be publicly associated with the venture and gives their permission in writing to appear on the Donors Page.

Up until now, all donors have wished to remain private.

And we thanks them for their generosity.

Some announcements are coming soon.

Music –

In between the various meetings, this is what I have been listening to while working this morning.

Here is an anthem for progressives. On August 8, 2012, Time Magazine (yes, really) voted this song (poem) one of the – Top 10 British Riot Songs of the Early ’80s.

We definitely need to riot at the moment to push the currency-issuer towards a socio-ecological transition with a jobs emphasis.

Written in 1979 by the Jamaican-born dub-reggae poet – Linton Kwesi Johnson – it was a bold statement to racial minorities in the poorest neighbourhoods of Britain that the National Front racist attacks were not only mindless but would be met with resistance.

As the Time Magazine said:

… if the fascists wanted war on the streets, LKJ and his peers were ready to dish out some righteous licks and “fite dem back”.

LKJ also wrote that:

Writing is a political act and poetry is a cultural weapon.

While – Fite Dem Back – was written about racial prejudice against the migrants in Britain, it is also applicable to all those who oppose government deficits to help reduce poverty while pocketing public largesse for themselves.

This is my anti-neoliberal, street march song – “We gonna smash their brains in, ‘Cause they ain’t got nufink in ’em”

I have always loved LKJ’s messaging.

The Track comes of the –Forces of Victory – album, which was released in 1979. LKJ is based on London and the album was produced in cooperation with Dennis Bovell.

A fabulous array of musicians play with him. On this album, we hear Winston Curnliffe on drums, the great John Kpiaye on guitar (one of my favourite players), Floyd Lawson on bass and the magnificent trombone solo is from Rico Rodriguez, the undoubted best jazz, reggae trombone player of all time.

Turn up the volume, turn up the bass, and move a little in your seats and cancel the Zoom and Facetime meetings for a while … and sing along

Lyrics to help the sing-along:

We gonna smash their brains in
‘Cause they ain’t got nufink in ’em
We gonna smash their brains in
‘Cause they ain´t got nufink in ’em

Some a dem say dem a niggah haytah
An’ some a dem say dem a black beatah
Some a dem say dem a black stabbah
An’ some a dem say dem a paki bashah

Fascist an di attack
No boddah worry ’bout dat
Fascist an di attack
We wi´ fite dem back
Fascist an di attack
Den wi countah-attack
Fascist an di attack
Den wi drive dem back

We gonna smash their brains in
‘Cause they ain’t got nufink in ’em
We gonna smash their brains in
‘Cause they ain’t got nufink in ’em

We could all do a Zoom session singing this song together!

That is enough for today!

(c) Copyright 2020 William Mitchell. All Rights Reserved.

Spread the word ...
    This Post Has 33 Comments
    1. I’ve had a bit of success by using their narrative against them. When they say “how is this debt to be repaid” you just say “it’s paid automatically when whoever holds the bond as savings decides to spend their money”.

      When a bond matures the recipient has to decide whether to spend or save. If they spend they create a tax stream the eliminates the need to issue a replacement bond. If they save then that is the demand for the replacement bond – along with the bank and the central bank who have deposits with the same chunk of money. So there is always at least three sources of demand for a bond if there is any saving.

      Once you get the narrative onto the bond as savings you can drive a coach and horses through the “debt is bad” belief system.

    2. Good to see you’re active again Neil. I’ve missed your contributions. Out of curiosity, why did you delete your Medium page? There were some good articles on there which I’d have loved to be able to link to, especially when I now get into arguments with Labour people clamouring for a UBI.

    3. MMT economists need to start writing articles in the media……

      With the headline ” If there is a jump in inflation they’ll blame MMT ”

      Get in in front of them like Warren and Bill have been doing highlighting that what they are doing is not MMT. That we are the only ones who understand inflation and we would do it differently.

      We need to start front running them on this and make it crystal clear what we would do differently.

    4. I think we should pause to reflect on the fact that it’s been reported the finance minister of the German state of Hesse, a Mr. Thomas Schaefer, has committed suicide over worries regarding the economic impact of the current pandemic. If indeed this is true, and the reports are accurate, he is to my mind an economic victim of this sort of intergenerational debt rhetoric. Although there may be more to this gentleman’s passing than might ever be known, may he rest in peace.

    5. Here, in this imaginary speech, is the kind of governmental response to the Covid-19 pandemic/panic that MMT shows is entirely within the reach of a currency-sovereign nation. While Bill has already begun to flesh out the economic details of such a response, let us apply maximum social and political pressure to make it happen. As a child, I remember watching “Wild Kingdom” TV shows where a herd of several hundred wildebeests were being stampeded by a handful of lions, which would then take down the stragglers left behind. I wondered then and wonder now why the wildebeests didn’t simply turn around and run AT the lions instead of away from them. At this crucial juncture, will the human herd, not solely the slave of instinct, have the wisdom and courage to reverse course?

      https://www.counterpunch.org/2020/04/01/the-speech-trump-must-but-cannot-give/

    6. A lot of businesses have applied for the JobKeeper incentive but I can’t see how it’s going to save the bulk of retail businesses or their workers.
      If the minimum is set at $750 a week and the business has to pay it first then collect in two months what incentive is there to do it for anyone on or near that level of income let alone a casual that earns much less on average each week ?
      It would make more sense to simply let casuals go as it’s essentially costless and just hire them back again when / if things improve.
      Either way, the Coalition Government will win the next election easy enough given the lack of intelligence among Australian voters.

    7. Just in case you never noticed…

      There is a new UK MMT you tube channel that went live today.

      Many Topics will be covered by the person who helped to introduce MMT to the UK a decade ago. With his very popular 3 spoken website that had many followers. Later followed up by his work on his Medium page that have been distributed across social media for many years. Was a regular on Mike Norman’s blog and appeared on the real progressives channel with Joe Firestone discussing the job guarentee.

      He helped Steve Keen by highlighting his accounting errors with his economic modelling project and is now going to create a live working economic model of his own. He was also a author for Renegade Inc.

      This guy taught me everything I know about MMT in the UK but not everything he knows. That’s the point, nobody in the UK has a better understanding of MMT than this guy. It is good to see him back so I hope you share this new channel far and wide along with his new breakfast show that is linked in you tube channel.

      Our very own Neil Wilson.

      https://m.youtube.com/watch?feature=youtu.be&v=KPyEcTmo2U4

    8. @Simon, I’ve written an article for new Labour Briefing (original) titled: Coronavirus: UBI – Panacea or Snake-oil? It promotes MMT and GIMMS. You have to subscribe (£12 pa) to receive a PDF.

    9. Meanwhile the person responsible for the successful anti-Labor scare campaign, which delivered us blessed Scotty from Marketing, has changed his views about the so-called franking credit.

      “Geoff Wilson, whose company Wilson Asset Management has more than $3 billion in funds under management, said “someone has to pay back” the nearly $200 billion in stimulus spent by the government and “everything must be on the table”.
      Mr Wilson said capping the amount retirees could receive in refunds or reducing further the $1.6 million superannuation transfer balance cap introduced in 2016 would make the franking credit system “more equitable” and “really remove people getting significant benefit” from taxpayers.”

      The community is going to have to pay the price for this fiscal stimulus at some point in time,” he said. “Whether it is increased taxes in future years, it has to eventually be funded.”
      (from smh)

      The realisation that the superannuation system in Australia can be replaced with a pension system paid by the government makes this person shiver. I only hope that when austerity is introduced after the end of the lockdowns, the fall in value of assets under his management is deep enough to make this process inevitable. Personally I don’t care (and I am not with his super fund). It is the distribution of real income not virtual assets and fictious capital what really matters.

      Regarding the Labor. Yes the majority of them are stupid. But the Liberals and the Nationals are not only stupid but evil.

    10. Last night on ABC Late Night Live, an ABC political correspondent made the claim that all this minting and printing of money will result in inflation in the global economy.

      My understanding of MMT is that inflation would not necessarily follow if the economy can match productive resources to meet demand across the economy.

    11. F**k me dead, we’re still on the wrong side of the peak of the crisis and already the austerity has begun!!!

      Queensland frontline public sector workers – you know, those bludging doctors, nurses, firefighters, police etc, those who can’t be sent home to stay safe from infection because everything will collapse if they don’t remain on duty – will have their pay frozen.

      They were due for a 2.5% rise, negotiated in their EBA’s concluded last year but the Premier has bowed to political pressure to freeze it.

      Because everyone knows that if your car has two flat tyres, the best way to deal with that is let the other two down as well so they’re all equally f****d, because that’s fair right? Everyone knows that – everyone except anyone with more than half a brain that is.

    12. With all due respect (i.e. none) the people who say that “someday” these funds\money will have to be paid for, i.e. the bonds paid off with tax dollars are lying.
      The economy is structured so that money flows up to the top income earners. The really rich and super rich. The rest of all nation’s people have no money to tax them to pay off the bonds.
      Therefore, when push comes to shove the rich will not let their taxes be raised enough to pa off the bonds. If the bonds are bought and owned by the central bank it costs the nation nothing to keep rolling them over, forever. This almost exactly like ‘printing money’.
      Those people are just saying that to scare the people\voters into not doing anything to save or help the mass of the people. It is all a sort of BLUFF. All talk and no action to back it up. It is a lie.

      As I have said before (and nobody agreed although it is a very good point IMHO) England, Great Britain, and now the UK have had a national debt since 1694. This is for 325 years. It lost its Empire and this didn’t make it pay off the debt. ‘Someday’ has not come for 325 years. Neo-liberal policies mean the people must suffer now and for the next up to 325 years because that ‘someday’ will come eventually. They are sure of that, eventually it will come.
      . . . I don’t know about you but I don’t want to suffer all my life and my grandchildren’s lives so the people of the future can avoid suffering. And It is not obvious that they will suffer at all, ever. If 325 years has not proven that paying down the debt is not necessary what will it take? [Oh, I know. Economists never look at actual reality. It gets in the way of their magical (evil, negative) thinking.] So, the national debt never needs to be paid down, let alone paidoff.

      And Japan has proven for the last 28 years that massive deficits year after year do *not* cause high interest rates or inflation, and certainly *NOT* hyperinflation. But again, neo-liberal economists *never* look at reality unless it supports their conclusions.

      Come on people tell me what is wrong with this argument or better, agree with it here publicly.

    13. Last night I happened to watch a youtube video from about March 2017.
      By Thomas Frank, who wrote “What is the matter wit Kansas}and “Listen, Liberal”.
      He has it very correct.
      My point though is that he said in the video that he used to appear on MSNBC, and he has not now for a while. He said he is not welcome on any media because his message is one you can’t argue to the public. The media is owned by the super rich and they control the messages that are told on their media.
      Therefore, writing great persuasive articles that *prove* we are right will not matter because they will not be published where people will see them. We need to go around the Media somehow.

    14. The big government deficit means that the net financial assets of the private sector increases by that amount. How will those financial assets be eventually distributed?

    15. Above I wrote,
      “England, Great Britain, and now the UK have had a national debt since 1694. This is for 325 years. It lost its Empire and this didn’t make it pay off the debt. ‘Someday’ has not come for 325 years. Neo-liberal policies mean the people must suffer now and for the next up to 325 years because that ‘someday’ will come eventually. They are sure of that, eventually it will come.
      . . . I don’t know about you but I don’t want to suffer all my life and my grandchildren’s lives so the people of the future can avoid suffering. And It is not obvious that they will suffer at all, ever.”

      Let me add this.
      Looking at before the current crisis, the rich were not suffering. The mainstream Neo-liberal economic theory helped them get richer. The mass of the people have had flat wage growth for well over 2 decades now. They are suffering. The economic theory says that Gov. deficits should not be used to help the mass of the people not suffer. But massive Gov. deficits are used to bail out the banks owned by the rich and to give the rich bigger tax cuts, that they don’t use to pay their workers more or to hire more workers. These deficits are treated as if they are just fine, but deficits for the mass of the people are going to be a problem “someday”.

      Well I say that we can worry about the problem when they happen if they happen. I don’t see any reason why the mass of the people should suffer and the rich get bail out and tax cuts. I think the theory is false and evil. Those economists who can say “WE knew that all along, and that MMT has nothing new to say” are evil people.

      This coronavirus crisis must end their hold on the minds of the people. The evil must be expurged or expurgated from the world.

    16. Above I wrote,
      “England, Great Britain, and now the …
      ..snip the middle part…
      … not obvious that they will suffer at all, ever.”

      Let me add this.
      Looking at before the current crisis, the rich were not suffering. The mainstream Neo-liberal economic theory helped them get richer. The mass of the people have had flat wage growth for well over 2 decades now. They are suffering. The economic theory says that Gov. deficits should not be used to help the mass of the people not suffer. But massive Gov. deficits are used to bail out the banks owned by the rich and to give the rich bigger tax cuts, that they don’t use to pay their workers more or to hire more workers. These deficits are treated as if they are just fine, but deficits for the mass of the people are going to be a problem “someday”.

      Well I say that we can worry about the problem when they happen if they happen. I don’t see any reason why the mass of the people should suffer and the rich get bail out and tax cuts. I think the theory is false and evil. Those economists who can say “WE knew that all along, and that MMT has nothing new to say” are evil people.

      This coronavirus crisis must end their hold on the minds of the people. The evil must be expurged or expurgated from the world.

    17. A message about fiscal responsibility from the Canadian Minister of Health:

      Feds likely didn’t have enough protective gear in emergency stockpile: Hajdu
      https://www.nationalnewswatch.com/2020/04/01/feds-likely-didnt-have-enough-protective-gear-in-emergency-stockpile-hajdu/#.XoWGiYhKi–

      Minister of Health Minister Patty Hajdu:

      “I think federal governments for decades have been underfunding things like public-health preparedness, and I would say that obviously governments all across the world are in the same exact situation,” Hajdu said.”

    18. Putting on the Marxist hat, there’s no surprise in the Canberra bubble response. As the big K noted in the Manifesto:
      “The executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie.”
      This is not to say that Government is their to blindly serve the Capitalists – it has it’s own self interest; maintaining order for one – but they know which side their bread is buttered: no Capitalists, no major parties.

      I think many people forget the Labor party is a pro capitalist party. It just thinks workers should get a fair of productivity gains (or they used too and they’re now indefinitely postponing until finishing cocktails with the elite).

      As an aside, I pointed out to one of my work colleagues that the RBA will be buying Government debt. The first response was inflation. Now, that’s some ideology speaking.

    19. “The Prime Minister was clearly trying to stop his Treasurer lying to the people – stop it!”

      Thanks Bill, priceless!
      It’s not often I get a chuckle from an economics blog…..

    20. < Deficits are flows that exhaust. Any matching debt will be paid back upon maturity
      I don't get it – why is there matching debt? I fully understand that the RBA can create ("print") money for the government to spend with a few keystrokes and that the only constraint on govt spending is inflation, The government does not have to borrow to finance deficit spending because it can and does just create the money. So where does the "matching debt" come from? Who is it owed to if the government never borrowed?

    21. Dear Grahamc (at 2020/04/03 at 7:29 am)

      The matching debt is because the AOFM will be running auctions weekly in the primary markets. We haven’t reached the point where the government will stop issuing debt.

      best wishes
      bill

    22. “Stop it! It’s Ridiculous!”

      I wish somebody would say that to Katharine Murphy, Guardian Australia’s doyen political journalist.

      In her weekly podcast she opines:

      “The Australian community will in a little while will start to be worried about how-the-hell we’re going to pay for all of this. That will happen. That will definitely happen.”

      But not to worry. She goes on to tell us the government can always go to the IMF.

      I never thought I’d see Katharine Murphy giving Barnaby Joyce a run for his money in the Stupid Stakes.

    23. Hello again

      New Zealand has started austerity measures here. And I think our finance minister Grant Robertson is unshakably working for the FIRE economy (finance, insurance and realestate). Businesses are encouraged to take on more debt, and mass unemployment will be tolerated. So far the plan is to let approx 300,000 become unemployed on the Job Seeker Support (JSS) of $250 per week when most rent in NZ cities are above $600 per week. Our social security department is in lockdown and nobody can get through to get the meager JSS. The far left are talking up the universal basic income despite it being a surrender to FIRE. You Aussies are far better off with a Job Seeker Support of $550. Oh how we look to our compassionate neighbors!

    24. I don’t have any respect for the whole apparatus still spouting the ‘fiscal’ responsibility. Now that we are watching these people being proven incorrect in real time. Before this you’d just have to go to 2008 for an example. (which they desperately tried to post-rationalise to their own ends)
      They are demonstrating contempt for human life in the same way any charlatans do. If the virus doesn’t get people the return of fiscal austerity after this mess will for the numerate be an equal death toll.

      These people need to be called out in the same way we’d deal with anti-vaccination, climate change denialists now.

    25. < matching debt is because the AOFM will be running auctions weekly in the primary markets

      Thanks for the explanation Bill, much appreciated

      Regards

      grahamc

    26. I notice that on your MMTed website you have a link for making a donation. What do you need my money for? Can’t you just ask the bank to create the money (cash) you need to pay your bills? Why can’t the people who keep sending you bills just create their own money? This would all end up in a jolly merry-go-round until some ignorant sod noticed that the emperor had no clothes.

      At a macroeconomic level, why not issue everyone with a UBI? Then no-one would be a wage slave ever again. We’d be free to do as we pleased, and if growing food sustainably wasn’t what pleased us, we could always write cheques to pay for food imports. What could go wrong with that?

      This is a serious question.

    27. John, there really are answers to your questions here on this blog. But it will require you to do just a tiny bit of research such as using the damn search tab at the top of the screen. And then you probably need to actually read some of what you come up with. Good luck man and learn while you can.

    28. Just watched The Insiders on ABC. I have a rising level of anxiety, not because of the virus but because the austerity mantra is re-emerging, and like the virus, it too seems to be on an exponential curve, and there doesn’t seem to be a counter narrative in the national media. (Your Alan Kohler interview and article, about the only exception)
      There is never going to be a clearer demonstration of how the economy can be made to respond when politicians pull the right levers. (that’s good but) The “how are we going to pay for it” question needs to be put to bed ASAP or the voices of reason may be drowned out. (that austerity mantra curve needs to be flattened)
      Why can’t the commentators get their heads around which dials tell them something useful, and which levers are not even connected to the machine? … yeah probably cause they ain’t got nufink in ’em.

    29. Hi Bill,

      Great post, thanks. Can you please elaborate on this:
      “Any growth in spending (private or public) can push nominal demand faster than the capacity of the productive side of the economy to respond to it in the form of production of real goods and services.”

      How do you analyse the potential for this to occur? Won’t the above naturally occur during this pandemic as the amount of spending will surpass the ability and capacity of the productive side of the economy to respond – given the productive side of the economy is all but closed…unless it’s deemed critical infrastructure. Other than petrol, certain items, even basic needs and vegetables, already appear more expensive in supermarkets (i’m not referring to the oddity of certain goods being hoarded).

      Thank you,
      Alex

    30. Hi Bill,

      Just to add to my previous comment: do you see the possibility of stagflation? Perhaps not 1970s style inflation, but certainly higher than what we’ve become accustomed to? It seems like productivity capacity is just being met with pure stimulus.

      Thanks,
      Alex

    31. Alex, this is how I analyse the inflationary effects of unemployed workers being funded by the government:
      1. MMT explains that the Australian government can pay for food and accommodation for unemployed workers, *without the government borrowing the money*, because sovereign currency issuing governments can issue their own money, via treasury and central bank operations.

      2. This government spending will not cause inflation, because the money will only replace the lost wages of laid-off workers, and therefore will not create any excess, NEW demand for the nation’s present (sufficient) supply of available food and accommodation.

      Note: spending on non-essentials will naturally be limited during this pandemic since production will have been closed, eliminating another potential source of inflation.

    32. Thanks Neil, i get point 1. Still not sure about point 2. I like the way your illustrated the point, however. Conceptually it makes sense to me, practically the transmission mechanism could be retarded, the implications of which may be harder to understand re how things percolate through an economy. But broadly i think it makes sense. I can’t imagine the consumer will have sufficient disposable income to create a hedonistic excess at this point lol. And businesses won’t be spending unless they have sufficient demand for their goods and services. It’s a period of cash preservation.

    Leave a Reply

    Your email address will not be published. Required fields are marked *

    This site uses Akismet to reduce spam. Learn how your comment data is processed.

    Back To Top