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MMTed Q&A – Episode 10

Here is Episode 10 in our weekly MMTed Q&A series. This is the last episode in Season 1. We are experimenting with new formats and will be back later in 2020 with some live shows (if the virus abates). In this episode, I continue my talks with special guest is Warren Mosler. We talked about the Modern Monetary Theory (MMT) approach to trade, which confounds a lot of people but is really quite straightforward. And, as usual on a Wednesday, we have some great music.

MMTed Q&A – Episode 10

This is Episode 10 and the final in the first season of our MMTed Q&A series. Season 2 will return later in the year.

This week, my special guest is Warren Mosler, one of the founders of MMT.

We talked about the MMT approach to trade – distinguishing between real and nominal conceptions.

The video goes for 7:25 minutes.

Note the discussion is mostly via Zoom, which means at time the audio and video quality is less than first-class. But we are learning to live with that constraint.

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Today … Jigsaw Puzzle Blues

In 1933, violinist – Joe Venuti – recorded a track with guitarist – Eddie Lang and his band Blue Five.

The track was – Jigsaw Puzzle Blues.

Eddie Lang was probably the first guitarist to play in jazz bands and dance orchestras in tat period (1920). Sadly, his great playing ended when he died at the age of 30 after complications from surgery (tonsillectomy). A minor operation now but fraught then.

His playing is greatly missed and worth studying – I learned a lot copying his lines.

Joe Venuti and Eddie Lang were childhood friends and created really exciting guitar/violin interactions through the 1920s and into the 1930s. When Eddie Lang died in 1933, Joe Venuti’s career stalled until he was ‘rediscovered’ in the 1960s playing in a Las Vegas hotel.

After that some magnificent recordings followed with swing pianist – Earl Hines – which still occupy a highly-ranked space in my collection. It is crowded up there!

Anyway, sidetracked!

Later on, in January 1969, Fleetwood Mac (before they became a pop band) released an album – English Rose – and track 2 was ‘Jigsaw Puzzle Blues’ – different song but same name and the inspiration from the earlier version is fairly clear. This was a US only release.

Soon after, the song was re-released worldwide on the – The Pious Bird of Good Omen (1969) – which is where I heard it. I still have that original

It was written by guitarist – Danny Kirwan.

The connection with Joe Venuti’s version is no surprise, Danny Kirwan’s mother was a jazz singer and apparently listened all the time to Eddie Lang, Joe Venuti and guitarist – Django Reinhardt.

While – Peter Green – was the big guitar star in Fleetwood Mac and the other guitarist – Jeremy Spencer – played the slide guitar lines, Danny Kirwan offered beautiful chord melodies and some very subtle vibrato and tremelo.

This is one of the classic pieces of guitar playing. Only 1:36 minutes long and deceptively simple. But really beautifully structured and quite hard to play while keeping tempo.

Danny Kirwan, like the other great guitar player in the band – Peter Green – who died recently, endured a life tormented by mental illness.

He died in June 2018 (aged 68) and was afflicted with alcolism and drug abuse.

He spent years homeless in London. Mick Fleetwood continually would track him down to help him. He lived on the royalties from the Fleetwood Mac days.

The last interview he did was in July 1997 for Guitar Magazine – but I cannot find my old copy of it to scan unfortunately.

Very sad – died of pneumonia.

A great guitar player in the shadow though of the greatest player of his time (Peter Green).

That is enough for today!

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

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    This Post Has 46 Comments
    1. Does this make any sense?
      MS econ. is still thinking in the gold standard mind set.
      Back in those days exports brought in gold. At least excess exports did. Gold added to the nation’s wealth, so exports were good.
      Germany still thinks like this. For them exports bring in euros. These euros add to the money supply and let the nation tax more without making the Private Sector be in deficit. Just like in gold standard days.
      Now look at imports in gold standard days. Then excess imports reduced the nation’s gold supply. This was bad because the paper money supply was directly limited by the gold supply. Reducing the money supply was bad then just like a Gov. surplus is bad now because it reduces the nation’s money supply

      However, a nation like the US doesn’t need gold. It can create dollars and so-called deficit spend. This adds to the dollars in the Private Sector just like exports did before. So, now, importing stuff in exchange for digital dollars is good for the nation. At least until an enemy nation starts using its digital dollars to harm the US nation. However, the US could & should, in that case, take steps to block or undo the harm being done to the nation by the enemy nation.

      Let me add this:
      Try looking at the US debt and deficit from the POV of the Private Sector.
      The US Gov. deficit is also and always the US Private Sector’s surplus, period.
      The so-called US Gov. debt is also and always the US Private Sector’s additional assets, period.
      Worrying about the deficit and the debt is gold standard thinking that is not relevant to the fiat world we live in.
      A US Gov. surplus is also and always the US Private Sector’s deficit, period. In most years why is doing this a good thing?
      Reducing so-called US Gov. debt always is reducing the US Private Sector’s additional assets, period. In most years why is this a good thing?
      I keep asking people those last 2 questions, and I never get one person to even try to give an answer.

    2. Portfolio managers all over the world are balancing their portfolios to mitigate risk.

      Since bonds can no longer hedge their risk of their share portfolios they have moved into gold. They Are using gold instead of bonds.

      I think there is some truth in what some people say when they say the FED can determine risk asset prices but not to the degree they say it can.

      Warren says look at Japan with low interest rates and negative rates for years now. The Japanese index didn’t show a rush to the Japanese stock market when this happened.

      However, how much of it flocked to the US risk assets and into US treasuries ?

    3. Steve, I like your thinking and the way you put it. We who advocate for MMT must strive to speak in everyday language or we risk losing the public’s attention and interest, even if we eventually win the academic debate. The frame of limited money constrained by the gold standard vs. fiat money created by the elimination of that constraint, is, to me, the simplest way to get across to the average person that things economic have fundamentally changed and that, accordingly, new economic thinking is in order. The gold standard and its elimination are also perhaps the best way to get across the corresponding distinction between household economies and currency-sovereign federal economies.

    4. Someone who needs to see this is Martin Sandbu. His FT op ed today is sheer nonsense: “If Japan is a harbinger of the future for all rich economies, then, expect public debt to stay high and taxes to move higher.”

    5. Excellent response from Warren and very clear on the physical goods vs paper when foreign Companies/Countries buy T bills in say USA to complete the trade imbalance in physical goods. Lets take Australia where we in recent times are running a trade surplus but a CAD due to the FNI of a lot of foreign ownership of the export resources. The issue I honestly do not understand is how when running a CAD the argument holds when you do not have the reserve currency of the globe. Given we need to attract say Euro’s to pay for the BMW’s so yes we have a pile that now includes the BMW physically but we sell off a real asset say a Lithium or Cobalt deposit to get the Euro in the first place so our Aussie $ used to pay BMW OZ can be converted into Euro so BMW OZ can pay the factory in Germany. Germans are not going to just give us stuff because we are nice guys and run a a budget deficit to fund in OZ $ the economy. So my question is more about the longer term when you run a CAD for 30+ years and are progressively flogging everything off to maintain a lifestyle in the short term. The longer term the BMW is now in a car crush we have still sold off the asset (a mine finite life) but lets assume it is a monopoly asset like the electricity infra (poles and wires). Can someone please explain the bigger longer term picture I’m trying to describe for what I see in Australia? People refer to Japan but they generally run a CAS not a CAD and yes they can run budget deficits as high as they like and for as long as they like or until inflation becomes problematic! So lets take a CAD like OZ yes we get the physical stuff but this has to be not sustainable indefinitely, since the capital account needs to balance the CAD? That is the part of MMT that just does not appear to hold in my mind, otherwise MMT in my mind just makes sense and is stock and flow compliant. Thanks, can someone please educate me on this aspect?

    6. Oops a little late, being written while Derek posted, which I haven’t read.
      AFAIK, international trade is a problem for all economic theories.
      If the MS econ. assumption that the ‘market’ is just one person selling to herself, then of course it gets it wrong.
      OTOH, I personally have not seen an MMTer explain it well.

      For me the main assumption we *must* make is that int. trade is a ‘zero-sum game’. That is for every buyer there must be a seller. Or, for every net exporting nation there must be some net importing nation or nations.
      . . . It seems to me that it follows directly from this that, no nation can import more than it exports every year for many, many continuous years. At some point it will run out of money or stuff inside its borders it can sell to get money. The US seems like an exception, but it is possible or likely that other nations or foreigners in general will stop being willing to save UD$. That is, someday the US$ will stop being the worlds reserve currency.
      . . . From this it seems to follow that no nation should be “allowed” to export more than it imports over some time period, like a decade. The only exceptions would be nations that owe other nations money.

      Peter Zeihan in an IFTV youtube of Nov. 24, 2014, said that after WWII the US made a deal with the world. It would buy all stuff they wanted to export and police the sealanes, etc. The Bretton Woods system was put in place. The US was on the gold standard at $32/oz., and all others pegged their currency to the US$. Functionally, this put the world back onto the gold standard.
      . . . There were some problems because some nations could not avoid importing too much and could not pay. IIRC, the US bailed them out. [This is the problem now with int. trade (gold standard or not). It is always going to be a problem until it is fixed.] Then in 1971 the Sec. of Treasury told Pres. Nixon that there was a run on the US gold reserves and the US could not do anything but go off the gold standard, which Nixon did do.
      . . . What the Bretton Woods period showed *me* was that (even in the best times the world had ever had, economically) the system was deeply flawed. Even with the US having a CAD every year some nations still got in trouble, and then the US got in trouble. So, even in the biggest boom period in history int. trade was still “unstable” over just 26 years.
      . . . I can make an analogy to people in a city. Some people earn less than they *must* spend on food and rent. No matter how much money they start with, someday they will not be able to buy food to eat that day. They will need help. Lending them money (like the EU did to Greece in the GFC) can never solve this problem, because the person (or Greece) can never pay the loan back. Therefore, logically the must be charity, some sort of free money. [In this analogy, the solution of ‘get him a job’ is not possible.]
      . . . Historically, many nations went to war and invaded a neighbor when they got in this mess.
      . . . In the US we can see the states as being like nations. They use a common currency and can’t control their borders. The solution in the US is that the Fed. gov. spends more than it taxes out, into the states with a net outflow of money. This comes close to balancing the outflow. So far at least, it is not critical, but it is a problem that *no one* has faced yet.

      My conclusion is two fold —
      1] That most nations be *required* to have close a balance in their Credit Account averaged over each decade, unless they are paying off old debts.
      2] That the world must create a charity system for those nations that can’t seem (no matter what they do or can do) to sell enough to be able to buy what it must buy.
      . . . Or, maybe the UN could put a tax on all nations with a Credit Account Surplus and give the money as charity to the nations that need it.

      Why doesn’t anyone see this? I think it is an example of the observation that you can’t make someone *see* fact X, when his income depends on him not seeing it. That is, the rich make money from int. trade and so can’t see the inherent problems with the system.
      . . . I keep saying that I’m not an expert. So, I can be wrong here. Show me how I’m wrong here.

    7. Mr American. I think you’re right, only I would substitute a few words “the wealthy and the powerful gain more wealth and power from int trade.” I don’t look at the system as founded on benevolence and good will toward men, and so most people want to correct it, so it can work well for everyone. That’s nonsense put out by the MS econ, who serve wealth and power and to seek to obfuscate the things that are actually taking place, because if all the people knew the raw, vulgar, ugly truth of the true drives and things operationally happening it would make the population very hard to handle as they incorporate that type of ruthless aggression into their own behavior. Bretton Woods was about Empire. The United States Empire. The understandings between the US and the other lesser powers toward assuring their security and continued global dominance.
      There are advantages to being the global reserve currency – veto power over financial transactions over the whole world. As all trade involves finance, it gives this country the ability to economically hobble other countries, say like Venezuela, Iran, Iraq, Libya. Note that each of these countries has large quantities of oil and so become particular objects of US attention, or are perceived as problems requiring a solution. All the loans of the World Bank and the IMF are in US dollars. So we have a system where the institutions of world benevolence and aid, work to place those needing help in debt, beholden to, obligated to this country. To make things such that the US can establish financial, economic claims on other parts of the world. The next step is to ensure they fail. And then, we get to foreclose. That’s why some countries are losers. Loser exist by design. Hope I helped.

    8. Added to my reply of 13:14.
      1] After a little more thought, the UN tax on net exporting nations would actually be on its Central Bank which would create fiat money to pay it. In the EU case, the EU would have to do something,because the tax would be on the ECB and it would create euros. But the guilty parties are nations like Germany, et all. So, the EU could let them slide or impose some penalty on them.

      2] @ yok, I don’t blame just the USA. Other nations are also to blame and they can’t stop because their rich can’t see the problem, i.e. Germany. That is why I just said the ‘rich’ can’t see a problem.

      BTW — when I was very young around 1953, the US was the largest creditor nation the world had ever seen. By about 1968 the US was the greatest debtor nation the world had ever seen. I was young and didn’t know this was an intended effect of the post WWII arrangement.

    9. “It seems to me that it follows directly from this that, no nation can import more than it exports every year for many, many continuous years. At some point it will run out of money or stuff inside its borders it can sell to get money. ”

      That is technically wrong Steve. The country will not run out of its own money and doesn’t need to sell stuff to get that money either.

      But it is possible that nobody else wants that money it can create and therefore won’t exchange goods for it.

      You need to be careful with the details if you are going to explain MMT to others.

    10. I would say that a country can sustain a current account deficit as long as others are willing to hold that nation’s currency as a form of savings. All things may seem to come to an end eventually, but there is no fixed formula that will tell you how far off that end may be.

      The trade stuff is not among MMT’s best arguments in my opinion.

    11. “Given we need to attract say Euro’s to pay for the BMW’s ”

      That’s the fundamental error in thinking about international trade. Once again the mainstream view is naive – because they just don’t understand banking.

      You don’t need to attract Euros.

      The correct view is that the buyer always get to use the currency they have and the seller always receives the currency they desire – and the deal will only happen if the financial system can make that match – for which it gets paid.

      Once you see it from that point of view anything that is recorded in the statistics exists only because the financial system was able to make the match. What that should tell you is that banks have a mechanism to deal with it.

      And they do. What happens when BMW rock up with a load of AUD they have received for their BMWs is that the banking system *creates* a load of Euros by discounting that AUD at the current exchange rate. That has the automatic effect of moving the bank equity in the opposite direction – from Euros into AUD (that’s your “attract Euros”). Which doesn’t matter as it is immediately re-reported in Euros because that’s the reporting currency (say). You won’t see it unless you are in a Bank’s Treasury department – who will then shuffle things around until they are happy they have their risk weighting as they want it, which has the effect of clearing a load of the money previously created – reducing balance sheet sizes. And that’s where the exchange rates really move.

      Just like mainstream people think you have to save to make room for investment, they think you have to attract Euros before you can buy foreign goods from the Eurozone. People in finance are far cleverer than mainstream economists. They make money getting around things economists say are impossible.

      The most appropriate way of thinking about floating rate international trade from an MMT view point is to imagine, for each side, that everybody who wants imports in a nation actually uses their money to buy all the goods the nation is exporting. Then each side swap the goods – so Coal for cars.

      That roughly represents the reflection mechanism inherent in floating FX trade.

      What you find then, necessarily, is that one of the sides actually wants financial assets denominated in the other currency as an import. If that means you are exporting those financial assets, then you manufacturer them for export – like you would anything else.

      It’s more common than it sounds. Norway, for example, exports its oil and fish and wants paper in return so it can bury it in its “Sovereign Wealth Fund” – which is just a mechanism to avoid a Dutch Disease problem in Norway. China buries paper at its central bank for similar reasons – (or perhaps pure Mercantilism. Who knows).

      Just as you export boats of coal for as long as other people want them, you export financial assets for as long as other people want them.

      They may stop wanting your financial assets. But if they do then they don’t get to sell the cars – and there is no source of untapped demand elsewhere for them to sell the cars, which would then cause a price collapse *on all sales of that car*. (The price of oil went negative everywhere due to a demand collapse earlier this year) , or a big run up in inventory. Which then starts to impact jobs. They have a vested interest in running the game on for as long as they can.

    12. Neil do you think that maybe Norway expects (or at least hopes) to be able to import more than it exports at some time in the future and maybe that is why they did the sovereign wealth fund thing? The bank money creation processes that you seem to say enable any currency issuer to run a continual current account deficit yet purchase real goods in real time seem a stretch to me.

      Although I wouldn’t have believed there were such things as synthetic mortgage backed securities either so who knows what the Wall Street types can make up and get away with.

    13. @Neil, et all,
      I said something like “no nation-X can import more than it exports for many, many continuous years.
      The key words there are “many, many”. Sure, you can do this for less than ‘many, many’ years.
      Someday the outside world will have all of “nation-X’s” financial assets that it can stomach.
      Some may try to use them to buy real assets in the nation-X. This can be a huge problem, and it likely will result in eminent domain being used to take those recently foreign bought assets back from them. It also doesn’t help all that much. when you already have too much of nation-‘s money what good does it do you to buy stock in some comp. and get dividends in nation-X’s currency. However, if you buy the whole comp., and start moving its machines to your country that is when we see the problem I noted above.
      . . . So, I think that in my original reply I covered your exception or objection.

    14. Steve, your comment the way you wrote it was inaccurate. Deal with it and try to be more accurate. Even if you think people should understand what your intended meaning was. You will run into people that don’t already mostly agree with you or MMT and they will rip your arguments to shreds if you are slightly inaccurate. It can be very unpleasant in my experience.

    15. Jerry,
      I posted my comment to another post and I did edit it in light of the replies I got.
      So, you-all improved my post.
      Thank you.
      So, I did deal with it.
      And, my skin is pretty tough and I don’t care that Trumpers slash my posts to shreds.
      I just today told a Trumper on the other site, that I believe in ACC aka AGW, and his evidence that I’m wrong no more convinces me, than my evidence convinces him that he’s wrong. Fake news seen from opposite sides.

    16. “Neil do you think that maybe Norway expects (or at least hopes) to be able to import more than it exports at some time in the future and maybe that is why they did the sovereign wealth fund thing? ”

      Notionally yes, practically no. Remember what it means dynamically. Those assets are in a denomination. If they try to liquidate it too quickly you the price will be on the floor and they won’t have anything to spend. Should they be holding currency, if they try to use it they will trigger a boom in the country of issue and a tax response.

      The squeeze on Norway should come from limiting their income from the assets. Stop issuing bonds and tax the income from foreign holdings of assets. They’ll do the same to you, but since they are holding financial assets and have to hold them or their economy collapses you’re in the driving seat.

      Essentially MMT provides the blueprint for net deficit countries to exploit the “export led” growth system – which will bring about its end. And hopefully neoliberalism along with it.

    17. Neil wrote, “Essentially MMT provides the blueprint for net deficit countries to exploit the “export led” growth system – which will bring about its end. And hopefully neoliberalism along with it.”
      In this case, this is only your opinion. Has any Professor of econ., who is an MMTer, said that? If not then it might be wrong. I’m not enough of an expert to be able to say one way or the other.
      Still, it has never been done yet, so it isn’t as certain as your wording suggests.

    18. Neil,

      “That’s the fundamental error in thinking about international trade. ”

      When you boil down your confusing response to Kento it amounts to the statement that Kento made:

      “Given we need to attract say Euro’s to pay for the BMW’s ”

      If the seller of BMWs wants euros the importer has to supply them. The importer has to either use an existing stock of euros, buy them in the foreign exchange market or borrow them. And of course the question being begged is where did the stock of euros come from in the first place?

      To the extent that the seller of BMWs is happy to accept the local currency there is no problem. The seller may have reason to want local currency, to pay commitments he has in the local currency or he may believe the local currency to be strong and a good “investment” or a safe place to park his financial assets.

      Do you think, however, if the seller of BMWs was exporting to Zimbabwe, he would want a significant portion of the proceeds of the sale to be in Zimbabwe currency? I would think not. The importer would have to find foreign currency which the seller of the BMWs was happy to take.

      MMT has nothing to offer in this circumstance. The Zimbawe government can create as much of the local currency as it wants, it will be hard pressed to find anyone who wants it. And the more it creates, the less likely anyone is going to want it.

    19. Neil had an interesting comment the other day about the Job Guarantee and how it could be understood as perhaps a ‘labor value peg’ for the currency and I am trying to see if it can be incorporated into an understanding of trade with the rest of the world that makes sense to me. Because in some ways it seems easier to understand why a nation would be willing to export in exchange for a pegged foreign currency such as one pegged to gold. So here is the comment-

      Neil Wilson
      Wednesday, August 5, 2020 at 1:16
      “So what does this mean? ”

      “It means something that few people realise. MMT leads to the conclusion that you have to peg the currency, but that you have to peg it to something that cannot be stocked.
      Currency pegs to other items break down because somebody somewhere always has a stock of the thing you peg to, and who then releases that stock and breaks the peg.
      However if you peg the currency to labour hours then there can be no stock as nobody can save today to use tomorrow.
      But for a peg to be a peg there has to be a permanent ability to convert the underlying (labour hours) into the currency, as well as the ability to use the currency to obtain the underlying.”

      I think I agree that a JG would act as a peg of sorts for a currency by setting some minimum value in terms of labor on that currency but it might be required of the currency issuer to be prepared to buy and sell labor at that exchange rate in order to defend it. Or maybe it just sets some minimum value of labor in terms of the currency? I am not sure a currency issuer can credibly promise to sell labor at a set price.

      Well if I am going to be able to understand foreign trade using this as a framework, then I will at the very least have to think about this more- or better yet, get some others to think about it first :) Henry- you are always interested about trade- any thoughts?

    20. Well this doesn’t seem like a good way to think about trade. A job guarantee might ensure you could get the currency by providing labor. But I can’t see it ensuring that you can get the labor, or at least the particular labor you want, by providing any fixed amount of currency. So I guess it isn’t going to work like a gold standard might as far as foreign trade.

    21. Jerry,

      Yes, I agree that Neil’s comment is one of the more interesting he has made. I’ve been mulling it over myself.

      He makes the point that the currency should be pegged to something that cannot be stocked. Bill talks about the inspiration of the Australian wool buying scheme. I don’t think I have ever seen him say that it eventually collapsed. It collapsed because wool producers kept producing at normal rates, the stockpile built up and could no longer be supported because of mounting finance costs. The same thing happened to the International Tin Agreement. Look at the oil market – it is entirely rigged – the oil is kept in the ground as required for price control – and periodically it collapses.

      In the case of a monetarily sovereign government, finance is not a problem. So the stock of JGS employed can be augmented at will.

      If the government is committed to maintaining a low rate of inflation then I can’t see that there will any problem with the exchange rate. And if the inflation rate is in check then the country can maintain its international competitiveness. The owners of financial assets denominated in local currency and exporters and importers will all be happy.

      I’m not sure if that is of any help and I don’t really think I have done justice to Neil’s comments. More mulling required.

    22. At the end of the day, nothing can provide insight into how to do trade when one side can put up whatever barriers it wants overnight, especially if it includes a few battleships on the coast, or even on that of there allies. But, as long as certain arrangements are kept, and a flow is profitable, economic theories can offer insight into how capital finds a way, even when it shouldn’t, and how it’s not in its interest to crash its own assets.

    23. At the end of the day it is the credible threat of force by the government that drives demand for a fiat currency within a country in the first place. It isn’t surprising that it also would be a factor in international trade patterns.

    24. Thanks Henry. I’m starting to think that the processes that make an otherwise worthless fiat currency work within a country just are not usually applicable to trade with those outside the country and then trying to square that with the observation that it often seems to work in actuality. So I have a serious disconnect going on somewhere. Or maybe the two processes really are fundamentally different from each other.

    25. I’ve taken the distinction between the private and eternal sectors to be
      – the private sector uses the money and is subject to the laws
      – the external sector uses the money an is (mostly) not subject to the laws. Military force might be brought to bear, as you say.
      Government, of course, creates the money and the laws.

    26. Yes Mel. But the external sector mostly only uses the currency if they want to right? I mean outside of the battleships scenario that Paulo brought up- that seems reasonable? So why do they want to use the currency, unless it is to use it to import products they want from that country or to save in that currency for future use?

    27. Jerry,

      “So I have a serious disconnect going on somewhere.”


      What is it that anyone values about a currency? It is stability. Keep domestic inflation in check and there shouldn’t be a problem.

      However, that’s not the end of the story.

      The attractiveness of a currency is a function of its use in international trade and capital transactions. Accumulating PNG Kina is not much use to anyone engaging in transactions with the major players in trade and capital flows, viz., the US, China, Germany, the UK etc..

    28. Would it be too wrong to simplify that to ‘the attractiveness of a currency is a function of its attractiveness’? Network effects and all that? I mean it sounds kind of ridiculous but it makes a certain amount of sense.

    29. So, no replies as t the usefulness of my idea that int. trade should be kept in balance.
      That nations like Germany, Japan, and China need to stop exporting more than they import. Not on a yearly basis, but on a decade basis.
      It would not matter in that case if exports were a cost or income, and imports a loss or benefit. They would be equal.
      I think that MS econ. theory is BS. On international trade is says that a nation should buy what others make cheaper and sell what it makes cheaper. It ignores how close to equal in money value those 2 categories turn out to be for any given nation.
      So, it ignores the problems that can result from capital flow and int. trade. For example, a Ger. bank lends money to a Greek person to buy a house. These euros enter the Greek economy. They are income for the Greek Private Sector. Someone in Greece uses them to buy a BMW. Now, Greece has 1 more BMW and a Ger. bank has an asset in the loan repayment note. What happens when, not if, the Greek with the house can’t make the payment? Why would anyone think that Greece can get enough euros with exports (not borrowing them) that all the guys with the houses can earn them and make the payments?
      MS econ. theory is clearly going to be a problem because it pushes the free flow of money and free int. trade.
      ASAIK, MMT doesn’t talk much about this either.
      The Greek/German case is special. What about the general case where the EU is not involved? Does the EU send ships to demand payment from (say) South Africa. [The US did send marines to demand payment from Central Am. nations 100 years ago more or less. Other nations have done such things in the past.]
      It seems to me that the world should avoid conflict and war and use fiat currencies to smooth over the costs. This would be cheaper than war. War is very expensive.

    30. Basically, exports pay for imports, we exchange stuff. But in an advanced financial system country can almost permanently have some CAD. I believe I read it here that Australia has had on average 4 % CAD since the early 70:s. Australia is an advanced modern country and foreigners do not have any problem to have economic claims on it.
      That Cal always should balance out to zero are impossible.
      Zimbabwe could probably not do it.

      MMT does only say you can create money and buy what is for sale in that currency. Anyhow almost all currencies can in any moment be exchanged for another on global money markets.
      But oil companies and so on will probably sign long term contracts in USD. The aspect of which jurisdiction the currency is under are important. So international law is appliable. USD exist in the American banking system and under its jurisdiction.

      But it is a mystery why modern industrial nations like Germany and others (EU) are so hooked on export led growth. Why do they think that US deficit dollars are better than deficit money in their own currency? Used to keep their domestic economy going.
      One can understand an emerging developing nation like China, accumulating USD (good as gold on the international market). What did Clinton, Goldman and Wall Street believe when they outsourced big time to China? That the Chines wouldn’t use their pile of US deficit dollars to enhance their international position?

    31. ” think I agree that a JG would act as a peg of sorts for a currency by setting some minimum value in terms of labor on that currency but it might be required of the currency issuer to be prepared to buy and sell labor at that exchange rate in order to defend it”

      The Job Guarantee buys off the floor. If there is labour available it buys it at 10 units per hour.

      If a firm wants to pay more than 10 units per hour (or 10 units per hour with good prospects, or even an internship for six months on nothing with the promise of a massive job at the end of it), then the Job Guarantee relinquishes the labour automatically and dynamically.

      It doesn’t compete on price to retain the labour, and that’s how it “sells the labour back” to the economy.

      Remember labour hours are non-stockable. When they are gone, they are gone. Thinking in terms of piles of currency will get you the wrong viewpoint.

      The other way of looking at it is to see the JG as the “default employer”, and all private businesses bid labour away from that default employer by buying the hours from it.

    32. Thanks Neil. Explained that way, I can see some similarities to a currency peg. There is at least a promise that the government would not compete for that labor by raising the JG wage to match a higher wage offer from the private or external sector. I find your idea of how to look at the JG very interesting.

      Maybe there is a chance I will be able to incorporate this into an understanding of trade with the external sector after all. But if I do, I think it will doom your explanation of foreign exchange being ruled by the financial sector. I’m gonna have to think some more dammit. Definitely going to need better brain power than I can muster on my own though.

    33. So what are the different understandings of trade with the foreign sector? Warren Mosler has said it is how much stuff you get compared to how much you have to give and you measure the piles of stuff and that is pretty much all that matters. Bill Mitchell also explained it similarly but also recognized some ‘nuances’ that must be considered. To be fair to Mosler, he mentioned some of these nuances in his explanation in the video this time. Most mainstream economists are out to lunch as usual and have still not realized we aren’t on a gold standard. Germany realized that there is no gold standard and so they created the Euro which allows them to think they are ‘winning’ when they export high quality products to everyone else. Donald Trump thinks the US is winning or losing depending which way he holds up the charts they give him. The Chinese are doing something right because their living standards have dramatically increased even while they keep sending the US all kinds of stuff and all we give them is grief about it in return.

      Gets confusing fast.

    34. “But if I do, I think it will doom your explanation of foreign exchange being ruled by the financial sector.”

      Always remember that FX isn’t really an X. What it is is a contract to execute two bank payments simultaneously.

      In a typical spot transaction, Bank A in New York will agree on June 1 to sell $10 million for Euros to Bank B in Frankfurt at the rate of, say, EUR 1.7320 per dollar, for value June 3. On June 3, Bank B will pay EUR 17.320 million for credit to Bank A’s account at a bank in Germany, and Bank A will pay $10 million for credit to Bank B’s account at a bank in the United States. The execution of the two payments completes the transaction.

      Run through the balance sheet impact of those two payments and you’ll realise there is no stock of Euros or dollars. They are simply created as a discount of the contract. Even more so if Bank A and Bank B are subsidiaries of the same international bank.

    35. Neil,

      “Always remember that FX isn’t really an X. ”

      Bank A’s client gets E17.320M (Bank A’s client had US$10M on deposit or he borrowed it from somewhere, probably from Bank A).

      Banks B’s client gets US$10M (Bank B’s client had E17.32M on deposit or he borrowed the money).

      Bank A’s client who had US$10M now has E17.32M and Bank B’s client who had E17.32M now has US$10M.

      Why is this not an exchange?

    36. Steve,

      Keynes presented his ‘clearing union’ concept to deal with the problem of persistent deficit/surplus international trade, at Bretton Woods in 1944. The Americans, seeking post-war global hegemony, rejected the idea. You might be interested in seeing what Keynes had to say on the matter.

    37. “Why is this not an exchange?”

      Because of the things that happen in banking you don’t believe happen in banking.

      Note that the original said nothing about clients. Ask yourself why that might be.

      Until you take a balance sheet view you will not be able to see what is going on. You have to get past that first.

    38. Neil,

      I can see that the US$10M doesn’t leave the US and the E17.32M doesn’t leave Germany, but the beneficial ownership of the respective tranches of money has changed.

      But what do you mean by “They are simply created as a discount of the contract.”?

    39. Neil Halliday
      Monday, August 10, 2020 at 21:01

      Keynes presented his ‘clearing union’ concept to deal with the problem of persistent deficit/surplus international trade, at Bretton Woods in 1944. The Americans, seeking post-war global hegemony, rejected the idea. You might be interested in seeing what Keynes had to say on the matter.

      Thanks for introducing me to this previously unknown piece of Keynes history. As a result I have just bought Ben Steil’s book “The Battle of Bretton Woods” for my kindle after reading the introduction online. It promises to be a fascinating read.

    40. Neil, foreign exchange is more than currency exchange and bank operations. There is a ‘real side’ to it that is more important. Lot of real goods and services coming into and out of most countries that are exchanged and have real consequences on both the users and suppliers of those goods and services in either country. Your explanation of how the currency transformations occur does not explain the ‘real side’ much at all. Honestly it seems to me more similar to a ‘flim-flam’ operation than a description of real exchange. And just as I would be skeptical that a pyramid scheme is going to continue to be profitable to all, I am skeptical about these bank exchange transactions continuing unaffected seemingly by the actual exchange of the real goods and services.

    41. “There is a ‘real side’ to it that is more important.”

      That’s best explained in an MMT way by imagining that anybody wanting to import in a nation uses their money to buy everything the nation is exporting.

      Then you exchange the goods/services. Necessarily if there financial account isn’t balanced that means that one of the sides is exporting financial assets, and one is importing them *in their own right*.

      The MMT view then is that if you are exporting financial assets, you manufacture them for export as you would anything else. That then keeps countries like Norway and China happy – at least until they realise that they are giving away their physical output for nothing material in return and there is a better way to maintain their own domestic full employment than engaging in Modern Mercantilism.

      The key point is that both the real side flow and the financial side flow in the opposite direction have to be in place or there is *no deal*. Therefore if something happened both those things were in place at the time.

    42. My 2 cents worth on the “Socialism” argument is —
      Socialism in ‘usage’ has too many meanings. So, if you-all don’t define what you mean then everyone can be right at the same time, because they have different definitions of ‘socialism’.
      None of you have defined what you mean by socialism, so you failed to communicate.
      IFAIK, ‘communism’ really has just one meaning in ‘usage’, maybe 2.

      On the claim that Russia is evidence of how Socialism will always or almost always evolve into authoritarianism. —
      Societies tend to maintain systems and traditions. Therefore, because the Czar used Secret Police and had an authoritarian type gov. system, it was quite likely that what replaced it would be authoritarian.
      Then the USSR influenced other Communistic nations.
      China has had a very, very long tradition of authoritarian Empires. So, it was like Czarist Russia.
      Cambodia was an insane system, and so likely was that way only because its leader was insane.
      North Korea I don’t know enough.
      Vietnam I don’t know enough.
      Cuba didn’t do that bad. It seems to work OK. But, I don’t know enough.
      Therefore, I don’t find the deduction that *every* socialistic gov. *ever*, will soon become authoritarian as proven.

      Also, some ‘capitalistic’nations fell victim to authoritarian fascist govs.; Nazi Ger. and Italy in the 20s & 30s come to mind. The Ger. case can be seen as another example of the Russian case; i.e., the authoritarian Kaiser’s gov. being soon replaced by the Nazi authoritarian gov.
      The US is currently on the brink of following them. IMHO, YMMV.
      So, capitalism is immune to falling into authoritarianism, i.e. fascism.

    43. The comment section has gone to pot since I had covid-19 after slaving away as a key worker. I hope all the posts aren’t like this.
      Ah well, at least in my convalescence I got to finish the textbook.

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