In recent days there has been some discussion about the way different Modern Monetary Theory (MMT) thinkers might see the development of the paradigm. There has be some remarks that MMT should be explained in little steps and only then presented as a menu of policy choices so that all ideological persuasions might embrace it. There have also been statements that my US-based colleagues have agreed to that strategy and are now discounting any advocacy of full employment because the US population en masse (allegedly) find such notions repugnant. I disagree with all of those propositions. I consider that a sovereign government, which is not revenue-constrained because it issues the currency, has a responsibility for seeing that the workforce is fully employed. If they don’t take that responsibility and use the fiscal capacities that they have courtesy of their sovereignty, then there will typically be mass unemployment. An understanding of MMT makes that clear. The discussion also has raised questions about the purpose of my blog and I reflect on that in what follows.

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

Tonight (Tuesday Boston time as I write) my very kind and gracious host took me to an early evening Ringo Starr and his All Starrs concert down on the waterfront. I never knew so many Beatles fans from the 1960s had survived the boredom. They were out in force tonight as he sang Yellow Submarine and other pop relics. The highlight of the evening was Edgar Winter (who is one of his all starrs) featuring on Frankenstein which he made a hit in 1972. But where do all these Beatles fans go during the day! Scary. And by the way, Rick Derringer who was in the original Edgar Winter Band was also in Ringo’s band tonight playing some nice guitar (if you like Gibson-motivated pop – I don’t). My host decided to call it an early night and I left with him – while Warren and his partner bopped on. A neat exit you might say! But Ringo at least provided some leadership – poppy and pretty soppy at that. But much better than our leaders of government are providing if the recent G20 declaration is anything to go by. They have just ceded leadership to the IMF – that unelected rabble. Stay tuned for things to get worse.

Today (and yesterday – being Tuesday in Australia now) I have been travelling. If you grow up and live in Australia everywhere except the local beach is a long way away. Sometimes it would be very convenient to just to be able to buzz up to San Francisco from LA or from New York to Washington or from Brussel to Paris. Australians never enjoy that sort of proximity. So travel is part of our growing up. I am used to it but hate it. Anyway, it always allows me to catch up on reading (especially fiction), listen to a lot of music and write a lot. Today’s blog focuses on recent events in Australia but the truth is that the principles raised are universal. You hear the same debates and responses all across the globe. The theme today is how ignorance leads to bad policy – my usual theme. But I am a persistent type and I am observing (via my blog statistics) that as I pursue this repetitive strategy – grinding it out every day – more and more people are coming to the site and many (most) are probably staying (IP address analysis). I have managed to keep the gold bugs at bay – they target easier victories – and the standard of debate is generally high. So my role is to keep offering it up and watching the numbers grow. I am in Boston now and will be talking about fiscal sustainability to hedge fund managers and bankers. Penetrating their world is a good thing. And then on Thursday, I board the jet and retrace my tracks – but then I will be close to the beach again. You mostly can’t have it both ways.

The Toronto G-20 leaders’ meeting is being held this weekend (June 26-27, 2010) and one expects it will endorse the position taken at the recent G-20 annual Finance Ministers and Central Bank Governors Meeting in South Korea. The communiqué released from that meeting illustrates how influential the deficit terrorists have become. At the Pittsburgh meeting of the G-20 leaders in September 2009 the communiqué talked about the sufficiency and quality of jobs. Six months later they had abandoned that call and are now preaching higher unemployment and increased poverty via austerity packages imposed on fragile communities. This is in the context of dramatic increases in global poverty rates in 2009 due to income losses associated with entrenched unemployment. Then I note that the recently released 2010 World Wealth Report shows that the world’s rich got richer during the 2009 recession. The only reasonable conclusion is that something is seriously wrong in the world we have constructed.

I read a 2006 research paper from the New York Federal Reserve today entitled – Why Is the U.S. Treasury Contemplating Becoming a Lender of Last Resort for Treasury Securities?. The article bears on the discussions recently here about the motive for issuing bonds and the likely consequences of not issuing them. It also brings back the memory of how the Australian government was duped by financial markets into continuing to issue debt even when they were running surpluses. That single act demonstrated beyond doubt that that public debt-issuance isn’t about funding net public spending. Rather, the continued issuance of public debt is a form of corporate welfare which makes the task of making profits through trading financial assets in private captial markets that much easier. Typically, it is the top-end-of-town who complain about welfare payments making the poor lazy. Well, the on-going issuance of public debt makes the private users of the same lazy because they do not have to create low risk products themselves. It is a total con job!

I have noticed a few commentators expressing concern about the dangers that might arise if a nation runs a persistent current account deficit. There have been suggestions that this area of analysis is the Achilles heel of Modern Monetary Theory (MMT). I beg to differ. A foundation principle of MMT is that to be able to freely focus on the domestic economy, the national government has to be freed from targetting any external goals – such as a particular exchange rate parity. The only effective way for this to happen is if the exchange rate floats freely. In this sense, the exchange rate is the adjustment mechanism for external imbalances.

Last year (May 2009) I wrote that Flat Earth theory returns – budget aftermath. In that blog, I asked the reader to imagine the time when it was the mainstream view that the Earth was flat, representing an infinite plane. The view largely died at around 3 BC but there are still some characters out there who worry about falling off the South Pole. After all the Nile River runs for thousands of kilometres and drops barely a few feet over that distance which doesn’t fit well with convexity does it? We have been referring to the hysterical commentators and lobby groups who are seeking to undermine the use of fiscal policy as deficit terrorists. However, when I think about term it actually gives these characters too much credit. Terrorists are probably smart and possess skill notwithstanding that they are usually misguided. So we have decided to resurrect the term I used in that blog last year – flat earth theorists (FETs) – because that association more adequately captures how mindless they are.

Regular readers will by now know I am not a soccer fan. And my national team (now locally known as the shockeroos) seemed like rank amateurs the other day against the might of Deutschers. The German coach described the game as “a good warm-up”. Reality check! But of-course, there is a competition going on in South Africa that a lot of people are interested in. So I have been following it myself. I am of-course referring to the The First Poor People’s World Cup which is currently underway in South Africa. This event involves 36 teams from 40 different communities coming together on a shoe-string budget to play soccer. In cost benefit terms it will add a lot more value to South Africa than the other less important competition that is being simultaneously run in South Africa.

I have been trying to maintain a theme focusing on the absurdity of our economic systems and the way in which governments allow themselves to be held to ransom by a small group of largely unproductive financial traders and the associated institutions (credit rating agencies). I was reminded of this again today when I read a report on growing murders of trade union officials and the purging of working conditions in various countries as the economic crisis worsened. When you juxtapose this sort of news – about things that really matter – with the nonsensical antics of the financial markets in Europe you realise we have totally lost any notion of priority.

Governments are starting to realise that the recovery is slowing and the previous estimates of growth are probably overly optimistic. The IMF and OECD have been pushing inflated forecasts throughout the crisis because they cannot face the fact that the policies they have advocated caused the crisis in the first place. So, in denial, they want to make it look as if things are better than they are so they can get back onto their mantra – cuts in deficits, etc. The austerity packages are being introduced into an environment where the probability of a global double dip recession is rising by the day. But worst, are the shameless sense of priorities being rehearsed by economists and policy makers as they carve into welfare and pension entitlements, privatise valuable public assets (handing them over the “markets”) and increase unemployment. But then the mantra comes back – the forced extra pain won’t be as bad as we expect. So the international agencies and mainstream economists inflate the good things and reduce the significance of the bad things as a way of covering their grubby tracks. And all the while, these estimates and prognostications are based on economic models that failed to explain the crisis or its remedy. It is back to ground zero – and the pain will mount for the most disadvantaged.

Governments around the world are being stampeded by financial commentators and international organisations (IMF, OECD, G-20) to implement austerity programs to get their “deficits under control”. All sorts of horrendous predictions are being touted in the press daily by the deficit terrorists who focus their gaze on charts showing movements in financial ratios – such as the deficit to GDP and public debt to GDP ratios. They largely ignore history and when they do invoke it the introduce erroneous analyses which do not apply to the issue at hand. They erroneously conflate the Eurozone with sovereign monetary systems. And they never let up. But in all the talk of austerity the real dimensions of the problem get lost. That is what today’s blog is about – getting our focus down to the fact that thousands of children will die as a result of these unnecessary austerity programs which are just designed to satisfy the ideological hangups of the (mostly) high income and wealthy elites in our societies.