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Positivemoney.org - One reason for inequality...

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Helsworth
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Post: #1
Positivemoney.org - One reason for inequality...


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10.02.2015 19:12
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ciech
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Post: #2
RE: Positivemoney.org - One reason for inequality...

Let's say that a public body, National Bank of Romania for instance, starts to "print" money in huge amounts and then transfers it somehow (by giving it out as social help or buying services from private sector, whatever) to the citizens. What would be the consequences?


"Any society that would give up a little liberty to gain a little security will deserve neither and lose both."
10.02.2015 20:22
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Helsworth
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Post: #3
RE: Positivemoney.org - One reason for inequality...

ciech Wrote:
Let's say that a public body, National Bank of Romania for instance, starts to "print" money in huge amounts and then transfers it somehow (by giving it out as social help or buying services from private sector, whatever) to the citizens. What would be the consequences?

Well, the majority of that "huge" amount of money would be in electronic form, as bank accounts in the economy are credited when the government spends, and they are debited when the government taxes.
The consequences would be a revival of sales, which would bring income and production up and unemployment down. As the multiplier effect kicks in as well, other sectors will benefit from the increased aggregate demand in the economy, aggregate demand being not just income but income + the change in private debt.
As economic activity would pick up, the fiscal deficit would be reduced because of the automatic fiscal stabilizers which work counter cyclically.
Fiscal deficits and unemployment rates being endogenous between themselves.


So instead of the government paying interest to bankers *the government paying to rent its own money*, the government simply deficit spends without interest attached to its present and past debits.


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This post was last modified: 10.02.2015 23:54 by Helsworth.

10.02.2015 23:49
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TheLastShah
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Post: #4
RE: Positivemoney.org - One reason for inequality...

... and you would have hyperinflation.


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11.02.2015 00:24
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ciech
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Post: #5
RE: Positivemoney.org - One reason for inequality...

TheLastShah Wrote:
... and you would have hyperinflation.


Inflation is certain. The state's currency exchange rate would go massively down as well. If your state has a debt in foreign currencies then it would never be able to pay them off. Soon everyone would be using dollars just like the rich do in Russia. Smile

The scenerio that Helswoth is talking about is possible in US, because there's almost unlimited demand for dollars. It will not apply to other currencies in my opinion.


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11.02.2015 07:50
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Helsworth
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Post: #6
RE: Positivemoney.org - One reason for inequality...

Untrue, hyperinflation has been a carefully studied phenomenon by many economists and historians. And all the cases of history show that the overproduction of money is always the result and not the consequence of a crisis of hyperinflation.
Baring implacable supply side reasons, it's impossible to have hyperinflation when you've social and political stability and when the government is able to properly tax its own currency.
To claim that that would apply only for the US is to claim ignorance on history, recent and old. There have been many countries throughout the centuries which have practiced fiscal stimulus in order to achieve their various ends, either for peaceful/civilian purposes or for war purposes.
Here's a list of countries which engaged in fiscal stimulus and maintained growth and price stability:
Japan, France, Italy, Germany, China, Romania, the UK, Russia, Paraguay, Iran, South Korea, Ancient Rome (and it worked when they were able to maintain political stability and properly defend their boarders), Thailand, and there are many others.

The fact of the matter remains that the automatic fiscal stabilizers work counter cyclically to correct the economy. So when there's a shortage of AD, it works to enlarge the deficit, when there's a surplus of AD, it works to shrink the deficit. Private debt to GDP is always higher than government debt to GDP and fiscal deficit to GDP. Why don't you see hyperinflation when there's a private expansion? Because there's adequate spare capacity to be used. But you guys argue that when the government does it, in order to cover the private sector spending shortfall (because saving desire is so much higher as a result of the high cost of serving the private sector bank debt), that's going to be automatically and a priori inflationary.
And I explained, it can't be so long as the automatic stabilizers are there. Obviously, sound governments would want to target the GDP output gap and nothing more than that. If you reduce the marginal tax rate from where it is to 5% or 1% and keep spending as it is or increase it, you bet your ass you're going to have hyperinflation. But that's not what antiausterity people are talking about.

A crisis of insufficient or excess demand will ALWAYS be solved via fiscal policy, in the former case via increased fiscal deficit, the latter via lower fiscal deficit, balanced budget, or surplus. And in the times we're living in, we're living in a crisis of inadequate aggregate demand, not lack of resources, not lack of spare production capacity, not lack of labor.

Please reevaluate your stances; you're basically arguing that endogenous money creation at interest by the bankers is noniflationary, but exogenous money creation at interest or 0 interest by the government is inflationary. Please detail the reasoning for this outside of ideological beliefs. Why is it noninflationary when government pays billions and billions in interest on its debt to bankers? And why would it be inflationary if government where to pay those billions to households instead of bankers? Why is it noninflationary when a new loan creates a new deposit? And why is it inflationary when the government fiscal deficit spends? The vast majority of money is created by the private banking system, not by the government. The CB targets a specific price range and allows the quantity of money to fluctuate in order to maintain that price objective. All the money that goes to paying taxes and buying government securities (government debt) all of it comes from government spending.
Why didn't Poland have hyperinflation when it ran 7%+ deficit in '10 and '11?


Why didn't Romania have hyperinflation when it ran 9% fiscal deficit in '10?


Here Warren Mosler takes a graceful stab at Krugman and neoclassical/neoliberal bullshit as well: http://moslereconomics.com/2014/02/03/th...s-liberal/

Quote:
By Paul Krugman

February 1 (NYT) — Matthew Yglesias says what needs to be said about Argentina: theres no contradiction at all between saying that Argentina was right to follow heterodox policies in 2002, but it is wrong to be rejecting advice to curb deficits and control inflation now. I know some people find this hard to grasp, but the effects of economic policies, and the appropriate policies to follow, depend on circumstances.


Yes, unemployment- source of the greatest economic loss as well as a social tragedy and a crime against humanity, is always the evidence deficit spending is too low. There is no exception as a simple point of logic. The currency is a simple public monopoly, and the excess capacity we call unemployment- people looking to sell their labor in exchange for units of that currency- is necessarily a consequence of the monopolist restricting the supply of net financial assets.

Quote:
I would add that we know what those circumstances are! Running deficits and printing lots of money are inflationary


Why the undefined ambiguous empty rhetoric?

Quote:
and bad


What does ‘bad’ mean here? For example, there is no evidence that inflation rates at least up to 40% hurt real growth, and more likely help it. Politically, however, it may be ‘very bad’. But those are two different things.

Quote:
in economies that are constrained by limited supply;


Limited supply of what? Labor? Hardly! In fact, full employment is even more critical, if that’s possible, when there are limited supplies of other resources. Wasn’t Rome built without electricity, oil, bulldozers, the IMF, etc. etc.? OK, it took more than a day, but it was built. There is always more to do than people to do it. Economically, unemployment is never appropriate policy.

Quote:
they are good things when the problem is persistently inadequate demand.


Unemployment is the evidence of this ‘inadequate demand’ which is necessarily created by taxation, the ultimate source of all demand for a given currency. In fact, taxation functions first to create unemployment- people looking for work paid in that currency. That’s how govt provisions itself- it creates people looking for jobs with its taxation, then hires those unemployed its tax created. What sense does it make for govt to create more unemployed than it wants to hire??? Either hire the unemployed thus created, or lower the tax!!!!!!!!!!!!

Quote:
Similarly, unemployment benefits probably lead to lower employment in a supply-constrained economy; they increase employment in a demand-constrained economy; and so on.


With more that needs to be done than there are people to do it, the economy isn’t supply constrained until full employment. And nominal unemployment benefits are about the level of prices, wages, and the distribution of income rather than the level of potential employment, etc.

So sometimes the relationship and money looks like this, from the best economics principles textbook:

This is more about ‘inflation’ causing ‘money’ as defined.

But sometimes it looks like this:

This is more about partially defining ‘money’ as reserve account balances at the Fed but not securities account balances (tsy secs) at the Fed.

Quote:
And just to repeat a point Ive made many times, those of us who understood IS-LM predicted in advance that the actions of the Bernanke Fed wouldnt be inflationary, while the other side of the debate was screaming debasement.


It’s not about ISLM, which is fixed fx analysis. It’s about recognizing that there is always precious little difference between balances in reserve accounts at the Fed and securities accounts at the Fed.

Quote:
There’s something else to be said about Argentina and, it seems, Turkey namely, that were seeing a mini-revival of what Rudi Dornbusch and Sebastian Edwards long ago called macroeconomic populism. This involves, you might say, making the symmetrical error to that of people who think that running deficits and printing money always turns you into Zimbabwe; its the belief that the orthodox rules never apply. And its an equally severe mistake.


Unfortunately most of the ‘orthodox rules’ apply to the fixed fx policies in place when they were first stated, and not to today’s floating fx.

Quote:
Its not a common mistake these days; a few years ago one would have said that only Venezuela was making the old mistakes, and even now its just a handful of countries. But it is a mistake, and we need to say so.


Yes, mistakes are being made by all of the headline economists and the global economy is paying the price.


More so, during the sovereign debt crisis in the EZ when the Periphery had higher fiscal deficits as % of GDP because of private spending shortfall caused by private debt deflation, why wasn't the euro devaluing or devaluing hyper-actively (hyperinflation)? Why is deflation (not inflation) threatening the Eurozone?
More so, why did 5 years of massive fiscal deficit spending and low interest rates in Nazi Germany between '33 and '38 saw the eradication of unemployment, real wage growth above 10%, economic activity, and all of this in a climate of price stability? Why wasn't there hyperinflation?


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This post was last modified: 11.02.2015 11:23 by Helsworth.

11.02.2015 10:34
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Helsworth
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Post: #7
RE: Positivemoney.org - One reason for inequality...

A brilliant post by Gary Morrison

Quote:
The primary claim made here pretends to address a problem that is being disingenuously associated with public spending. Strip away the econometric pretense and strange figures from our past begin to appear in the background. Davies is channeling Ronald Reagan, defending a patrimonial form of "free-market" on the grounds that by curtailing the public sphere we somehow become better people and a better society. We are being asked to renounce the public investment we and previous generations have made in public education, health care, legal services, space exploration, medical research and basic science for what? So we can be forced to become better people while the infrastructure of the country falls apart?! What good in economic terms, has this hare brained austerity program ever done us in any of its past iterations? The austerity budget being advocated here has never "corrected" the economy but has sought repeatedly to correct us as a democracy by attempting to discourage the electorate from rationally addressing our common social ills. Austerity like a balanced budget are terms borrowed from Puritan minister, Cotton Mather. These religious precepts have been repackaged as political tropes that continue to serve as part of the reactionary vocabulary, intended to shame us into submitting to the invisible hand and thereby revive a 17th century Calvinist moral impulse. A better way to understand Davies is as a paid political hack and a clumsy frontman for zombie economics. A fact not mentioned here is that during the period of post WWll economic expansion, government expenditures rose rapidly as a share of GDP. By 1947, government expenditures had returned to their pre-WWll level of 18.5% of GDP. Over the next twenty years, the ratio rose to 29.4% of GDP. But in the entire period from 1967 to 1994, the ratio rose only 5%. In other words, the ratio of government spending to total output grew three times faster per year during the prosperous years from 47" to 67' than during the troubled years between 67' and 94'. Existing statistics support the thesis that by arbitrarily restraining government spending we have successfully depressed total demand which is now substantially below what the economy is capable of producing. History suggests that expanding the production of public goods puts resources to work without the risk of flooding the market with goods and services that nobody can afford or will buy. I am convinced that the role of economists is again to bamboozle us into a state of confusion from which they can once more return to authority as the preachers of austerity and political passivity, which they promise will save us from our naturally sinful selves.


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11.02.2015 13:45
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Post: #8
RE: Positivemoney.org - One reason for inequality...

First of all I am not educated in economic theory farther than the basics so I dont try to judge here in any way. I only have some questions that I hope you could address.

First: If I understand this model you lay out below the video is based on consume. Keeping high employment and money with the people that drives the ecomomy. With regards to the video it looks like this money administered by the public body gives out money without loans. Does that mean that the interest to the money (that needs to be generated in order to keep the value against inflation and maybe provide for the security that the banks gain from their intrest) comes from tax on consume ?

Second: I did not understand how the public body described in the video decides on where to inject that money to. Does not this leave room for corruption and/or bureaucracy?

Let me know if I missunderstand something. I find the topic difficult to grasp

15.03.2015 23:28
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Helsworth
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Post: #9
RE: Positivemoney.org - One reason for inequality...

Inflation is not always and everywhere a monetary phenomenon. The price of goods and services is determined by supply and demand. The currency monopolist, (that government with monetary sovereignty) maintains price stability by allowing the quantity of money to fluctuate according to demand.
Central banks tried in the past to achieve price stability by keeping the quantity of money fixed. All they achieved were upward and downward spikes in prices. If you keep the quantity fixed, you no longer control the price of it. If you allow the quantity to float, you can control the price.
Now, let's tackle inflation. It's not about how much 1 unit of currency buys, but how much all units of that currency buy. All the dollars from 50 years ago at 50 year ago value buy LESS today than all of the world's present dollars at present dollar value, simply because there's more wealth being created/consume today than it was 50 years ago.
Inflation coming from excess demand outpacing the economy's ability to expand output to meet that demand is NOT handled via monetary policy, but via fiscal policy. Taxation drains aggregate demand from the economy, public spending adds aggregate demand to the economy. Aggregate demand is not just income, it's income plus the change in private debt. The more bank debt that is created, the more AD in the economy which leads to higher economic activity. When bank debt is paid off or defaulted upon, that puts negative pressure on economic activity, because of lower AD levels in the economy.
Under a free floating nonconvertible fiat regime, like we have today, interest rates are exogenous. The natural interest rate of fiat money is zero. Anything above zero is a subsidy, anything below zero is a tax. That being said, money creation in our modern monetary and banking system is endogenous. Loans create deposits is an operation in endogenous money which leads to NO NEW NET creation of financial assets. Every liability has a corresponding asset. Someone's loan is another person's savings. The net between them is zero.
The only sector capable of creating liability-free money is the government, the currency issuer. Fiscal deficit funds are liability free money for the nongovernment sector. The fiscal deficit represent private sector net financial surplus.
(G-T) = -(S-I) -(X-M)
(S-I)+(G-T)+(X-M)=0
S-I=savings minus investment=private domestic sector
G-T=gov spending minus gov taxation=government sector
X-M=net exports=foreign sector
The private domestic and foreign sectors can be combined and called nongovernment sector.
As a point of logic and operational reality, before the government can tax and or borrow its own currency, it has to spend it first into existence. All the dollars that go to paying taxes and buying government debt come from government spending. The government debt represents tax-credits outstanding in the pockets of the private sector, it represents private sector assets.

The government can inject that money according to its own aims. The purpose of sound fiscal policy is to achieve and maintain full employment and price stability. The government can spend more and or tax less. I for one, would love a basic income and a voluntary job guarantee for anyone willing and able to work which would not replace welfare. Government could spend on infrastructure, health care, science and research. Government could have a land-value tax in place, an excise tax, a wealth tax (or not), a VAT (or not), an income tax (or not), fees, fines et all.


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16.03.2015 00:15
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