Economist Stephanie Kelton on The Deficit Myth

[Jason Harvestdancer]

First, Alan Greenspan's claim is false, because just because the Federal gov't could print the money to pay any debt, it does mean it would necessarily do so, so there is not a zero probability of default.

True.

Second, there are normal usage definition of default and then there are "wonderland" definitions to fit someone's ideology.

What is your "wonderland" definition crafted to fit your ideology?

 

[laughing dog]

First, Alan Greenspan's claim is false, because just because the Federal gov't could print the money to pay any debt, it does mean it would necessarily do so, so there is not a zero probability of default.

True.

Second, there are normal usage definition of default and then there are "wonderland" definitions to fit someone's ideology.

What is your "wonderland" definition crafted to fit your ideology?

I have no wonderland definition - that is your MO - because I use the normal usage or in your lingo "technical" definition.

 

[Jason Harvestdancer]

True.



What is your "wonderland" definition crafted to fit your ideology?

I have no wonderland definition

Then why did you bring up your "wonderland" definition?

 

[laughing dog]

True.



What is your "wonderland" definition crafted to fit your ideology?

I have no wonderland definition

Then why did you bring up your "wonderland" definition?

I didn't bring up a "wonderland" definition - you employed one with your "In the 20th Century, the US government "defaulted" twice.'' claim.

 

[Loren Pechtel]

https://en.wikipedia.org/wiki/Hyperinflation#Causes :



I agree, Alan Greenspan is fucking nobody.

Wikipedia isn't a reliable source of information on anything even vaguely contentious.

Congratulations, you have proven that most people haven't a clue about macroeconomics. Well done - it's almost as though that were somehow news.

Following up with an unfounded slander of Alan Greenspan was unnecessary, but certainly in keeping with your general kack of actual knowledge of this subject.

Stick to physics. Perhaps you're not totally fucking incompetent in that field.

You persist in denying that the printing press causes hyperinflation.

Yes I do. Because it has never happened.

Every instance of hyperinflation in history has a clear cause, and in no case was the cause the printing of money.

Countries turned to the printing press to deal with economic problems. That does not mean the hyperinflation came from those problems and not from the printing press.

 

[bilby]

Wikipedia isn't a reliable source of information on anything even vaguely contentious.

Congratulations, you have proven that most people haven't a clue about macroeconomics. Well done - it's almost as though that were somehow news.

Following up with an unfounded slander of Alan Greenspan was unnecessary, but certainly in keeping with your general kack of actual knowledge of this subject.

Stick to physics. Perhaps you're not totally fucking incompetent in that field.

You persist in denying that the printing press causes hyperinflation.

Yes I do. Because it has never happened.

Every instance of hyperinflation in history has a clear cause, and in no case was the cause the printing of money.

Countries turned to the printing press to deal with economic problems. That does not mean the hyperinflation came from those problems and not from the printing press.

It's simply not true. The hyperinflation preceeded the printing of money in each case. Printing money is a response to, not a cause of, hyperinflation; The economic problems caused the value of their currencies to collapse, and would have done so even if no currency was printed in response (which would have simply meant that people would have had no local currency at all).

 

[barbos]

You persist in denying that the printing press causes hyperinflation.

Yes I do. Because it has never happened.

Every instance of hyperinflation in history has a clear cause, and in no case was the cause the printing of money.

Countries turned to the printing press to deal with economic problems. That does not mean the hyperinflation came from those problems and not from the printing press.

It's simply not true. The hyperinflation preceeded the printing of money in each case.

Inflation is by definition caused by excess of money with respect to the size/state of the economy.
Printing money increases that excess, hence more inflation. There can't be no doubt that if US is forced to print 20 trillion dollars that there will be hyper-inflation.

 

[bilby]

Yes I do. Because it has never happened.

Every instance of hyperinflation in history has a clear cause, and in no case was the cause the printing of money.

Countries turned to the printing press to deal with economic problems. That does not mean the hyperinflation came from those problems and not from the printing press.

It's simply not true. The hyperinflation preceeded the printing of money in each case.

Inflation is by definition caused by excess of money with respect to the size/state of the economy.
Printing money increases that excess, hence more inflation. There can't be no doubt that if US is forced to print 20 trillion dollars that there will be hyper-inflation.

On the contrary; We observe that "printing" $24T has been insufficient to cause hyperinflation in the US.

Lots of countries have run huge deficits without hyperinflation. Every country that has experienced hyperinflation has suffered a collapse in productivity, or has been forced to service large debts denominated in a currency other than their own (or both).

A government spending money it has created ex-nihilo on goods and services for its own citizens is at no risk of hyperinflation, (and little risk of severe inflation) because the cash injection tends to stimulate productive activities. Adding cash to the economy tends to make it grow.

 

[barbos]

Countries turned to the printing press to deal with economic problems. That does not mean the hyperinflation came from those problems and not from the printing press.

It's simply not true. The hyperinflation preceeded the printing of money in each case.

Inflation is by definition caused by excess of money with respect to the size/state of the economy.
Printing money increases that excess, hence more inflation. There can't be no doubt that if US is forced to print 20 trillion dollars that there will be hyper-inflation.

On the contrary; We observe that "printing" $24T has been insufficient to cause hyperinflation in the US.

So you are observation scientist. You are gonna continue the experiment until hyperinflation happens and then proudly publish a paper titled "We observe that "printing" $xx Trillions has been sufficient to cause hyperinflation in the US"

Lots of countries have run huge deficits without hyperinflation. Every country that has experienced hyperinflation has suffered a collapse in productivity, or has been forced to service large debts denominated in a currency other than their own (or both).

Do you mean lots of countries currently have huge debt?

A government spending money it has created ex-nihilo on goods and services for its own citizens is at no risk of hyperinflation, (and little risk of severe inflation) because the cash injection tends to stimulate productive activities. Adding cash to the economy tends to make it grow.

"Growth" you are talking about here is a matter of debate.

 

[bilby]

It's simply not true. The hyperinflation preceeded the printing of money in each case.

Inflation is by definition caused by excess of money with respect to the size/state of the economy.
Printing money increases that excess, hence more inflation. There can't be no doubt that if US is forced to print 20 trillion dollars that there will be hyper-inflation.

On the contrary; We observe that "printing" $24T has been insufficient to cause hyperinflation in the US.

So you are observation scientist. You are gonna continue the experiment until hyperinflation happens and then proudly publish a paper titled "We observe that "printing" $xx Trillions has been sufficient to cause hyperinflation in the US"

No, I am just going to continue to observe that you are completely wrong in your claims and hypotheses.

You have demonstrated your abject ignorance of this topic to my satisfaction, and no further engagement with your [removed] ill-informed speculations in the field of economics is warranted.

Enjoy the view from your mountaintop.

 

[barbos]

By the way, how much (if any) other countries debt US government holds?
I read that total national balance of US is -50% GDP. And by total they mean private/government debt/credit of all residents.
Does not look as bad as government debt.

 

[Loren Pechtel]

Countries turned to the printing press to deal with economic problems. That does not mean the hyperinflation came from those problems and not from the printing press.

It's simply not true. The hyperinflation preceeded the printing of money in each case.

Inflation is by definition caused by excess of money with respect to the size/state of the economy.
Printing money increases that excess, hence more inflation. There can't be no doubt that if US is forced to print 20 trillion dollars that there will be hyper-inflation.

On the contrary; We observe that "printing" $24T has been insufficient to cause hyperinflation in the US.

Lots of countries have run huge deficits without hyperinflation. Every country that has experienced hyperinflation has suffered a collapse in productivity, or has been forced to service large debts denominated in a currency other than their own (or both).

A government spending money it has created ex-nihilo on goods and services for its own citizens is at no risk of hyperinflation, (and little risk of severe inflation) because the cash injection tends to stimulate productive activities. Adding cash to the economy tends to make it grow.

Deficits do not cause inflation. It's the printing press--when you create money in excess of need you get inflation. When you try to fund it without getting the money from somewhere you run the printing presses fast and the money supply goes up--inflation goes up. You have to keep going ever faster to keep from falling off. Hyperinflation.

 

[Wiploc]

Deficits do not cause inflation. It's the printing press--when you create money in excess of need you get inflation. When you try to fund it without getting the money from somewhere you run the printing presses fast and the money supply goes up--inflation goes up. You have to keep going ever faster to keep from falling off. Hyperinflation.

I'm at a loss. I don't understand that at all. Maybe you could try to explain it.

If you ran the printing press but didn't run a deficit, how would that create inflation?

What do you mean by "need," "when you create money in excess of need"?

Isn't running a deficit the same as "try[ing] to fund it without getting the money from somewhere"?

 

[DBT]

Why QE Didn't Cause Hyperinflation
''When QE was first put on the table following the financial collapse that gave way to the Great Recession, many people feared that it would ultimately lead to runaway inflation like the kind seen in Zimbabwe (and its 1 trillion dollar bill), Argentina, Hungary, or the German Weimar Republic.

Prices did rise modestly during that period, but by historical measures, inflation was subdued, and a far cry from being hyperinflation. Why aren't we all pushing around wheelbarrows full of banknotes to the supermarket?''

''When financial institutions collapse and there is a high degree of economic uncertainty, people and businesses choose to hoard their money rather than risk investment and potential loss. When money is hoarded, it is not spent and so producers are forced to lower prices in order to clear their inventories. But why would somebody spend a dollar today when they expect that prices will be lower—and their dollar can buy effectively more—tomorrow? The result is that hoarding continues, prices keep falling, and the economy grinds to a halt.

The first reason, then, why QE did not lead to hyperinflation is because the state of the economy was already deflationary when it began. After QE1, the fed underwent a second round of quantitative easing, QE2. Here the central bank undertook open market operations where it purchased assets from banks in return for dollars.

People won't risk investment losses when there is great uncertainty and, instead, will hoard their money.''

''So where did all the M0 money go if it wasn't multiplied through the credit system? The answer is that banks and financial institutions hoarded the money in order to shore up their own balance sheets and regain profitability. Banks still had bad loans and toxic assets on their balance sheets as a result of the housing bubble burst and its aftershocks. The extra cash on hand made their financial picture look a whole lot better. As the economy has recovered and the fed has begun tapering its interventions, the money being held by banks is being returned to the Fed slowly in the form of interest payments on the debts purchased during QE. Meanwhile, the U.S. economy, on the whole, has remained productive and growing.''

 

[Horatio Parker]

QE is itself contractionary, as it swaps interest bearing assets for non-interest ones. The profit from the interest then accrues to the Treasury instead of the private sector.

 

[laughing dog]

QE is itself contractionary, as it swaps interest bearing assets for non-interest ones. The profit from the interest then accrues to the Treasury instead of the private sector.

QE is the central bank swapping free reserves for assets other than gov't bonds. It is no more or less contractionary than conventional monetary policy.

 

[Horatio Parker]

QE is itself contractionary, as it swaps interest bearing assets for non-interest ones. The profit from the interest then accrues to the Treasury instead of the private sector.

QE is the central bank swapping free reserves for assets other than gov't bonds. It is no more or less contractionary than conventional monetary policy.

There are other opinions on that.

“QE takes money out of the economy,” Mosler says, “which is what a tax does.” Hence, as noted above, QE is a tax.

[...]

QE, then, because it costs the private sector interest income and doesn’t add money to the economy, is not inflationary. “The evidence is that it is not inflationary,” Mosler says.

Let’s look at it another way. The bank of Japan has been trying to create inflation for 20 years. The Fed’s been trying to create inflation as hard as it can. The European Central Bank too. “It is not so easy for a central bank to create inflation,” he says, “or you’d think one of these guys would’ve succeeded.

“People act like you have to be careful because one false move on inflation expectations and, bang, you have hyperinflation,” Mosler chuckles. “If you know what that false move is, tell Janet Yellen [the current Fed chief], because she’s trying to find it.”

Though he no longer runs a hedge fund, Mosler is still involved in financial markets. He has a portfolio he runs for himself and for other people. I asked him if he fears interest rates going up.

“It could happen,” he says. “It’s a political decision where rates go.”

And that’s a good place to leave it. Because it brings us back to the beginning. Without the government wading into the interest rate market, the base rate would be zero. And everybody would be working off that. But instead, we have the Fed trying to find monetary nirvana.

As Mosler says, it’s a disgrace.

These are challenging ideas, I know. If you want to read more, look up “The Natural Rate of Interest is Zero,” a tightly reasoned, accessible

http://moslereconomics.com/2014/05/02/qe-is-a-tax/

 

[laughing dog]

There are other opinions on that.

“QE takes money out of the economy,” Mosler says, “which is what a tax does.” Hence, as noted above, QE is a tax.

[...]

QE, then, because it costs the private sector interest income and doesn’t add money to the economy, is not inflationary. “The evidence is that it is not inflationary,” Mosler says.

Let’s look at it another way. The bank of Japan has been trying to create inflation for 20 years. The Fed’s been trying to create inflation as hard as it can. The European Central Bank too. “It is not so easy for a central bank to create inflation,” he says, “or you’d think one of these guys would’ve succeeded.

“People act like you have to be careful because one false move on inflation expectations and, bang, you have hyperinflation,” Mosler chuckles. “If you know what that false move is, tell Janet Yellen [the current Fed chief], because she’s trying to find it.”

Though he no longer runs a hedge fund, Mosler is still involved in financial markets. He has a portfolio he runs for himself and for other people. I asked him if he fears interest rates going up.

“It could happen,” he says. “It’s a political decision where rates go.”

And that’s a good place to leave it. Because it brings us back to the beginning. Without the government wading into the interest rate market, the base rate would be zero. And everybody would be working off that. But instead, we have the Fed trying to find monetary nirvana.

As Mosler says, it’s a disgrace.

These are challenging ideas, I know. If you want to read more, look up “The Natural Rate of Interest is Zero,” a tightly reasoned, accessible

http://moslereconomics.com/2014/05/02/qe-is-a-tax/

The opinion of anyone who argues that the base rate of interest would be zero in the absence of a central bank is worthless.

Anyone who argues that QE takes money out of the economy is disconnected from reason and reality. QE injects free reserves into the economy. Whether banks use those reserves to make loans (i.e. increase the supply of money) is a separate issue. But without QE, those reserves are not created either, so QE cannot be more deflationary than ordinary monetary policy.

The fact that QE has not been wildly inflationary does not mean it is deflationary. That is illogical, since we have no idea what inflation would have been in the absence of QE.

 

[Horatio Parker]

There are other opinions on that.

“QE takes money out of the economy,” Mosler says, “which is what a tax does.” Hence, as noted above, QE is a tax.

[...]

QE, then, because it costs the private sector interest income and doesn’t add money to the economy, is not inflationary. “The evidence is that it is not inflationary,” Mosler says.

Let’s look at it another way. The bank of Japan has been trying to create inflation for 20 years. The Fed’s been trying to create inflation as hard as it can. The European Central Bank too. “It is not so easy for a central bank to create inflation,” he says, “or you’d think one of these guys would’ve succeeded.

“People act like you have to be careful because one false move on inflation expectations and, bang, you have hyperinflation,” Mosler chuckles. “If you know what that false move is, tell Janet Yellen [the current Fed chief], because she’s trying to find it.”

Though he no longer runs a hedge fund, Mosler is still involved in financial markets. He has a portfolio he runs for himself and for other people. I asked him if he fears interest rates going up.

“It could happen,” he says. “It’s a political decision where rates go.”

And that’s a good place to leave it. Because it brings us back to the beginning. Without the government wading into the interest rate market, the base rate would be zero. And everybody would be working off that. But instead, we have the Fed trying to find monetary nirvana.

As Mosler says, it’s a disgrace.

These are challenging ideas, I know. If you want to read more, look up “The Natural Rate of Interest is Zero,” a tightly reasoned, accessible

http://moslereconomics.com/2014/05/02/qe-is-a-tax/

The opinion of anyone who argues that the base rate of interest would be zero in the absence of a central bank is worthless.

Anyone who argues that QE takes money out of the economy is disconnected from reason and reality. QE injects free reserves into the economy. Whether banks use those reserves to make loans (i.e. increase the supply of money) is a separate issue. But without QE, those reserves are not created either, so QE cannot be more deflationary than ordinary monetary policy.

The fact that QE has not been wildly inflationary does not mean it is deflationary. That is illogical, since we have no idea what inflation would have been in the absence of QE.

What "no central bank" are you referring to? AFAICT he says in the absence of maintaining a floor rate, rates would be determined by other factors.

As for QE, is it not cash for interest bearing assets?

 

[laughing dog]

The opinion of anyone who argues that the base rate of interest would be zero in the absence of a central bank is worthless.

Anyone who argues that QE takes money out of the economy is disconnected from reason and reality. QE injects free reserves into the economy. Whether banks use those reserves to make loans (i.e. increase the supply of money) is a separate issue. But without QE, those reserves are not created either, so QE cannot be more deflationary than ordinary monetary policy.

The fact that QE has not been wildly inflationary does not mean it is deflationary. That is illogical, since we have no idea what inflation would have been in the absence of QE.

What "no central bank" are you referring to? AFAICT he says in the absence of maintaining a floor rate, rates would be determined by other factors.

Including "Without the government wading into the interest rate market, the base rate would be zero. " which is ridiculous.

As for QE, is it not cash for interest bearing assets?

No, it is cash or bank reserves for financial assets which may or may not bear interest.