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Molgrips
No, the premise is that we can print some money to pay for stuff but not too much otherwise it becomes worth less as you say. You have to control the supply to maintain the price like anything else – diamonds, or oil for example.
Don’t forget, MMT is not a system, it’s an alternative description of the system we already have that might help us use it better.
The main barrier I have is the concept it never needs to be paid back in a international context where we are net importers. (emphasis on net importers)
Lets say we print some money to buy a load of solar panels made outside the UK...and we offer a promissory to the manufacturer that they will get however many pence in the £
A company might take some printed free money now they or we covert into a real currency but the pence in the pound future value is worse than worthless to them, its not money they can use to pay employees in a real country or buy materials/energy etc. because the UK just demonstrated to them we are happy to just print money.
We would need to offer them a price in a real currency, not one that just prints more money when they want which means we need to grow/make things we can sell for real currency.
Someone, somewhere has to pay be it the people getting the energy or the people making brompton frames getting paid less in real terms in order to do this?
At the very least if they were going to do this with a company not a country they would want to see their P&L for the last decade and see the projections for the time frame they will be paid back over. The UK has consistently been running at a loss since 1998...
https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/timeseries/hbop/pnbp
You’re outlining the problems faced by any modern economy, the trick is how to stop that happening and that’s what MMT is interested in. All money is made up as you describe. There isn’t really an alternative.
I'm outlining the problems faced by a failed economy such as the UK.
Not only are we one of the poorest nations on earth but unlike some of the others we are consistently getting poorer every month by spending more than we earn.
Once again this all comes down to education. Most people have no idea what they are voting for – even those who actually make an effort which is a pretty small segment.
OMG I agree with Molgrips, this is a new and scary experience for me 🙂
We have exactly what anyone who did a bit of due diligence would have expected from the way recent votes have gone.
Unfortunately when we needed a strong opposition they missed an open goal by choosing an unelectable leader and not suitably differentiating the party from the conservative party on the hot issue of the day (brexit)
stevextc
Seems both of us have been shot down by Rone, now and in the past but I absolutely agree, there's only so long the UK as a whole can continue to function as a net importer AND maintain its standard of living.
For me its just a simple boil-the-frog exercise, and the water is warm...
Finally gotten around to reading the article linked in the OP and it really isn't what the clickbait-y headline nor the commentary in this thread suggest, so wondering if either I've misunderstood it or no-one else has actually bothered to read it??
It doesn't seem to be about some fat-cat banker saying, "haha, you're all poor now, deal with it" more pleading for people to stop spending ever-increasing amounts of money buying the same things they're used to as this is what is constantly pushing up inflation at the moment? Which somewhat points the finger at the insulated middle-classes (i.e a lot of the people on here!!) who can afford to spend more money on bikes, cars, holidays etc as if it's situation-normal? They want people to stop buying so much, so demand falls, prices/inflation naturally falls, then they can lower interest rates, seems to be what they're saying? Which on the face of it sounds reasonable? (but then I'm no economist!)
I’m outlining the problems faced by a failed economy such as the UK.
Not only are we one of the poorest nations on earth but unlike some of the others we are consistently getting poorer every month by spending more than we earn.
On a very odd way of measuring "poorness" perhaps. If you mean greatest wealth gap I can buy into that, and there are certainly people in the UK who are incredibly poor. But to describe the nation as one of the poorest is surely wrong - or did you exclude pretty much all of aftrica, south America and huge bits of Asia from your definition of "earth".
On a very odd way of measuring “poorness” perhaps. If you mean greatest wealth gap I can buy into that, and there are certainly people in the UK who are incredibly poor. But to describe the nation as one of the poorest is surely wrong – or did you exclude pretty much all of aftrica, south America and huge bits of Asia from your definition of “earth”.
The countries in Africa and Asia don't have the huge GDP on the UK hence are not nearly as poor.
Latin America not so much.
Unless you think measuring spending above what you earn each month is a measure of wealth?
Current inflation is not demand led but hey ho why not blame the consumer. If it were demand led, it would be difficult to explain so many small businesses going under.
I’m outlining the problems faced by a failed economy such as the UK.
Not only are we one of the poorest nations on earth but unlike some of the others we are consistently getting poorer every month by spending more than we earn.
Eh? I'm no fan of the UK political/economic system but to say it's a failed economy and one of the poorest nations on earth is verfiable nonsense. The UK is the 6th biggest economy in the world and punches far above it's weight relative to it's natural resources and size of the population. The problem is that the lion's share of that wealth is siphoned off by the 1% who then expect everyone else to foot the bill when something needs to be paid for (or bailed out!).
Unless you think measuring spending above what you earn each month is a measure of wealth?
What do you mean by 'what we earn'? A country with a sovereign currency doesn't 'earn' money, it creates it for free and then spends it on stuff. If we didn't spend more than we 'earn' the economy would collapse and you'd have to start foraging and hunting rather than popping down the supermarket.
well whenever this happens normally rising energy costs are cited as the main factor, which is related to world events and not purely down to inflation? Hugely increased gas & electric costs are a massive worry for a lot of businesses, even those who are quite busy it seems, making a lot of once-viable businesses now not.it would be difficult to explain so many small businesses going under.
intheborders
Seems both of us have been shot down by Rone, now and in the past but I absolutely agree, there’s only so long the UK as a whole can continue to function as a net importer AND maintain its standard of living.
For me its just a simple boil-the-frog exercise, and the water is warm…
It's not a very comfortable proposition.
Either way I don't see the UK maintaining or even close to maintaining a "standard of living" as we define it today.
Our exports are highly biased to services that can be performed anywhere (or virtually) with nothing specific tying them to the UK/Western Europe etc..
Eh? I’m no fan of the UK political/economic system but to say it’s a failed economy and one of the poorest nations on earth is verfiable nonsense. The UK is the 6th biggest economy in the world and punches far above it’s weight relative to it’s natural resources and size of the population. The problem is that the lion’s share of that wealth is siphoned off by the 1% who then expect everyone else to foot the bill when something needs to be paid for (or bailed out!).
The UK is 6th (or whatever this month) by how much it SPENDS.... not
What do you mean by ‘what we earn’? A country with a sovereign currency doesn’t ‘earn’ money, it creates it for free and then spends it on stuff. If we didn’t spend more than we ‘earn’ the economy would collapse and you’d have to start foraging and hunting rather than popping down the supermarket.
Whilst we import more than we export the difference is how much we "earn" and it's been negative since 1978... it's what we have to spend on "stuff" we need to both survive and to make the stuff to sell to buy the stuff we need...
A sovereign currency is monopoly money unless it can be used to buy the materials we don't have needed to make the stuff we consume. It's not FREE because the people who make the actual stuff that can be sold to buy things from outside need things like food that we can't grow ourselves so we have to buy outside.
It’s not a very comfortable proposition.
Only if you look at it within the constraints of traditional economic thinking. We're at an inflection point in how the world economy is managed, and we're moving towards an economy where economic activity is decoupled from finite constraints related to natural resources. It's still in it's early stages but MMT is going to be the new paradigm for economic management, and sustainability for the use of natural resources and energy production. Where it will fail though is if we don't rebalance the inequality that 40 years of neoliberalism has created. With the right policies we could easily have economic prosperity experienced in the post-war years without the reliance on fossil fuels, and MMT is going to be central to that.
Whilst we import more than we export the difference is how much we “earn” and it’s been negative since 1978…
If what you say was true why hasn't the economy collapsed? You talk as if money is finite and created in a closed system. It's not. Money can be created and destroyed at will, it's not like physics and the law of conservation of energy. What you're talking about is a simple trade deficit. It's not 'earnings', it's just the difference between what we buy and sell, and that is supported by the productivity of the UK economy, which is underpinned by the creation (and destruction) of money by the UK govt.
Money can be created and destroyed at will, it’s not like physics and the law of conservation of energy
And there in lies the problem. If there is nothing underpinning money then it is just Monopoly money. It used to be tied to the gold standard so it could be backed up by something real but that ship has long since sailed and now it’s not backed u by anything tangible.
Perhaps it’s been explained earlier, but has anyone explained WHY I (or you for that matter) should “just accept” being poorer?
You've got a blue passport, serf. THat's what "we" all voted for, remember?
The pensioners who actually mostly voted for it all get their triple-locked pensions of course.
If there is nothing underpinning money then it is just Monopoly money. It used to be tied to the gold standard
You're not seriously suggesting that we return to the gold standard are you?
It used to be tied to the gold standard so it could be backed up by something real
And what determined the value of that 'something real?' Nothing except the fact it was in demand. So it wasn't that different, except that there was a limited supply. Like Bitcoin.
And there in lies the problem. If there is nothing underpinning money then it is just Monopoly money.
Why is it a problem, specifically?
There is something underpinning it, actually, see if you can work out what it is.
yep
A company might take some printed free money now they or we covert into a real currency but the pence in the pound future value is worse than worthless to them, its not money they can use to pay employees in a real country or buy materials/energy etc. because the UK just demonstrated to them we are happy to just print money.
Steve that's exactly what I am saying. If we were to print unlimited amounts then this would happen, but we don't. The little bits of plastic film with a royal head on keep their value because people want them, because there is a limited supply and other people trust that the demand will continue. It continues because we have (for now) a functioning economy, people are buying stuff in £s which means they are in demand.
Again - printing money isn't a problem. Printing *too much* money might be.
This is how all currencies work. There's no point in tying them to something 'real' because the demand for that real thing could vary anyway, and if people didn't want that particular thing they'd end up trading it for something else, and then that thing would become money anyway so it wouldn't make a difference.
"Sandwich
Full Member
“I warn you that you will have pain–when healing and relief depend upon payment.
I warn you that you will have ignorance–when talents are untended and wits are wasted, when learning is a privilege and not a right.
I warn you that you will have poverty–when pensions slip and benefits are whittled away by a government that won’t pay in an economy that can’t pay.
I warn you that you will be cold–when fuel charges are used as a tax system that the rich don’t notice and the poor can’t afford.
I warn you that you must not expect work–when many cannot spend, more will not be able to earn. When they don’t earn, they don’t spend. When they don’t spend, work dies.”
Neil Kinnock 1983 (How prescient and lots laughed at him and re-elected the monster).
wow, so prescient.
"
yep
Is that in response to my question on the gold standard? You want to return to a system that was abandoned nearly a century ago because it resulted in beggar-thy-neighbour economic policies which caused deflation and depression? The world economy is vastly different to what it was 100 years ago. It's vastly different to what it was 40 years ago, and we need a new system to manage it and the transition to net-zero and sustainability in the next 30 years. MMT, or some flavour of it, is going to be the new paradigm. Most western economies are already using it, but it's not working correctly because we're not tackling the problem of massive private wealth.
If what you say was true why hasn’t the economy collapsed?
It largely has or is in the process of. It's a big tanker so it takes a while to stop and turn around.
Inertia is what is keeping it moving and catch-up of developing nations what is helping to mask it along with selling the family silver.
You talk as if money is finite and created in a closed system. It’s not. Money can be created and destroyed at will, it’s not like physics and the law of conservation of energy. What you’re talking about is a simple trade deficit. It’s not ‘earnings’, it’s just the difference between what we buy and sell, and that is supported by the productivity of the UK economy, which is underpinned by the creation (and destruction) of money by the UK govt.
Money just a way we determine the value of something we have in relation to something we want to buy... the value of that "money" is determined buy how much we want or need the other thing compared to what we have to offer in exchange.
It largely has or is in the process of
You must have a very different definition of economic collapse than most people. I'm talking about the wholesale devaluation of the currency, millions out of work, wholesale bankruptcies, those who are in work not receiving their salaries, the wipe out of savings and pensions and empty shelves in the supermarkets. Things aren't great at the moment but by any measure the economy is not collapsing.
Money just a way we determine the value of something we have in relation to something we want to buy…
Yes, but it's not finite. What is finite is available labour, energy generation and raw materials, and we can create as much money as is needed to leverage those resources. I really don't understand why you appear to think that fiat money is the problem. MMT is the solution to make fiat money work for everyone, not just a tiny few as currently happens.
Money just a way
That's just one of it's functions. In classical economics Money's functions are summed up by Jevon's couplet
Money's a matter of functions four,
A Medium, a Measure, a Standard, a Store
This represents one of the massive issues with using one "thing" to do opposite functions. To have any increase in quantitative value, you have to be able to store it, but that means not spending it, or have it in circulation which it needs to do in order to realise its qualitative function.
Molgrips
Steve that’s exactly what I am saying. If we were to print unlimited amounts then this would happen, but we don’t. The little bits of plastic film with a royal head on keep their value because people want them, because there is a limited supply and other people trust that the demand will continue. It continues because we have (for now) a functioning economy, people are buying stuff in £s which means they are in demand.
Again – printing money isn’t a problem. Printing *too much* money might be.
This is how all currencies work. There’s no point in tying them to something ‘real’ because the demand for that real thing could vary anyway, and if people didn’t want that particular thing they’d end up trading it for something else, and then that thing would become money anyway so it wouldn’t make a difference.
You know I'm using "printing money" metaphorically right??
Perhaps I can try and explain from the other side... we both agree money isn't real.
I'm not advocating a new gold standard or something I'm saying the real things themselves need to be of a known relative value and that is what the currency represents.
people are buying stuff in £s which means they are in demand
Are they? Outside the UK who is buying stuff in £'s? (actual stuff)
Plenty of nations with their own currency buy stuff in $ or € a few Southern Pacific nations buy stuff in Aus $ I think and some stuff gets bought in CHF.
Look at it this way... it's an assumption I've not checked but I'd expect when say the Saudi government buy a JCB from the UK they pay in US$... even services, when I was consulting internationally nearly everything was billed in either US$ or local currency...
Are they? Outside the UK who is buying stuff in £’s? (actual stuff)
Well the pound has increased in value significantly against the US dollar recently so someone must be using it. The UK is in the fortunate position of having one of the top 3 strongest currencies in the world. I really don't know why you think it's worthless. 🤷♂️
we both agree money isn’t real.
presumably you'd be happy to be paid in something that is real? staplers? Bananas? Tea towels?
stevextc,
you not understanding something doesn't make it not real. Any more than my mother not understanding how a computer works makes her iPad vanish.
dazh
Things aren’t great at the moment but by any measure the economy is not collapsing.
Reminds me of the bus over the cliff in Italian job... the gold at the end and the thing teetering.
I’m talking about the wholesale devaluation of the currency, millions out of work, wholesale bankruptcies, those who are in work not receiving their salaries, the wipe out of savings and pensions and empty shelves in the supermarkets. Things aren’t great at the moment but by any measure the economy is not collapsing.
We've teetered on all of those separately and I could argue people in work receiving UC is not people in work being paid a living wage or buying our way out of crises by selling the means of production isn't sustainable.
Yes, but it’s not finite. What is finite is available labour, energy generation and raw materials, and we can create as much money as is needed to leverage those resources. I really don’t understand why you appear to think that fiat money is the problem.
.
You just answered yourself.... we have finite resources leveraged by this artificial thing called "money".
However much "money" we create it will not change the resources we have.
MMT is the solution to make fiat money work for everyone, not just a tiny few as currently happens.
You keep saying that but like people saying "Jesus will save you" or "hold your right ear when you make a bet" you aren't convincing me by just saying it.
Well the pound has increased in value significantly against the US dollar recently so someone must be using it.
Or it’s being held by speculators and not actually used for anything
we have finite resources leveraged by this artificial thing called “money”. However much “money” we create it will not change the resources we have.
There's more or less a finite store of energy in the world, and yet is has been powering successive and infinite generations of animals for about 4 billion years now. Just like a carnivore taking the energy stored in the muscles of it's prey animal, people can use an infinite exchange of cash money to pay for things. Empty your pocket of the loose change; look at the dates on the coins, some have been circulating for decades. Same money, same purpose.
Fiat money is just exchange (future debt), it's not tethered to the resource. Same as energy is not tied to the animals that exploit it, It exists separately from them
thecaptain
you not understanding something doesn’t make it not real. Any more than my mother not understanding how a computer works makes her iPad vanish.
WE seem to be diverging on what "real" means...
No-one being able to give an rational explanation of something other than a "belief" doesn't make thing real either.
To take an example... the Wired "5 Levels of" series...
No-one being able to give an rational explanation of something other than a “belief” doesn’t make thing real either.
You're the only person on the thread doing that, so you appear to be arguing with yourself
There’s more or less a finite store of energy in the world, and yet is has been powering successive and infinite generations of animals for about 4 billion years now.
erm.. we have had chlorophyl for at least 3.5Ba... and prior to that retinal so we have to step this up to the finite amount of hydrogen in the sun.
Fiat money is just exchange (future debt), it’s not tethered to the resource.
It's either debt or not? We seem to be going in circles in if it's debt, who pays for that debt and when?
You are getting hung up on definitions. Debt in the sense of a bank transaction has interest and repayment requirements. But in a looser sense, it just means that someone owes someone something. If you consider that debt can be transferred, then that's how money works.
If I give you a rabbit for dinner, you can give me some carrots for my dinner in turn. But what if I don't want carrots? I'll say 'well, you owe me some carrots then' so you're in my debt. Next day I fancy some turnips, and dazh has turnips but is so sick of them he now wants carrots, so I can say 'tell you what, you give me turnips and then when stevextc has some carrots he can give them to you. Sorted.
That's exactly what money is - a transferrable non-perishable token in lieu of these debts. The debts are owed between the providers of goods and services, so there need not be interest or a repayment deadline. Having money is like people owing you stuff and you can cash in with anyone (who accepts that currency) at any time. Originally people weren't willing to give up carrots for pieces of paper so they used something that had intrinsic value - gold. But when the state evolved to the point where there were regulations and crucially enforcement of those regulations, we were able to do away with the actual gold and go on trust instead. If trust collapses (Zimbabwe etc) then no-one wants the tokens, they want something else they can use.
Are we debating the fiat currency system now?
There's a good reason for it.
Bretton Woods which tied the dollar to gold convertibility (pegged) - met its maker when there were too many dollar liabilities in foreign accounts and physical limitations on the amount of dollars and gold. And other liquidity issues.
We then moved across to floating currencies. Why would we go backwards?
Inflation info for USA:
https://twitter.com/DEhnts/status/1651501515419336704?t=1XaawQGaWqmghbJst67CQA&s=19
Interesting break down World
https://twitter.com/s_economics/status/1651506363464310786?t=b2xHLqZ8-AtnqRBiyb0Pmg&s=19
who pays for that debt and when?
Debt is just money that someone owes someone else, so on the one side; debt is a bad thing, on the other side the same debt is a positive. Your wages are debt. as is your mortgage
if it’s debt, who pays for that debt and when?
Sigh. Once again, no one pays. We simply create more money in future and repeat the cycle. The size of the debt and the deficits that fuel it are not something to be concerned about, in fact they are what make the whole monetary system work. The only thing we care about is that prices grow at a sustainable and controllable rate of roundabout 2-3%. If it's below that, we need to stimulate the economy by creating money and spending more, if it's above we need to target the source of the extra inflation. In this case we need to cap energy prices. More generally if it's because there is too much money in circulation we need to tax the excess out of existence, and at the same time use fiscal policy to address inequalities and externalities to enable the whole system to work. That is MMT.
That is MMT
You’ve just described how it wont work
In essence you’ve said that we’d continue to stimulate demand via monetary policy
And then control inflationary pressure via fiscal policy
These controls need to work both ways
Otherwise you end up with an economy of super low interest rates (or negative) and super high taxes.
So, if I understand it correctly, there is no limit to what we can borrow, there’s no need to repay and there’s no risks of systematic damage as long as you have labour resource and control inflation…both of which this country has a great record of, but that aside.
Is this right?
Otherwise you end up with an economy of super low interest rates (or negative) and super high taxes.
As long as the taxes are weighted towards those who can afford them I see no problem with that. Fiscal policy is a fantastic tool for redistribution and preventing unsustainable bubbles in things like property prices. The difference is that the govt wouldn't be levying taxes to pay for things, but to ensure a stable economy and widespread economic security. The rich would still be rich, just a little less so, and everyone else would be much better off through low inflation, quality public services and infrastructure, stable wages. The main thing you'd probably need on top of MMT is rent controls and punitive taxes on multiple home ownership to prevent the inevitable property bubble from low interest rates.
Fiscal policy is a fantastic tool for redistribution and preventing unsustainable bubbles in things like property prices.
The housing bubble has been fed via cheap credit (which you're advocating)
People have been able to afford to take on bigger loans, as a percentage of their earnings due to interest rates being low. Which has just lead to a bidding war between people, pushing up prices.
rent controls
I'd take a look at whats happening in Berlin.
They implemented a rent cap, and now have had to remove it as its not had the desired affect.
The main thing you’d probably need on top of MMT is rent controls
I'm beginning to wonder if rent controls aren't the basis of a functioning economy. If rents go up then people can afford them less but it then becomes a better investment proposition so investors are more likely to buy houses and it pushes the prices up for them and also for those wishing to buy a home to live in....
It’s cheap credit that is causing the issue with increasing rents
It encouraged many people to get into the BLT market. In most instances rent is just a multiple of mortgage repayments.
As interest rates have increased many landlords have had little option but to pass this onto tenants via increased rents, in order to make that investment viable.
We’re now seeing landlords exit this market, but that’s making rents go up even further as it’s removing stock out of the market, reducing supply and therefore feeding into increasing prices.