MMT

Firstly, creation of what some regard as money by (commercial) bank lending, the fractional reserve and so on. And secondly debt owed by a government in overseas currencies, failure to pay whereof appears to be a signal for economic woe.

Commercial bank money works on a different circuit to goverment spending – but is underpinned by the BoE. Commercial banks have accounts at the BoE to keep reserves in check.

We don’t really have fractional reserve banking in the UK.

It’s mostly in the form of loans that have to be repaid. So not what I would call net money. Government money doesn’t have to be repaid.

Debt over-seas, can you be specific?

Some UK government debt is denominated in $ or €. Presumably those currencies are needed for something. So the national economy is connected with currencies over which the UK government has no control in a fiscal kind of way, not just because of trade etc.

Ah, UK foreign denominated debt is tiny.

About 8Bn I think. It changes all the time.

Worth remembering on the other side of the balance sheet whenever another country saves or invests with the UK they have to make Sterling investments.

And further to all this exports are a real cost (because you’re getting rid of a resource) and imports are a net gain (because you’re swapping something you have an unlimited access to – money for a someone else’s resource.)

MMT is the description of the way the state spends.

Exactly and that is all that needs to be known about MMT (assuming people have read about it/listened to lectures etc,.). And as part of how it works high inflation is not a good thing.

And as part of how it works high inflation is not a good thing.

And yet again today we’re told interest rates are to rise again, punishing everyone but those who hold assets and have large savings. The refusal to use fiscal policy to reign in inflation is going to crash the economy, all so the asset values of the rich can be protected. It’s madness.

And yet again today we’re told interest rates are to rise again, punishing everyone but those who hold assets and have large savings. The refusal to use fiscal policy to reign in inflation is going to crash the economy, all so the asset values of the rich can be protected. It’s madness.

But how do you propose to use fiscal policy to control inflation?

Increase VAT?
Increase general taxation levels?
You need a mechanism that impacts the majority of the population to reduce demand.

Taxing wealth isnt going to reduce demand in the economy.
It’ll raise government revenue, and redistribute funds, but wont have any meaningful impact on inflation.
Its just numbers on a balancesheet, not money which is flowing through the economy.

If interest rates were going up to double digit figures then I’d be the first person to say its wrong, but they are only being raised to “normal” historical levels. The only people being hurt are those who have borrowed in excess of their means.

But how do you propose to use fiscal policy to control inflation?

MMT economists have been pointing out for ages that that this inflation would rectify itself after a 2-3 years.

Adding income to interest just stokes inflation at the higher end.

Taxing wealth isnt going to reduce demand in the economy.

The wealthy have taken too many resources – taxing them limits their ability to do this.

Taxing wealth isnt going to reduce demand in the economy.

This particular bout of inflation is not caused by excess demand. It’s caused by profiteering. Raising interest rates at the moment is probably inflationary. It’s hard to avoid the conclusion that it is being done in order to increase unemployment and keep the proles in their place.

The only people being hurt are those who have borrowed in excess of their means.

Maybe their means were okay before the pandemic and the BoE have now created a problem for them that didn’t need to happen?

It’s been demonstrated time and time again driving interest rates to put people out of work to lower inflation is a terrible way to *fix* the economy.

You just end up with defaults, and the state having to support them with less productivity.

Monetarism doesn’t offer good outcomes.

And further to all this exports are a real cost (because you’re getting rid of a resource)

You are swapping a resource for foreign money. Is the distinction between foreign money and “money the gov can print” relevant?

Interesting and irrelevent aside, I recently learned that yer actual notes and coins are not made by the BofE but by the Treasury (via sub-contractors), which sells them on at face value, a nice little earner for them.

Taxing wealth isnt going to reduce demand in the economy.

Demand in the economy is not the driver of this inflation. It’s energy prices mainly, with a bit of brexit to amplify the impact. If you hadn’t noticed, demand is in freefall, yet prices are still rising. What we need to be doing is taxing wealth and using that money to put a ceiling on energy prices. This idea that people have too much money is nonsense.

The only people being hurt are those who have borrowed in excess of their means.

And why has that happened? Because asset prices have been protected at the cost of everything else. People haven’t borrowed what they have to buy luxuries, they’ve done it to keep a roof over their heads and to pay the bills. This isn’t a case of a few reckless people borrowing too much, it’s millions of people who face bankruptcy as a result of property prices and energy prices being allowed to rise, and then having the boot put in by rising interest rates.

I’d watch the full Jon Stewart piece on apple about inflation. Economists like Larry Summers are responsible for this situation.

Taster

You are swapping a resource for foreign money. Is the distinction between foreign money and “money the gov can print” relevant?

The foreign money has to be converted to pounds for them to purchase UK products. The BoE and its agents create all the pounds.

In the USA the Chinese exporters have to transact in dollars and have a US based account. The US creates all the dollars.

But how do you propose to use fiscal policy to control inflation?

Surely it depends on what is causing the inflationary pressure?  There has to be an agreement/admission that the Fossil Fuel (which includes automotive and aircraft industries), Real Estate, Finance, and (to a lesser extent than in the USA) the  Arms Industry are all too out of control, all too dirty and take up waaay too much of our resources, they must be tackled (made smaller or come under steadily increasing regulation to make them cleaner)  one way or another. And that’s probably true of many other industries who are using their greater purchasing power to increase profits at the expense of the public.

And why has that happened?

Because interest rates were lowered meaning debt became cheap and people could borrow a higher percentage of their earnings to spend on housing.
Which lead to people outbidding each other pushing up prices.

Energy prices are falling. The wholesale market is roughly where it was 12 months ago and thats now starting to feed into the domestic market. You’ll be seeing deals below the Energy Guarantee soon.

According to Rone, we should have done nothing, left it 2-3 years for the market to sort out itself.

Energy is at the root of most inflation as I have been led to understand.

You can’t do anything without it.

Imagine if we put that state money to work in the UK for energy solutions?

According to Rone, we should have done nothing, left it 2-3 years for the market to sort out itself.

Inflation is not falling as a result of interest changes. It takes 2 years for that to work according to them.

In fact didn’t inflation (CPI) go up last month?

Because interest rates were lowered meaning debt became cheap and people could borrow a higher percentage of their earnings to spend on housing.
Which lead to people outbidding each other pushing up prices.

And hey ho this is the economy that the Tories and the BoE created! That is the whole point of MMT – you monetise personal debt if the government doesn’t spend its own money.

So you’ve basically observed monterism doesn’t work then.

Fine by me.

According to Rone, we should have done nothing, left it 2-3 years for the market to sort out itself.

Nope. In the short term the government should subsidise bills. That’s what MMT says. And it partly did.

The state did its job and did we all get excited about the national debt when you got your £66 a month?

Lol.

It’s energy prices mainly, with a bit of brexit to amplify the impact.

And climate change hitting Southern Europe and beyond.

War, nationalism & burning the planet.

The expected further interest rate increases will be counter productive, but ultimately a decision made in another country (USA)… the UK is but flotsam on the waves generated by bigger countries and political/trading blocks (I exaggerate, but we do not exist in isolation).

I’ve never said that one solution is perfect.
You need to adjust your approach based on the circumstances.

MMT works for one off situations, War/Pandemic/Investment
But not to patch over day-to-day issues within the economy.

And hey ho this is the economy that the Tories and the BoE created!

Lets not forget that this started in 2008
Labour started it, and the Tories have continued it (along with most western governments)

MMT works for one off situations, War/Pandemic/Investment
But not to patch over day-to-day issues within the economy

MMT describes all government spending day to day (and black swan interventions which tend to highlight that the government controls the purse) – with central banks. For the last 45+ years.

There is no working or not working in that sense.

You’re conflating Q/E and MMT.

Lets not forget that this started in 2008
Labour started it, and the Tories have continued it (along with most western governments)

I agree the big parties of the West tend to be market driven. They all drank the cool aid.

Because it appeared to work throughout the 80s/90s but we were just transferring state asset created wealth to a few lucky people.

We are paying now.

Lets not forget that this started in 2008
Labour started it

You say that as if it was a party political thing done just to keep people happy? Lets not forget that in 2008 we came close to the entire banking system collapsing. The only thing that prevented that, and the resultant economic collapse/depression was the bank bailouts, zero interest rates, QE etc. The govt of the day in 2008 deserve a huge amount of credit for preventing what would have been a catastrophe. Or presumably you’d have been happy for your savings and pensions to be wiped out, your bank account to be frozen and your salary not to be paid just to keep to the status quo on interest rates?

This is why Chew is mixing stuff up.

2008 is known due to its large Q/E operation.

MMT started in the early 70s.

They’re related – but he needs to know the difference from a technical point of view.

Most people think Q/E is money printing. It’s not.

There’s a great podcast on Q/E here.

https://podcasts.google.com/feed/aHR0cHM6Ly9waWxldXNtbXQubGlic3luLmNvbS9yc3M/episode/YTQyNGQzMWItNDE1My00MTMxLWJlOTgtODAyYjM1OTFmMjhj?ep=14

You say that as if it was a party political thing done just to keep people happy?

I didn’t say that at all
You’ve just half quoted me to make a point.
If you’re going to quote me, at least quote me in full.

Rone said it was a Tory policy.
It was a policy implemented by the government in power at the time. Which in 2008 was Labour.

And I agree it was the write thing to do.
But what was the root cause of the issue?
People where lent money they couldn’t afford to pay back. Everyone new that, but failed to act and have been propping up that system ever since.

People where lent money they couldn’t afford to pay back. Everyone new that, but failed to act and have been propping up that system ever since.

Not because interest rates were too low. People were lent sub-prime loans because a bunch of fraudsters in the banking system saw a way to make a quick buck. The reason people have to borrow too much is because asset prices are inflated as a matter of government policy. That’s what monetarism is, protect asset holders, punish everyone else. Your solution of hiking interest rates does nothing but punish the victims.

People where lent money they couldn’t afford to pay back.

People who shouldn’t have been; were offered loans that they couldn’t pay back by businesses that knew that but took a gamble on it anyway hoping that it would all work out in the end, and were subsequently bailed out by the rest of us. So they were proved right.

Like I said, the finance industry needs it’s wings clipped for sake of the rest of us.

Rone said it was a Tory policy.
It was a policy implemented by the government in power at the time. Which in 2008 was Labour.

I think things are getting mixed up.

I wasn’t referring to the GFC – although what is being said here is correct.

I was saying it was Tory policy (and Labour in recent times) – for consumers to benefit from low interest rates. It underpins the idea of monetarism and encourages people to borrow. That’s the economy they delivered. Debt based.

So when interest rates go up (by deliberate BoE choices) – it seems a bit rich to say – people are living beyond their means – when they were encouraged to take on cheap debt, as that’s what out economy was built around.

*Especially* when wages have lagged too.

And ultimately not much choice if you wanted to buy a property.

Latest news inflation is barely shifting.

That’s because inflation is partly being topped up by income interest – by raising rates, and profit gouging.

Interest rises are a effectively a tax on people with debt – and a payment to people with assets.

Richard Murphy on LBC shortly.

*Especially* when wages have lagged too.

If we want to go to the root it was the abandonment of the policy of pegging wages to productivity back in the 60s/70s. As referenced in that David Graeber talk I posted, western economies, driven by neo-liberal ideologues fearing the expansion of socialist policies, decided to replace good wages with accessible credit, and replaced the right to economic security with political rights. Then the debt bubble blew up in 2008 and they have no idea what to do other than to paper over the cracks. Neo-liberal monetarism has had its day. MMT-based government interventionism is probably going to be the next phase in western economic policy (at least it should be).

Interest rises are a effectively a tax on people with debt – and a payment to people with assets.

This is the crux of it. You’d think the labour party would recognise the open goal staring them in the face, but instead they prattle on about balance budgets and not being able to afford to pay doctors and nurses.

And sorry to mention it again, but in that Graeber video he talks about the morality of debt and how those who are in debt are seen as inferior to those who aren’t. That is our economic system in a nutshell, and something that is amply demonstrated by Chew’s comments about people borrowing ‘beyond their means’.

and profit gouging

Not greedflation Sherlock?

https://www.theguardian.com/business/2023/mar/02/ecb-looking-out-for-price-gouging-greedflation-price-rises-eurozone-inflation-profit-margins

This is the crux of it. You’d think the labour party would recognise the open goal staring them in the face, but instead they prattle on about balance budgets and not being able to afford to pay doctors and nurses.

Yeah – I despair with that bit.

The only person who wanted to make substantitive change was ousted by the right-wingers, centrists, and their media pals. I can’t see that opportunity arising again in our lifetime.

But here we are.

It’s hard to believe how we’ve ended up with all the worst possible options.

Communist broadband FFS.

Communist broadband FFS.

It was wildly unpopular on the doorstep for canvassers.( I know, I was one of them)

but instead they prattle on about balance budgets and not being able to afford to pay doctors and nurses.

Because politicians have largely painted themselves into a corner about it. If Labour start to talk about the economy in a different way the Tories will pounce on it, It’s a traditional attack line for them every election (that works on the doorstep) and they’ll accuse Labour of “fantasy” economics or “magic money trees” or whatever. Plus from their side it sounds to the electorate like you take the economy seriously, that you wont spend frivolously, that you’ll take care of folks money, you might scoff, but lots of folks don’t trust Labour with taxation.

It was wildly unpopular on the doorstep for canvassers.( I know, I was one of them)

Voters get what they deserve. 🙄

Plus from their side it sounds to the electorate like you take the economy seriously, that you wont spend frivolously, that you’ll take care of folks money, you might scoff, but lots of folks don’t trust Labour with taxation.

See above.

Voters get what they deserve.

You can’t ignore them though.

That broadband policy… made perfect sense economically and socially… I was one of the few praising it on this forum… but people don’t trust the state or politicians when they present policies like that which are good for all of us. They only see costs not benefits, especially indirect ones. Whatyagonnado?!

It was wildly unpopular on the doorstep for canvassers.( I know, I was one of them)

Interesting. What was methodology and how many did you ask?

A YouGov poll, consisting of 3,653 British adults, found six in 10 (62%) supported such a move, almost three times as many people as were opposed (22%).

https://www.publictechnology.net/articles/news/survey-shows-public-support-labour-free-broadband-plan

Whatyagonnado?!

Well you see that’s the legacy form the idea that they’re paying for it with taxes.

It’s funny how they hardly believe anything that benefits them and then believe all the stuff that doesn’t benefit them.

Super clear article about Government ‘debt’.

Isn’t it Time to Stop Calling it “The National Debt”? https://t.co/AlYApB0ynb

— Robert Pearson (@robert19pearson) April 19, 2023

Interesting. What was methodology and how many did you ask?

I didn’t need to ask! as soon as they realised I was canvassing for Labour they’d let me know!

“d’you think we’re too poor for sky?”

“we’ve got broadband thanks, we don’t need the govt using it to spy on us looking at porn”

“d’you think we need handouts?”

and many variants of that.

Ah, you were canvassing in somewhere like Windsor. It must have been proper posh as it was quite popular with Tory voters according to YouGov, in fact more Tory voters supported it than opposed it.

“Among Conservative voters the proposal received a mixed reaction, with 45% pro and 41% against.”