My blog is on holiday until Monday, January 3, 2022. The baffling quiz at the coming weekend will still appear. While the local beach is enticing I am actually in personal lockdown while I finish some outstanding (and late) writing commitments.
Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.
Welcome to The Weekend Quiz. The quiz tests whether you have been paying attention or not to the blog posts that I post. See how you go with the following questions. Your results are only known to you and no records are retained.
The Eurozone continues to stumble on, held together by the vast bond-buying program of the ECB, which has saved several Member States from insolvency over the last several years. While all the talk at present has been about what to do about the punitive and unworkable fiscal rules in a post-pandemic (when will that be?) period, when the emergency waivers of the Excessive Deficit Mechanism procedures are withdrawn, the reality is that under the current architecture, the only thing that keeps the currency union intact is the ECB acting outside of the legal structures set down by the treaties. Yes, I know full well that the elites have massaged the public into believing that there is no breach of the no bailout clauses, but the reality is different. The ECB is (indirectly) funding Member State fiscal deficits through its massive asset purchasing programs, the two relevant ones being the PSPP and the PEPP. And ever since they introduced the Securities Market Program (SMP) in May 2010 they have been providing funding to Member States to allow them to run fiscal deficits while maintaining low bond yields. With the Pandemic Emergency Purchase Programme (PEPP) scheduled to end in March 2022, the fears are growing that Italy will be the first Member State to succumb to the bond markets – the yields on debt will rise because the investors appreciate the credit risk and will know they cannot offload as much debt onto the ECB in the secondary markets. The fact that these fears are becoming more widespread should tell you that the role of the ECB is exactly what I say it is rather than the ‘maintaining order in investment markets’ spin that the ECB runs as the smokescreen.
It’s Wednesday and a shorter blog post, which includes the latest from Turkey and some music. The mainstream narrative against Modern Monetary Theory (MMT) has been ramped up significantly in recent weeks as a result of events in Turkey, where, up until yesterday, the currency had depreciated significantly. The screams for interest rate rises from bankers etc (of course! they profit or protect foreign debt exposure) have been deafening. But the most recent monetary policy decision was on December 16, 2021, when the CBRT reduced its policy rate (the one-week repo auction rate) from 15 per cent to 14 per cent. The ‘markets’ can’t really get a handle on the current government’s thinking because it is running against the mainstream in several ways, including cutting rates to reduce inflationary pressures (see Press release on Interest Rates – from the CBRT). Overnight a big swing happened after the government made a significant fiscal policy announcement. That will further confound the markets who were forced to scramble to close out short-selling positions as the lira appreciated by around 25 per cent in one day. The fiscal squeeze worked. You couldn’t make this stuff up.
One of the joys of living is reading brilliant writing and I read a lot as a consequence. Not all of my reading is brilliant though, as you might expect, given my profession. As a young postgraduate student, one of the best books I read, among many, was – Labor and Monopoly Capital – which was written by – Harry Braverman – and published by the Monthly Review Press in 1974. It was a prescient piece of writing and is still 100 per cent relevant to the struggles today for working people against capital – both industrial and financial. It provides us with a path to resistance. It also points us in the direction of identifying the problems in the world today. And those problems start at the most elemental level – us.
I have noticed a lot of Internet traffic about Modern Monetary Theory (MMT) and the situation in Turkey at present. Apparently, as the narrative goes, MMT is finally being revealed as a fraud because Turkey’s economy is going backwards and its currency is depreciating rapidly. The logic, it seems, is that if a nation enters rough economic waters and the financial markets sell its currency (although remember someone has to be buying it simultaneously) then that proves MMT is false. An extraordinarily naive viewpoint if you think about it. This viewpoint has somehow missed the train on understanding what MMT actually is and seems to think that MMT economists have seen Turkey as a policy model. In this blog post, I consider some aspects of this naivety. It won’t silence the critiques, but it, hopefully will educate those who are interested in the topic and are learning about MMT.
Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.
Welcome to The Weekend Quiz. The quiz tests whether you have been paying attention or not to the blog posts that I post. See how you go with the following questions. Your results are only known to you and no records are retained.
The Australian Bureau of Statistics released the latest labour force data today (December 16, 2021) – Labour Force, Australia – for November 2021. With most states now abandoning most Covid restrictions just as the new variant arrives, which evades the vaccine coverage and infection numbers soar to record levels (go figure), the labour market certainly rebounded emphatically. Employment growth was very strong and resulted in sharp falls in unemployment and underemployment. Participation also rose, which prevented the unemployment rate from falling more. Overall, this is an improving situation although whether it will last as infection numbers start to rise rapidly is another question. It is certainly time for the Federal government to take advantage of the strengthening situation in the non-government sector and target some really good job creation initiatives in the regions and demographic cohorts that are still lagging behind.