Today I am writing about the sectoral balances which are derived from the national accounts. A recent article in the Financial Times uses these balances to demonstrate that attempts to reduce the UK public deficit can only be successfully achieved by engineering growth in non-government spending. That is an insight that is core to Modern Monetary Theory (MMT) but typically escapes the understanding of most commentators. The article is interesting because it shows how the sectoral balances – which are accounting statements and thus true by definition – can be interpreted in different ways and influence different policy strategies. But the fundamental understanding you gain from knowledge of these balances is that at present public deficits are here to stay … and if you don’t like them … you better get used to it!

I was reading this IMF working paper today – The Outlook for Financing Japan’s Public Debt – which was released in January and was on my pile of things to catch up on. The paper is now being used by journalists to predict doom in the coming years for the Land of the Rising Sun. As I note, the stark deviation of the Japanese experience with the predictions of the mainstream macroeconomics models has given the conservatives a headache. As an attempt to reassert their relevance to the debate, the mainstream commentators are inventing new ploys so that they can say – yes we agree that the facts in the short-run don’t accord with our models but brothers and sisters just wait for what is around the corner. My assessment is that they have been saying this for 20 years already. In 5 more years, they will still be disappointed and still prophesying doom. They are pathetic!

The Federal Reserve Chairman Ben Bernanke gave a speech entitled – Economic Challenges: Past, Present, and Future – on April 7, 2010 in Texas. It emphatically demonstrated why he should never have been appointed to the position he is in and why his reappointment just compounds that initial mistake. While he has been largely quiet on fiscal matters over the last few years this speech outlines without doubt that he doesn’t really understand the monetary system he supervises and has an understanding that is seemingly limited to that found in any erroneous mainstream macroeconomics text book. The only other interpretation is that he does understand the system yet chooses to deliberately deceive the wider public so as he can support ideological attacks on government activity. Either way, he is part of the problem we face.

Today’s blog is a little different to most, although don’t worry, I will get onto familiar themes soon enough. Today I am considering the latest broadside from controversial German philosopher Peter Sloterdijk, who Jurgen Habermas referred to as a fascist. Sloterdijk responded to that criticism by labelling Habermas, in turn, a fascist. That debate was about bi-genetics and Sloterdijk’s implicit support for a “master race”. It was an interesting debate in itself and goes to the fundamental discomfort that exists in Germany about their past. But today I am considering his views on freedom and governments who he labels fiscal thieves and suggests that modern democracies have conspired to allow ever increasing numbers to live of the toil of others courtesy of state intervention.

Today I have been reading up on the new proposals from the Basel Committee to tighten the capital requirements and introduce new liquidity rules as a further strengthening of the regulatory framework on banks. There is a mountain of literature to get through on all of this. But I came across two divergent views on the new proposals. Some commentators are arguing that these requirements hinder the banks’ ability to create credit and hence put a regulative drag on growth. If they are tightened then growth will be lower than otherwise. The other view expressed by a noted “progressive” economist disputed this view but then got confused in a mainstream macroeconomics labyrinth. It brought home the fact that people often confuse capital adequacy requirements and reserve requirements.