Data suggests a unilateral Greek exit would have been much better than their colonial future under the Troika

Yesterday (November 26, 2019), the news came out from the Hellenic Minister of Finance that Greece had completed its latest repayment of 2.7 billion euros to the IMF early (Source). They owed around 9 billion euros to the IMF. Greece had to go ‘cap-in-hand’ to its “European creditors” to gain permission to make the payment early, which they claim saves them crippling interest rate payments. The loans were locked in at 4.9 per cent per annum – usury rates by any definition. Celebration seems to be the message from the neoliberals. But, from my reckoning, the disaster for Greece continues. On September 30, 2019, the IMF European Director Poul Thomsem gave an extraordinary (for its shameless arrogance) speech on Greece at the London School of Economics. Entitled – The IMF and the Greek Crisis: Myths and Realities – Thomson admitted that the IMF had revised its date at which they think Greece will finally get back (in GDP per capita terms) to the pre-crisis level. When they devised these usury loan packages, they claimed that “it would take Greece 8 years to return to pre-crisis level”. Now, they have revised that projection to 2034 – yes, you read that correctly – a generation of waste and foregone opportunities. When you look at their own scenarios for a unilateral exit in 2012, it becomes obvious (and I have said this all along) that exit could not have been worse than what the Greek people are enduring and will endure for an entire generation.

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Q & A Japanese government style – denial has no boundaries

A little bit of a different blog post format today. I mentioned in this blog post – Apparently core MMT idea is now supported by the mainstream (October 16, 2019) – that the Japanese government had taken issued a statement, by way of a formal answer to a series of questions from Japanese CDR politician Kazuma Nakatani on the opening day of the new Parliament (October 4, 2019). The Japanese government reply was not available in full at the time I wrote that but it was reported in the Japanese Media that the Government response could be summarised as “As a government, we don’t implement policy based on the idea that Japan is a successful case of MMT because its inflation and interest rates are not rising despite massive debt … We are working to restore fiscal health”. Which I thought was an interesting way of trying to deny the undeniable but also missed the point somewhat – being that MMT is not a ‘case’ but rather just provides an alternative lens to understanding the way in which modern monetary systems operate, the capacities of the currency-issuing government within those monetary systems, and the consequences of particular policy choices. In that context, over the last 3 odd decades, the Japanese government has pushed policy into new domains – large-scale central bank government bond purchases with continuous, and, at times, relatively large fiscal deficits yet has seen interest rates fall to zero and below, inflation low to negative and negative long-term bond yields. The consequences of the policy choices have been anathema to those predicted by mainstream macroeconomists. Japan has essentially defied mainstream economics and demonstrated its falsities. The only body of macroeconomic thought that gets close to explaining the Japanese situation is Modern Monetary Theory (MMT). That is why our work is being discussed at the highest levels in Japan. Anyway, today, I can present full translations of the Questions and the Government response with my annotations of that response. My translation was considerably enhanced by Kobayashi Chie and I thank her heaps for her help.

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China slowdown highlights the madness of the Eurozone austerity

Last Friday (October 18, 2019), the GDP data for China was released and we learned that growth has slowed quite significantly. The ABC news report – China’s economy hits three-decade low, with GDP growth falling to 6pc – suggested that this is the “fifth consecutive quarter of slowing growth” and a fall of 0.2 points from the last release. Its trade accounts reveal slower exports growth, and, importantly, slower import growth as growth in domestic demand declines. That last fact should raise fears of recession for the Eurozone elites, who have been content to export their austerity bias and rely on spending within other nations (outside the Eurozone) to maintain the weak growth that we have witnessed. The chickens are coming home to roost at present and the irony of all this is that ultimately German and Dutch external surpluses will fall below the allowable EU imbalance threshold of 6 per cent of GDP, not because those nations are doing anything sensible to address their damaging stance, but, rather, because their economies have become dependent on export growth and with China slowing that will hurt them badly. In other words, they will only come back within the EU laws through domestic recessions, and then, their fiscal positions will come under scrutiny again. A crazy system.

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The obesity epidemic – massive daily losses incurred while the policy response is insufficient

The Brexit issue in Britain has been marked by many different estimates of GDP (income) loss arising from different configurations of the Brexit. The media is flush with lurid headlines about the catastrophe awaiting Britain. As regular readers will appreciate, I am not convinced by any of those predictions. But as I said the day after the Referendum in this blog post – Why the Leave victory is a great outcome (June 27, 2016) – that when I tweeted it was a ‘great outcome’ I didn’t say that good would come out of it. I also didn’t suggest that it would be a short-term recovery of prosperity or that the workers would benefit. I was referring to the fact that class struggle now has a clearer focus within the British political debate. There is now a dynamic for a truly progressive leadership to emerge and bring the disenfranchised along with them and wipe out the neo-liberal hydra once and for all.” I think that is lost in this debate. When the British Labour Party claim the latest agreement will irrevocably damage workers’ rights or environmental protections they seem to be implying that they will never be in power again. No legislation or regulation is irrevocable in a democracy. But being part of the EU will always tie a nation to the EU’s rules which usurp any national interests. That is why I maintain strong support for the concept of Brexit. But amidst all these predictions of gloom and doom, I was listening to the radio last week and heard some statistics that are truly alarming. The on-going GDP losses from the obesity epidemic in the UK, which will increase over time rather significantly, are significant when compared to the estimates of GDP loss arising from Brexit. I wonder why that fact isn’t part of the daily narratives coming out from the Remain crowd to justify their view that the 2016 Referendum result should be disregarded so they can have another go at getting their own way!

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The Weekend Quiz – October 12-13, 2019 – answers and discussion

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.

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When old central bankers know what is wrong but can’t bring themselves to saying what is right

Last Friday (October 4, 2019), a group of former central bank governors and/or officials in Europe, issued a statement damming the conduct of the European Central Bank. You can read the full text at Bloomberg – Memorandum on ECB Monetary Policy by Issing, Stark, Schlesinger. The timing of the intervention is interesting given the change of boss at the ECB is imminent. As I explain in what follows, the Memorandum should be disregarded. Its central contentions are mostly correct but the alternative world it would have Europe follow would be a disaster for many of the Member States and the people that live within them. It would almost certainly result in the collapse of the monetary union – which would be a good outcome – in the face of massive income and job losses and the social and political instability that would follow – which would be a bad outcome. What it tells me is that the monetary union is a massive failure. It would be far better to dissolve it in an orderly manner to avoid those massive income and job losses and to support the restoration of full currency sovereignty and national central banks. That would be the sensible thing to do.

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RBA cuts rates as a futile exercise as Dr Schwarze Null demands fiscal action

I am now back in Australia after the latest cross-country run and so am falling back to routine. Which means a relatively short Wednesday blog post. Yesterday, the Reserve Bank of Australia cut their policy interest rate by 0.25 points to 0.75 per cent, a record low level. The RBA governor cited the weakness in the labour market as the reason for the cut and continued to suggest that the Government, which is pursuing its mindless austerity goal to record a fiscal surplus as the economy tumbles towards recession, should expand fiscal policy to kick-start growth. Once again, a central bank is being pushed into ‘record-making’ policy territory because the treasury-side of government will not use its fiscal capacity responsibly. This is now a global trend and even the likes of Dr Schwarze Null is calling for more fiscal action. Another day passes that demonstrates the mainstream New Keynesian approach is rapidly being abandoned by policy makers and an era of fiscal dominance approaches. Not before time.

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ECB confirms monetary policy has run its course – Part 1

I will have little time to publish blog posts in the next two weeks. But as I travel around I have to sit in trains, planes and cars and that is when I tend to write when I am away from my desk(s). Today, I am in Maastricht – after travelling by train from Paris. I have two events – one on framing and language and the other on Reclaiming the State and Modern Monetary Theory (MMT) basics. Then I am heading to Berlin for a talk at PIMCO and on Friday I am presenting an MMT workshop at the European Central Bank. Last week, the ECB made its next move, the last one for current President Mario Draghi. It will also lock in Madame Lagarde for a time and represents a rather overt statement about the failure of mainstream macroeconomics. While the mechanics of their various policy decisions are interesting and are worth discussing (albeit briefly) the overall optics were more powerful. The ECB has now joined a host of central bankers around the world in, more or less, admitting that monetary policy has run its course and is being pushed into ever more desperate configurations. At the same time, the corollary is that fiscal policy makers are failing in their responsibility to use policy to avoid stagnation and elevated levels of unemployment. Despite rather significant monetary policy gymnastics, aimed at stimulating economic growth and lifting inflation rates, central bankers have largely failed. They have failed because they are wedded to mainstream theory. Fiscal policy makers are constrained by an austerity-biased ideology and/or voluntary institutional machinery that has been created to stifle fiscal initiative (destructive fiscal rules). The cracks are widening. We are approaching the period of fiscal policy dominance – finally! This is Part 1 of a two-part series on this topic. Part 2 will follow tomorrow.

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Germany to play smokes and mirrors again

Germany is proposing some more smokes and mirrors so that it can maintain its position as the exemplar of fiscal responsibility by obeying its ‘Debt brake’ yet inject significant deficit spending into its recessed economy, which is starved of public infrastructure spending. They are proposing to set up new institutions which will be funded by government-guaranteed debt and spend billions into the economy while ensuring these transactions do not show up on the official fiscal books of the German government. The only financial constraint these new agencies will be bound by are the European Commission’s Stability and Growth Pact rules. But because the allowable spending difference between the ‘Debt brake’ and the SGP is huge (but still well below what is needed to redress the years of austerity and infrastructure degradation) and so will provide a much-needed stimulus to the ailing German economy. Meanwhile, the Germans will tell the world how thrifty they are and how they obey their own rules. And then they can say that all other Member States should also stick to the rules. Meanwhile, the smoke and mirrors are going hammer and tong to create spending growth that bears no resemblance to the allowable growth under the Debt brake. The Debt brake then is just a sham. The upside is that needed public spending will enter the economy which tells us that the Debt brake should never have been introduced in the first place. Such is life in the EU – a daily circus.

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The Weekend Quiz – September 7-8, 2019 – answers and discussion

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.

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Spending equals income whether it comes from government or non-government

It is now clear that to most observers that the use of monetary policy to stimulate major changes in economic activity in either direction is fraught. Central bankers in many nations have been pulling all sorts of policy ‘rabbits’ out of the hat over the last decade or more and their targets have not moved as much or in many cases in the direction they had hoped. Not only has this shown up the lack of credibility of mainstream macroeconomics but it is now leading to a major shift in policy thinking, which will tear down the neoliberal shibboleths that the use of fiscal policy as a counter-stabilisation tool is undesirable and ineffective. In effect, there is a realignment going on between policy responsibility and democratic accountability, something that the neoliberal forces worked hard to breach by placing primary responsibility onto the decisions of unelected and unaccountable monetary policy committees. And this shift is bringing new players to the fore who are intent on denying that even fiscal policy can stave off major downturns in non-government spending. These sort of attacks from a mainstream are unsurprising given its credibility is in tatters. But they are also coming from the self-proclaimed Left, who seem opposed to a reliance on nation states, and in the British context, this debate is caught up in the Brexit matter, where the Europhile Left are pulling any argument they can write down quickly enough to try to prevent Britain leaving the EU, as it appears it now will (and that couldn’t come quickly enough).

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The EU pronouncement of a Greek success ignores the reality

I keep reading ridiculous articles about Brexit in the UK Guardian. The latest was comparing it to pre-WWI Britain and suggesting there were no signs of a “Damascene moment remainers hoped for”. I thought that reference was apposite – given the reference invokes St Paul’s conversion after he was struck blind. Good analogy – blind and remainer. The Brexit imbroglio is all the more puzzling because it seems to be a massive mismatch of scale – a currency-issuing nation and an organisation with no currency and no democratic legitimacy. And that is before one even contemplates the nature of that organisation. On August 20. 2019, the European Union provided us with a perfect example of why no responsible government would want to be part of it. In its – Daily News 20/08/2019 – there were three items. The last item told us that construction output in the EU28 had declined by 0.3 per cent in June 2019. The first item was a sort of cock-a-hoop boast about how great Greece is after the EU saved it from disaster. Parallel universe sort of stuff. Britain will thank its lucky stars after October 31, 2019 when it goes free from that madness. Even though the remainers remain ‘blind’ without their Damascene moment”

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Inverted yield curves signalling a total failure of the dominant mainstream macroeconomics

At different times, the manias spread through the world’s financial and economic commentariat. We have had regular predictions that Japan was about to collapse, with a mix of hyperinflation, government insolvency, Bank of Japan negative capital and more. During the GFC, the mainstream economists were out in force predicting accelerating inflation (because of QE and rising fiscal deficits), rising bond yields and government insolvency issues (because of rising deficits and debt ratios) and more. And policy makers have often acted on these manias and reneged on taking responsible fiscal decisions – for example, they have terminated stimulus initiatives too early because the financial markets screamed blue murder (after they had been adequately bailed out that is). In the last week, we have had the ‘inverted yield curve’ mania spreading and predictions of impending recession. This has allowed all sorts of special interest groups (the anti-Brexit crowd, the anti-fiscal policy crowd, the gold bug crowd, anti-trade sanctions crowd) to jump up and down with various versions of ‘I told you so’. The problem is that the ‘inverted yield curve’ is not signalling a future recession but a total failure of the dominant mainstream macroeconomics. The policy world has shifted, slowly but surely, away from a dependence on monetary policy towards a new era of fiscal dominance. We are on the cusp of that shift and bond yields are reflecting, in part, the sentiment that is driving that shift.

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Germany is now suffering from the illogical nature of its own behaviour

Last week (August 9, 2019), the British Office of National Statistics (ONS) – GDP first quarterly estimate, UK: April to June 2019 – told us that the UK economy contracted by 0.2 per cent in the June-quarter 2019 after having grown by 0.5 per cent in the March-quarter. The UK Guardian pundits and the Remain cheer squad all screamed Brexit and were heard to be walking around in circles saying “see, we told you so”. Meanwhile (August 7, 2019), not far away (according to the Remain crowd’s much-loved gravity trade models), Germany’s Statistisches Bundesamt (Destatis) press release – Production in June 2019: -1.5% seasonally adjusted on the previous month – told a sorry tale. In annual terms, Germany’s industrial production has contracted by 5.2 per cent. We also learned that Germany is probably in recession. According to the Remain-logic, that must be Brexit too, n’est-ce pas? Meanwhile, just a bit further south, Italy is in turmoil. Obviously, Brexit uncertainty. I jest of course (well a bit). But in a real sense, this is all tied into Brexit in one way – and it is not the way the Remain camp would like us to believe. In fact, what I have in mind gives more weight to the Leave position and reflects on how intransigent the European Union elites are in dealing with the Member States.

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When the Left disgraces itself

In Monte Python’s Life of Brian we were introduced to the “People’s Front of Judea”, which was “one of many fractious and bickering independence movements, who spend more time fighting each other than the Romans”. The segments featuring the Front were very amusing. It was humour but redolent of the sort of historical struggles that have divided the Left over the centuries. In Australia, the history of the Communist Party, for example, is one of many factions, splintering into new parties and leaderships after disputes about Bolshevism, then the Communist International and Stalinism, then the so-called “imperialist” war by the Allies against Nazism, then Krushchev’s revelations about the crimes of Stalin, then the Soviet invasion of Hungary, then the split between the Soviet Union and China and the rise of Mao, then the Soviet invasion of Czechoslovakia, and so on. This sort of division is mirrored around the world on the Left side of politics and struggle. I have been reminded of this history in recent weeks as the ‘war’ against Modern Monetary Theory (MMT) has been ramped up from so-called progressives. However, this ‘war’ seems different to the sort of internicine struggles that have historically bedevilled the Left. We now have all manner of strategies emerging, ranging from classic Association fallacies to ridiculous claims that MMTers perpetuate ‘anti semitic tropes’, and on to plain invention, a.k.a. straight out fabrications or lying. There is no real attempt to embrace the body of work we have created over the last 25 years. Quite the opposite – the ‘critics’ haven’t an original thing to say about the substance of MMT. They have instead decided to smear us with increasingly hysterical assertions. Which raises the interesting question for me – what is driving this aberrant behaviour? Fear, a sense of irrelevance, jealousy, Brexit, spite, … what? I have conjectures but no real answers.

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Europe should stay out of the race for IMF head

My Wednesday blog post is designed to be short in time commitment. It clears a bit of space in the day to catch up with other more mundane matters (research contracts, some coding – I am learning Swift at present, and stuff like that). But I thought a small viewpoint on the latest dealings over who will become IMF boss were easy to dispense with today. And in that context, it was hard to go past Wolfgang Münchau’s Financial Times column – Do not treat the IMF as an EU consolation prize (July 21, 2019). He sums up the situation perfectly – “The world needs a first-rate person to run the IMF. It should not allow Europe to treat the fund as a dumping ground for washed-up officials.” Adam Tooze also weighs in on the same issue in his Social Europe article – The International Monetary Fund leadership is not a bargaining counter (July 22, 2019). His conclusion is also spot on – “The eurozone crisis created a toxic codependency between the eurozone and the IMF which needs to be dissolved once and for all.” But it goes beyond the revolving door aspects of these positions and the Troika relationship that emerged during the GFC. The IMF is already in tatters – still in denial but realising its old positions are untenable – to allow the toxic austerity culture of Europe to take over the IMF would destroy any hope that the latter might abandon its neoliberalism and embrace the emerging macroeconomics paradigm that will replace dependency on monetary policy with fiscal dominance – just what Modern Monetary Theory (MMT) has been promoting.

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The Weekend Quiz – July 13-14, 2019 – answers and discussion

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.

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That progressive paradise (aka the EU) does it again!

I saw a Tweet overnight suggesting the so-called progressive British Remainers had been a little quiet in recent days following the comical display of anti-democratic, corporatism aka filling leadership positions in the EU and the Eurozone. Where are they? Why aren’t they out there in the media (social or otherwise) extolling the virtues of their much-loved European Union, where progressive policies are the norm and the peoples’ interests are held above the narrow corporate interests? The problem is that they cannot show up at present. The EU has managed to appoint a cabal of new leaders, many of whom are plagued by past scandals, allegations of nepotism, convictions for negligence in public office, and the Presidential nominee is under investigation in the Bundestag and has been acknowledged as a failure in her management of the German defense department. Come to think of it they seem perfect for the top jobs in the EU. And how was this motley lot selected? By denying even the limited sense of democracy that has been present in this process in the past. It is beyond a joke. But then this is the Europhile cosmo left’s vision for the future. One could not dream all this stuff up one they tried.

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The European Union once again reveals why it should be dissolved

While the Europhile progressives are publishing papers and holding talkfests to discuss their latest EU reform proposals, the on-going reality of the European Union continues to reveal itself – the pretense that there is a rule of law operating – as laid out in the Treaties and the idea that all are equal under that law. When I was researching my 2015 book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale – and over the long period I have studied the concept of European integration it was obvious to me that despite the chimera of a strict, rule-based system that is run by technocrats, the actual practice of the Union is vicariously ad hoc – rules applied in cases where doing otherwise would present ideological problems, abandonment of the rules and outright illegal behaviour when there the interests of the corporate elites are at stake or the existence of the Union is threatened. And while law breaking, relevant officials produce complicated justifications of their behaviour as if what they are doing is within the boundaries specified by the Treaties. The Europhile progressives, meanwhile, continue to hold this embarrassing monstrosity out as the exemplar of freedom, globalism, cosmopolitanism and sophistication. They have reached such a state of denial that what is obvious to those looking in from the outside escapes their attention, or, in the mould of the European technocrats they just ride along with the spurious justifications for the unjustifiable. Europe in 2019.

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An economist trying to stay relevant long after he lost it

This is my Wednesday blog post where I write less or perhaps research the blog post less – both of which save me time to do other things. Today a few snippets. One snippet looks at an article in Marketwatch – What Modern Monetary Theory gets ‘plain wrong,’ according to former IMF chief economist (June 11, 2019). This article should put to rest any claims that the mainstream New Keynesian macroeconomic consensus understands Modern Monetary Theory (MMT) or that MMT is somehow explainable within the mainstream framework. The ‘we knew it all along’ camp who are trying their hardest to stay relevant at a time when it is increasingly obvious that the mainstream economics they preach has nothing valid to say about the realities of the world just had the carpet pulled out from under them by one of their own.

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