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Questions and answers 2

This is the second Q&A blog where I try to catch up on all the E-mails (and contact form enquiries) I receive from readers who want to know more about modern monetary theory (MMT) or challenge a view expressed here. It is also a chance to address some of the comments that have been posted in more detail to clarify matters that seem to be causing confusion. So if you send me a query by any of the means above and don’t immediately see a response look out for the regular blogs under this category (Q&A) because it is likely it will be addressed in some form here. While I would like to be able to respond to queries immediately I run out of time each day and I am sorry for that.

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The vandals are gathering

Yesterday, the British government announced that they had actually recorded a deficit in January which is rare given they normally get a big revenue boost in that month. The reaction to the news has been hysterical and calls to invoke fiscal austerity measures in the lead up to their national election are gathering pace. You can imagine that these calls are suggesting exactly the opposite of what I think the British government should be doing. Given that they risk locking a generation of their youth into a lifetime of disadvantage, job creation programs are required now which will require further stimulus. That is the only responsible course of action. The bond markets disagree. But if the governments around the world really represented the interests of their citizens they would use their capacities to render all these vandals irrelevant. Most people, however, do not understand what that capacity is and how the government could use it. Anyway, now to the news …

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Person the lifeboats!

Last week (February 10, 2010), the ever-louder irrational rantings of Niall Ferguson about debt got another airing in the Financial Times in his article – A Greek crisis is coming to America. My two word reaction – which might be better than writing a whole blog was – Oh really! But the article demonstrates how desperate conservative academic commentary is becoming. The inflated self-importance of these characters quite obviously craves for ever increasing attention. However, not only does Ferguson demonstrate a poor attention to detail; a confusion about which monetary system is which; and a denial of history – but he also discloses such a vivid imagination that he might productively turn his hand to writing children’s fairy tales. Except then he would have to lighten up a bit or the kid’s would be having nightmares. As for the rest of us, we should be getting the lifeboats out if he is right. For me, I am staying on dry land except in the mornings when I chase those waves!

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A modern monetary theory lullaby

In recent comments on my blog concern was expressed about continuous deficits. I consider these concerns reflect a misunderstanding of the role deficits play in a modern monetary system. Specifically, it still appears that the absolute size of the deficit is some indicator of good and bad and that bigger is worse than smaller. Then at some size (unspecified) the deficit becomes unsustainable. There was interesting discussion about this topic in relation to the simple model presented in the blog – Some neighbours arrive. In today’s blog I continue addressing some of these concerns so that those who are uncertain will have a clear basis on which to differentiate hysteria from reality. We might all sleep a bit better tonight as a consequence – hence the title of today’s blog!

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We are sorry

On Friday (February 12, 2010) as Eurostats released the flash estimates of fourth quarter GDP for the EU (see below), the IMF released a new staff position note entitled – Rethinking Macroeconomic Policy. The bad news is the Europe is looking more like a region that is heading for a double dip recession. The even worse news is that that cretins at the IMF are claiming they know why they messed up in the past and how to address their failure. Stay tuned for a modified version of the same. The fact is that the IMF Report reveals they are as ignorant as ever of the workings of the modern monetary economy. So this revisionist exercise doesn’t signal a major paradigm stage.

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Why history matters

In this recent blog – Who is in charge? – I outlined the case that all the so-called “financing” arrangements that government deploy which are held out to us as being required to allow them to spend are in fact voluntary and reflect deep-seated ideological anti-government positions. I wanted to make the point that it is governments not amorphous “bond markets” that ultimately in command of the destiny of their nations and that citizens are being grossly mislead by lies and half-truths into believing that governments have to introduce harsh austerity packages to appease the markets because if they do not the latter will “close them down”. I continue with that theme today and address some issues raised in the comments that accompanied that blog.

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Coming down the face

Today the ABS released the Labour Force data for January 2010 and there was quite a strong growth in employment reveals, albeit it was dominated by part-time growth. The employment boost confounded the “markets”, some of the so-called experts had “factored in” contraction (so I guess their clients are dudded by their incompetence again!). With participation constant, the net jobs growth translates into solid reductions in unemployment. Unfortunately, total hours worked plummetted so I suspect it will be a grinding part-time led recovery. But the good news is that unless something bad happens elsewhere in the World we are now well over the aggregate unemployment rate peak and surfing down the face!

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Doomed from the start

Today I have been studying data from the EMU economies where the individual member states surrendered their currency sovereignty and comparing it to other nations which have sovereign currencies (Australia, Denmark, Japan, the UK and the US). This is part of a larger project I am involved in. While the glare of the spotlight is currently on Greece and how the EMU handles the issue, most commentators conveniently forget that this problem has been many years in the making and is both a product of initial design folly and subsequent behaviour by some member states.

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Who is in charge?

Today I was looking over some macro data from Ireland which is leading the charge among the peripheral EMU nations (the so-called PIIGS) to impoverish its citizens because: (a) the amorphous bond markets have told them too; and (b) they had previously surrendered their policy sovereignty. Their actions are all contingent on the vague belief that the private sector will fill the space left by the austerity campaign. The neo-liberals are full of these sorts of claims. More likely what will happen is a drawn out near-depression and rising social unrest and dislocation. But as long as the Irish do it to themselves then the Brussels-Frankfurt bullies will leave them to demolish their economy. It raises the question who is in charge – the investors or the government? The answer is that the government is always in charge but what they need to do to assert that authority varies depending on the currency arrangements they have in place.

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My Sunday media nightmare

Today started off as a usual Sunday – a long-ride on my bike interrupted by two punctures (why do they come in waves). Anyway, then some other things like a visit to the community garden where I have a plot. Then it was down to work and as I read news stories and academic articles I was continually confronted with the tide of hysteria surrounding the impending sovereign defaults (as we are led to believe). My principle conclusion was that these journalists etc have a pretty good job. They get paid for knowing nothing about the topics they purport to be experts about and instead just make stuff up and intersperse it with some mainstream economic ideology taken straight from Mankiw’s macroeconomic textbook. It would be an easy way to make a living. Get the text book out … turn to the chapter on debt this week (last week inflation) and start of with some “large” numbers which are “without precedent” and you are done. Easy pie! Problem is that it influences the readers who do not know these commentators are charlatans.

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On human bondage

Today I have been thinking how extraordinarily stupid human beings are. The so-called Club Med Eurozone nations are being fast tracked into a crisis by a pernicious concoction of corrupt and lazy ratings agencies, Northern European truculence, and a ridiculous monetary system that provides no fiscal support within what is really a federal system. And as the ailing governments boldly and stupidly declare a willingness to play ball with the Brussels-Frankfurt consensus bullies there are signs that social order is beginning to break down. Then I read that an American city is turning its lights off at night to save money. Then I read some goon telling everyone to short US bonds because there will be a debt meltdown. And all of this stuff stems from unnecessary constructions and constraints that we have placed on systems that should be geared to advancing general welfare.

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When you’ve got friends like this … Part 2

… who needs enemies. Today’s blog is Part 2 in a series I am running about the propensity of self-proclaimed progressive commentators and writers to advance arguments about the monetary system (and government balances) which could easily have been written by any neo-liberal commentator. The former always use guarded rhetoric to establish their “progressive” credentials but they rehearse the same conservative message – the US has dangerously high deficits and unsustainable debt levels and an exit plan is urgently required to take the fiscal position of the government bank into balance. In doing so, they not only damage the progressive cause but also perpetuate myths and lies about how the monetary system operates and the options available to a currency-issuing national government.

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The latest WMD – public deficits!

Person the life-boats! Get the hard hats out! Strife and pestilence is coming! I am wondering what all these loons – the deficit terrorists – who are now elevating a simple endogenous fiscal balance into a national emergency – will say in a few years when growth returns, unemployment falls, people start rebuilding their savings and most importantly their children do not go into slave camps making widgets to send back to the previous generation to pay for the fiscal balances and … the sky stays firmly above our heads although it does rain occasionally down on us to help farmers grow vegetables. What will these hysterical idiots say then? Today, the budget deficit has become the latest WMD. A seek and destroy mission is required. Bring out the military and attack treasury offices everywhere. Rally patriots the hour of calling is nigh?

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Caution is the better option

By invitation, I wrote the following Op-Ed article for publication in one of the dailies tomorrow morning. I had 500 words so couldn’t say much. The good thing about today is how wrong the market economists were. The bookies even closed the book because they claimed it was a 100 per cent probability that the RBA would put up rates. Anyway, they didn’t which is good but they will which is bad.

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Another intergenerational report – another waste of time

Today I have had the misfortune of reading the latest Australian Government Intergenerational Report, which is really a confection of lies, half-truths interspersed with irrelevancies and sometimes some interesting facts. Why an educated nation tolerates this rubbish is beyond me. The media has been making a meal of the latest report and all the doom merchants – those deficit terrorists – a claiming we have to get into surplus as soon as possible. They seem to be ignoring that we are still embroiled in a major economic crisis requiring on-going fiscal support. But more importantly, they haven’t a clue what their policy proposals actually would mean in a modern monetary economy where external deficits are typical and the private sector overall is desiring to increase their saving. Anyway, read on … its all downhill.

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UKs flexible labour market floats on public spending

For some years now we have been reading about how the UK has benefitted from the Thatcher reforms which involved extensive deregulation of the labour market and retrenchment of significant sections of the state. The falling unemployment rate and strong employment growth prior to the crisis were cited as evidence of the claims. Even at the height of the crisis, mainstream (neo-liberal) commentators have asserted that the UK would bounce back quickly on the back of its labour market flexibility. It turns out that new evidence released recently provides a different view of the employment creation and provides an even stronger case for avoiding cut backs in net public spending than was already obvious to those who understand how the monetary system operates. Sadly, the politics in the UK will likely blind the policy makers to the realities.

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L’horreur economique

Tonight’s blog title L’horreur Economique is taken from one of my favourite (though depressing) books by a French writer (Viviane Forrester). I will discuss the book a bit at the end of the blog. But I was thinking about it (and re-reading it) today when I reflected on the US President’s most recent Radio address on the reining in budget deficits. We – collectively – have allowed the most grotesque set of lies, half-truths and irrelevancies to become the centrepiece of the public debate on the economy. The crisis exposed the lack of credibility that mainstream economics has and should have dispatched the ideas to the rubbish bin forever. Instead, as unemployment and poverty rates continues to rise the mainstream ideas are now taking centre-stage again. And the policies that result will be to our collective misfortune. It really is “L’horreur economique”.

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Things that bothered me today

Three happenings in the last 24 hours confirm to me that neo-liberalism is alive and well in the US and the rest of the World. The first of those happenings is the almost grotesque statements coming out of the EMU about Greece. The second is the 70/30 vote supporting the re-appointment of Ben Bernanke as the US central bank boss; and the third is the US President’s State of the Union speech. I wonder how the millions of unemployed around the World would feel about any of those happenings?

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Questions and answers 1

I get a lot of E-mails (and contact form enquiries) from readers who want to know more or challenge a view but who don’t wish to become commentators. I encourage the latter because it diversifies our “community” and allows other people to help out. The problem I usually have is that I run out of time to reply to all these E-mails. I apologise for that. I don’t consider the enquiries to be stupid or not deserving of a reply. It is just a time issue. When I recommitted to maintaining this blog after a lull (for software development) I added a major time impost to an already full workload. Anyway, today’s blog is a new idea (sort of like dah! why didn’t I think of it earlier) – I am using the blog to answer a host of questions I have received and share the answers with everyone. The big news out today is Australia’s inflation data – but I can talk about that tomorrow. So while I travel to Sydney and back by train today, here are some questions and answers. I think I will make this a regular exercise so as not to leave the many interesting E-mails in abeyance.

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A one-term presidency is in order

Today is a national holiday in Australia (more about which later). In the lead up to the US President’s State of the Union speech tomorrow came news that he was planning to freeze public spending from next year to get the budget back on track. I wondered what track that might be. Governments all around the world are now being pressured by conservative lobbies to engage in a renewed period of fiscal austerity even though the respective labour markets are disaster zones. History has a habit of repeating itself. The US government did exactly this in 1937 and the unemployment worsened. Japan did it in 1997 with the same outcome. The UK government is likely to do it in 2010 with totally predictable results – their economy will falter. What the US government is now in danger of repeating is taking its economy down the fast track to a double-dip recession. It is plain stupidity and the “freeze” doesn’t reflect the reality they are in.

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