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06-03-2012, 11:29 AM   #1
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12 year old girl explains what most economists can't

12-Year-Old Girl Explains What Most Economists Can't About Money and Debt | | AlterNet

QuoteQuote:
Monetary reform—the contention that governments, not banks, should create and lend a nation’s money—has rarely even made the news, so this is a first.* Either the times they are a-changin’, or Victoria managed to frame the message in a way that was so simple and clear that even a child could understand it.


06-03-2012, 01:01 PM   #2
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bwqahahahahahahahahahahahahahahaha............ why didn't I think about that!!!!
06-03-2012, 04:23 PM   #3
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Hmm.

A point being missed here is that a government has no money of its own. According to the thesis presented, a government with a budget deficit shouldn't need to borrow money at all. It should suffice simply to print $X billion to cover the shortfall. On a similar principle, I should be able to raid the household game of monopoly to cover my monthly shortfall.

Hyper inflation as a policy statement?
06-03-2012, 04:47 PM   #4
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QuoteOriginally posted by top-quark Quote
Hmm.

A point being missed here is that a government has no money of its own. According to the thesis presented, a government with a budget deficit shouldn't need to borrow money at all. It should suffice simply to print $X billion to cover the shortfall. On a similar principle, I should be able to raid the household game of monopoly to cover my monthly shortfall.

Hyper inflation as a policy statement?
Now you've done it. Now jeffkrol will have to quote Modern Monetary Theory at you.

06-03-2012, 06:02 PM   #5
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QuoteOriginally posted by boriscleto Quote
Now you've done it. Now jeffkrol will have to quote Modern Monetary Theory at you.
I'm refraining.. hard as it is to watch people delude themselves...

I scouting for a 12 year old to do it for me.. apparently the only way people will pay attention.
06-04-2012, 08:44 AM   #6
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QuoteOriginally posted by top-quark Quote
Hmm.

A point being missed here is that a government has no money of its own. According to the thesis presented, a government with a budget deficit shouldn't need to borrow money at all. It should suffice simply to print $X billion to cover the shortfall. On a similar principle, I should be able to raid the household game of monopoly to cover my monthly shortfall.

Hyper inflation as a policy statement?
So do banks have money of their own?

As prof Krugman explained in the clip I posted on another thread, a national economy is not a household. The twelve year old seems to get that but many politicians do not.
06-04-2012, 09:24 AM   #7
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Banks have some money of their own - the profits they make from their activities.

A government has nothing more than its tax revenues (which is absolutely not its money). Simply creating pretend cash over and above this has no value and is highly inflationary. It can raise additional revenue by selling bonds, but the promise to repay has to be worth something if anyone's going to buy them. Freshly printed paper doesn't cut it.

I'm yet to be persuaded that a national economy is not like a household. It's a lot bigger, obviously, but at some point bills have to be paid. I could cover any monthly shortfall by borrowing against my credit card, but when the point comes that the minimum repayment is a significant portion of my monthly income, I'm f**ked. I don't see the fundamental difference between this and what's happening with countries that have been reckless with large budget deficits, heavy borrowing and sloppy revenue collection.

I'm quite open to persuasion otherwise, however.

06-04-2012, 11:26 AM   #8
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QuoteOriginally posted by top-quark Quote
Banks have some money of their own - the profits they make from their activities.

A government has nothing more than its tax revenues (which is absolutely not its money). Simply creating pretend cash over and above this has no value and is highly inflationary. It can raise additional revenue by selling bonds, but the promise to repay has to be worth something if anyone's going to buy them. Freshly printed paper doesn't cut it.

I'm yet to be persuaded that a national economy is not like a household. It's a lot bigger, obviously, but at some point bills have to be paid. I could cover any monthly shortfall by borrowing against my credit card, but when the point comes that the minimum repayment is a significant portion of my monthly income, I'm f**ked. I don't see the fundamental difference between this and what's happening with countries that have been reckless with large budget deficits, heavy borrowing and sloppy revenue collection.

I'm quite open to persuasion otherwise, however.
Man you are making it HARD for me not to jump in..
START here: (first pg is blank)
http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf
06-04-2012, 11:28 AM   #9
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The government does produce things and creates infrastructure, both physical and financial and provides a service. These things have value, so it is rather facile to say the government has no money. Money is nothing more than government debt, no matter who possesses it. There is nothing but pretend cash outside of the minds of a few Austrians.

On the household, Professor Krugman did this better than I.
06-04-2012, 01:55 PM   #10
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A Kindergarten guide to modern monetary theory. Prepared by Frank Ashe. Presented to the Institute of Actuaries of Australia. 5th Financial Services Forum ...
http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CFQQFjAA...vs8e30ytE7f2bQ
06-04-2012, 03:55 PM   #11
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Thanks for the links, Jeff. Good food for thought. Totally agree with some of the posits: borrowing now does not necessarily impoverish our grandchildren and trade, all trade (except maybe endangered wild animals and exploited humans), is good.

Disagree fundamentally with the fundamental posit, however. We would have an economy without a government. There was a neolithic axe trade without there having to be a Beaker People Treasury. Money is a proxy for goods and services, nothing more, nothing less. It is the lubricant that allows me to buy something without having to have something that the other party directly wants. This means that it has real value (it is exchangeable) and is finite.

Second major disagreement: taxes were originally raised to finance wars. Regulating spending and redistributing wealth are modern refinements.

Thirdly, government cheques most certainly CAN bounce. The UK government used to send out fortnightly giros to the (plentiful) unemployed. Were I in receipt of one, I could sign my name on the back, take it to the corner shop and exchange for a four pack of beer, a bottle of scotch, a couple of packets of cigarettes and change. But what happens when the shopkeepers refuse to accept government cheques (and government issued currency, for that matter)? This is pretty much what happened in Yeltsin's Russia, what is happening in Mugabe's Zimbabwe and what has always happened when a government has completely debased its currency.

Warren Mosler's is another economic theory among many competing ones. Sometimes these actually get put to the test. His reads suspiciously like command economics which has been extensively tested on unwilling subjects and always found wanting.
06-04-2012, 07:59 PM   #12
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QuoteOriginally posted by top-quark Quote
Thanks for the links, Jeff. Good food for thought. Totally agree with some of the posits: borrowing now does not necessarily impoverish our grandchildren and trade, all trade (except maybe endangered wild animals and exploited humans), is good.

Disagree fundamentally with the fundamental posit, however. We would have an economy without a government. There was a neolithic axe trade without there having to be a Beaker People Treasury. Money is a proxy for goods and services, nothing more, nothing less. It is the lubricant that allows me to buy something without having to have something that the other party directly wants. This means that it has real value (it is exchangeable) and is finite.

Second major disagreement: taxes were originally raised to finance wars. Regulating spending and redistributing wealth are modern refinements.

Thirdly, government cheques most certainly CAN bounce. The UK government used to send out fortnightly giros to the (plentiful) unemployed. Were I in receipt of one, I could sign my name on the back, take it to the corner shop and exchange for a four pack of beer, a bottle of scotch, a couple of packets of cigarettes and change. But what happens when the shopkeepers refuse to accept government cheques (and government issued currency, for that matter)? This is pretty much what happened in Yeltsin's Russia, what is happening in Mugabe's Zimbabwe and what has always happened when a government has completely debased its currency.

Warren Mosler's is another economic theory among many competing ones. Sometimes these actually get put to the test. His reads suspiciously like command economics which has been extensively tested on unwilling subjects and always found wanting.
Well basically you have the idea BUT (there is always a but) 1) None of it applied til 1972 when we went totally off the gold standard. Anything before this is irreverent. 2) Zimbabwe totally destroyed their "engines of production" (basically stopped producing their one industry .. food) A situation entirely irreverent to the US considering our economy .
3)Russia voluntarily collapsed their currency (On 17 August 1998, the Russian government devalued the ruble, defaulted on domestic debt, and declared a moratorium on payment to foreign creditors) which was completely voluntary.. They NEVER (as fiat producer of their currency) EVER had to "default on domestic debt"...AND..
QuoteQuote:
Russia bounced back from the August 1998 financial crash with surprising speed. Much of the reason for the recovery is that world oil prices rapidly rose during 1999–2000 (just as falling energy prices on the world market helped to deepen Russia's financial troubles), so that Russia ran a large trade surplus in 1999 and 2000. Another reason is that domestic industries, such as food processing, had benefited from the devaluation, which caused a steep increase in the prices of imported goods.[13][14]

Also, since Russia's economy was operating to such a large extent on barter and other non-monetary instruments of exchange, the financial collapse had far less of an impact on many producers than it would had the economy been dependent on a banking system. Finally, the economy has been helped by an infusion of cash; as enterprises were able to pay off arrears in back wages and taxes, it in turn allowed consumer demand for the goods and services of Russian industry to rise.

For the first time in many years, unemployment in 2000 fell as enterprises added workers. Since the 1998 crisis, the Russian government...........
So bottom line kind of worked

QuoteQuote:
The UK government used to send out fortnightly giros to the (plentiful) unemployed. Were I in receipt of one, I could sign my name on the back, take it to the corner shop and exchange for a four pack of beer, a bottle of scotch, a couple of packets of cigarettes and change. But what happens when the shopkeepers refuse to accept government cheques (and government issued currency, for that matter)?
DID they stop accepting them???

Last edited by jeffkrol; 06-04-2012 at 08:08 PM.
06-04-2012, 08:44 PM   #13
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for fun.........
–Congressional Budget Office discusses two mutually exclusive theories about the economy. Believes both.
QuoteQuote:
Translation: For 2013, increased deficits and debt will be good, but for 2014 and thereafter, deficits will be bad, because they will increase the debt. Let’s put it this way, short term or long term, we really don’t know what the hell we are talking about.

[Note to reader: The above is considered “mainstream economics” as espoused by such great institutions as Harvard, the University of Chicago, Stanford, and the Congressional Budget Office, while Monetary Sovereignty is considered “heterodox.”

To paraphrase an old saying, “If we are fooled by these fools, we and our money soon will be parted.”]
QuoteQuote:
No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports
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