[jeffkrol]

Somedays I just hate being a thinking person...
as most here know i have supported MMT as the defacto standard as to how our system really works and should work.
my thinking is changing based on this article:
http://pragcap.com/how-is-mr-different-from-mmt

in my way of thinking MR and MMT are not that different with the degree of seperation mostly hinging on the FED.
As some know I also stand behind Mr. Kuchinic's HR 2990 bill which would eliminate the FED and return "money" into the realm more of MMT functionality

so it seems the bottom line is MR relates to NOW. MMT relates to an alternate NOW based on eliminating the Fed.(VERY broad interpretation)

so it seems the same but totally different..



anyways food for thought..

We explain how it works, YOU decide what to do with it….

In sum, our primary difference with MMT will be our emphasis on the operational realities of the monetary system. We aren’t seeking to change people’s politics or force policies on anyone. We seek only to provide the reader with an unbiased and apolitical perspective on how the modern monetary system actually works. Where the reader goes politically is entirely up to them. Any policy ideas that we might discuss on the site are our opinions and entirely peripheral to the core understandings in MR. We hope this website becomes a resource for educating the public on the operational realities of the monetary system and we hope that this will help create a more informed public ultimately leading to a better and more prosperous environment for all of us.

* I should note that I (Cullen Roche) was a proponent of MMT for around 18 months after discovering it in 2010. Many of the broad concepts are incredibly useful and a vast improvement over neoclassical economics. The explanations of the banking system, busting the money multiplier myth, emphasizing the idea of a currency user and the fact that an autonomous currency issuer cannot “run out of money” are all very powerful and superb concepts that should be adopted by everyone in the field of economics. MMT and its founders deserve enormous credit for their work on these matters and getting these messages out to the mainstream. MR’s disagreements go much deeper than these broad macro ideas and have more to do with the details of money, capitalism and the operational realities of the monetary system as it is designed. So while MMT is an improvement over the mainstream neoliberal views, I do believe MR is a necessary step in helping to better balance these big broad understandings with a more complete and balanced understanding of operational realities. Regardless of our disagreements, MMT has proven incredibly helpful in expanding the understanding of the modern monetary system and breaking the neoliberal views. For this they deserve a great deal of credit. That’s not to be overlooked in these criticisms.

Addendum: O/T but interesting:
http://pragcap.com/housing-recession-and-myth-making
I do NOT support his "blaming the homeowner" though there is culpability.. It was an equal share blame game
VERY interesting post w/ no reply:

I’m a Realtor and can tell you I never sought out potential buyers – they sought me out. If anything I wanted to represent Sellers because it was so damn easy to sell a home as there seemed to be 10 to 50 qualified buyers per home. Buyer’s wanted in and showed me their lender qualification letters.

On the other hand, I was approached by mortgage brokers – literally on the street at times when they saw me picking up my open house signs – explaining they could get anyone I knew a loan, no matter who else turned them down, and that they would pay me a referral fee. In CA those referral fees are illegal, so I knew immediately they were unscrupulous.

So who is at fault? In essence the guy who approached me on the street was a drug dealer with a lot of product to sell. Of course he’s at fault… but without drugs available he wouldn’t exist.

The person taking the drugs – homeowners, were just gullible non-experts who were told it was healthy for them – and they were told this by the media, their politicians, their accountants, their friends, their family. Are they to blame – sure, but again, if there were no drugs, how could they have participated???

So the fault is in all the many areas that allowed free, no money down, interest only, etc loans (drugs) to be created and brought into the market. And the shame is all of this is that they got bailed out – and homeowners are still being blamed and the only bailouts they get are the kinds that ruin their credit and destroy them financially. Good times

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Last edited by jeffkrol; 08-16-2012 at 07:07 AM.

[mikemike]

I view the different schools of economic thinking in a similar way to the way that I view different languages - they are tools for communication and planning. Like with languages, different schools of economic thinking have different strengths and weaknesses and many different ones can be used by different members of society simultaneously. Being a successful member of society basically requires understanding and interacting with the system based on the most popular school of economics and the most popular language, in the USA these are Monetarism and English respectively.

[jeffkrol]

I view the different schools of economic thinking in a similar way to the way that I view different languages - they are tools for communication and planning. Like with languages, different schools of economic thinking have different strengths and weaknesses and many different ones can be used by different members of society simultaneously. Being a successful member of society basically requires understanding and interacting with the system based on the most popular school of economics and the most popular language, in the USA these are Monetarism and English respectively.

sheep.. and the "sun continues to travel around the earth" VERY populist at one times.. as was leeches, human sacrifice ect.. Really mikemike "Baaaaa"...

at least you went from "I'm right" to "that is the popular opinion"... there is hope..

[mikemike]

Economics is not astrophysics. There are psychological, geopolitical, and international trade implications where the damage of overly loose monetary policy can be an unmitigated disaster. Physicists don't have to worry about any of that stuff in proving themselves.

We have had fiat money for about 40 years, and the history of fiat money shows time and time again that loose monetary policy to make people feel rich in a populist way leads to a decline in confidence of the citizens in that money, a weaker currency for international trade, and violent conflict with historical trading partners as payment terms are unilaterally renegotiated via drastically devaluing currency and expecting them to honor long term contracts or accept bond payments for goods and services already delivered.

[jeffkrol]

Economics is not astrophysics. There are psychological, geopolitical, and international trade implications where the damage of overly loose monetary policy can be an unmitigated disaster. .

Yes they do so well............

[jeffkrol]

Physicists don't have to worry about any of that stuff in proving themselves.

Seem to remember some thinking the supercollider would produce a black hole and swallow the earth.. but I guess "money" is more important than that.............
and there is the atomic bomb.. no "worries" or geopolitical consequences there...........

[GeneV]

Economics is not astrophysics. There are psychological, geopolitical, and international trade implications where the damage of overly loose monetary policy can be an unmitigated disaster. Physicists don't have to worry about any of that stuff in proving themselves.

We have had fiat money for about 40 years, and the history of fiat money shows time and time again that loose monetary policy to make people feel rich in a populist way leads to a decline in confidence of the citizens in that money, a weaker currency for international trade, and violent conflict with historical trading partners as payment terms are unilaterally renegotiated via drastically devaluing currency and expecting them to honor long term contracts or accept bond payments for goods and services already delivered.

Some support for that other than a naked conclusion would be helpful though.

[jeffkrol]

Dabbling in Roche today:
How Long Can Japanese Bond Prices Defy Gravity? - Seeking Alpha

The U.S. Treasury is an operational currency user (like you or I), in that it must always procure funding for its daily spending. The Treasury can always procure funds via taxation. But it is also backed by its own central bank which could, at least in theory, always fund the U.S. government's spending (though this is currently illegal in the form of direct bond purchases). These powers make the U.S. government and the Japanese government very different from a household, a business or a European nation (all of whom are operational currency users by virtue of lacking this institutional relationship).

For whatever reason, fixed income traders seem to know all of this – rather, they know that payment is never an issue. They know that the Treasury is not going to stiff them on payments. I.e., the U.S. government can't "run out of money". For anyone lending money that's your primary concern – "will I get paid back?". U.S. banks love doing business with the U.S. government because Uncle Sam doesn't "run out of money" (nor can it). The same goes for Japan's banks......................So the question remains – how long can Japanese bond prices defy gravity? Well, the short answer is – as long as the Japanese central bank is willing to keep rates low. The more important question is when will Japan experience an environment which forces their central bank to alter the current structure of the yield curve? Will a stagflation occur similar to the 70s in the USA? Will a hyperinflation occur for whatever reason? Will growth rebound? Or what if Hoshi and Ito's pessimistic GDP projections are correct? Then we're likely to continue seeing JGB traders jumping out of windows following unsuccessful attempts to fight the Bank of Japan..

[jeffkrol]

It's now been one year since Standard and Poors downgraded the debt of the USA from AAA to AA+. If you recall, many pundits were saying this would be an earth shattering event and that it was a sign of much bigger problems to come. Some even said it could cause a Eurostyle debt spiral in the USA where bond vigilantes attack and yields surge causing a funding crisis and even a potential default. But what's actually happened? As you can see in figure 1 below yields have actually continued to move substantially lower. In fact, yields are a full 1% lower than the 2.6% yield that we saw before the downgrade. In other words, the downgrade has had zero impact.

Some might still be wondering why this is? The reason is simple. There is no risk of the USA having a funding crisis since it can always procure funds via taxes and bond sales. That's right, the government has no solvency risk. It has only an inflation risk. As I recently described:

The USA has an institutional arrangement in which it is a currency issuer. That is, while the Treasury is an operational currency user (meaning it must always have funds in its account at the Fed before it can spend those funds) it is always able to harness the banks to procure funds. This is achieved through bond auctions in which the dealers are required to bid. The NY Fed explains:

Primary dealers are also required to participate in all auctions of U.S. government debt and to make reasonable markets for the New York Fed when it transacts on behalf of its foreign official account-holders.

So there's never a concern about auctions failing in the USA. That is, the Treasury is a currency user, but the government as a whole can be seen as a currency issuer by institutional design because of this implicit funding guarantee.

But don't take it from me. Take it from the bond traders themselves who clearly view US Treasury bonds as being among the safest assets on the entire planet….Sadly, Wall Street seems to have learned from this and they continue to snatch up bonds, clipping coupons and reaping the benefits. Meanwhile, the rest of us are forced to listen endlessly about how the government is on the verge of its Greek moment so we perpetually worry about "paying off the national debt" as opposed to understanding the actual operational realities of our monetary system, the effects of the balance sheet recession and how we are monumentally wasting one of our most powerful economic tools - the very government we designed….

The Anniversary Of The S&P Downgrade - Have We Learned Anything? - Seeking Alpha

[jeffkrol]

Just for fun:

“Groundhog Day”
The economic environment seems to be stuck in a rather unpleasant perpetual loop. Greece is always about to default; the latest bailout is always about to save the day and yet never seems to; China is always about to collapse but instead teases us by inching down; and I swear the Financial Times is beginning to recycle its reports! In the U.S., the fiscal cliff looms along with debt limits and the usual election uncertainties. The dysfunctional U.S. Congress continues for the time being in its intractable ways. The stock market rises and falls and rises and falls again. It is getting difficult to find anything new to say at client meetings. I, for one, wish that the world would get on with whatever is coming next.

One slight change, though, is that fantastic (almost unbelievable) profit margin and earnings gains have finally weakened a little. They, together with Bernanke’s super low rates, have been the twin pillars of the market and not bad ones at all: here we are up 8% for the year in a thoroughly unsettling financial and economic world. With margins weakening, one of the twin pillars is looking shaky and price declines look more likely than before.

Read more: GRANTHAM: One Of The Twin Pillars Of The Markets Is Looking Shaky - Business Insider

In other words, Europe's banking crisis will only end when Europe's economic crisis does -- which in turn is being held back by its banking crisis. It's a never-ending cycle of awful that only the European Central Bank can break. Maybe they will.

http://www.theatlantic.com/business/archive/2012/08/australias-banks-are-now...ssible/261137/

Now for the not so good news:

The budget deficit is slowing substantially.

We all know the fiscal cliff quickly approaches as we head into 2013, but the slow slide downhill is already starting. The following chart shows the Federal budget deficit, or the amount that the Federal government is spending in excess of tax receipts. This spending has been extremely beneficial during the balance sheet recession as spending has slowed and uncertainty has increased. The government can be a very powerful tool during times like these because it can essentially keep the oil flowing throughout the machine when parts seem to start functioning improperly. This deficit has been a hugely positive factor in keeping the "flow" through the economy. As the flow slows, the private sector must carry the baton more and more. The concern here is that we'll cut spending at a rate that is too abrupt for the private sector to be able to offset. It remains, in my opinion, the most substantial recession risk in 2013.

http://seekingalpha.com/article/782991-global-economy-3-bullish-and-3-bearish-charts