Hmm, would it? A citizen purchases (loans to the government) a $1,000 Treasury. If the government uses that $1,000 loan to purchase goods or services, then whoever supplied them also now has $1,000 dollars. They don't have their goods or services/labor any more, but presumably they made a profit, so they're really only out $800 or $950 or whatever their profit margin is, which would create commensurately more money.pmward wrote: ↑Fri Apr 19, 2019 8:21 amNow that we've kind of looked that the fundamental aspect of the dollar being a debt instrument, we can look at the technical aspect of money creation. In our current system as you alluded money is created through issuing bonds. The only way to keep the money supply the same is to keep the debt levels equal.
Plus, after a year, the government gives the lender back $1,002 or whatever. Now the Fed would be in more debt to you, since you have 2% more dollars, even if they didn't do anything with the money in the mean time.
This doesn't even take into account private bank lending, which is the main source of money in a fractional reserve system as you say below.
From what I gather, QE was intended to get the banks to make loans; if the banks were making loans, then deflation would be kept at bay. But the banks were leery of making loans that they didn't think were going to be paid back (mortgages). I think they were willing to make business loans to corporations, which they did, but as Das showed in The Age Of Stagnation, corporations generally were at a loss as to what to do with the credit that was available to them (other than buying back stock).Likewise, as I mentioned above the easiest way to keep the economy growing is to have a constantly increasing money supply, and that's why the Fed targets a 2% inflation rate. Is it a coincidence that GDP growth just happens to average out in the long term to be right around the inflation target? Now things were all well and good until we introduced QE.. where the Fed utilized their balance sheet as a value derivative to essentially create money out of thin air to buy assets from banks and stimulate them with cash essentially created out of thin air. Mind you, to make things even more complicated, even private banks already do this, issuing cash using their balance sheet as a derivative to create money out of thin air. Money is being "printed" every day by banks, even just up the road from you as you read this.
Now the interesting part of this comes down to stimulus. Up until now everything is the same between our current system and MMT. So what is QE? In our current system when we did QE it all went to banks, which functioned in a role to keep the credit markets liquid. This was necessary and saved our bacon back in the initial round of QE. I'm not sure the later rounds of QE did what they were hoping. It certainly allowed asset prices to inflate, but did the benefits actually make it into the economy and increased GDP like they had hoped? I'm not so sure.
At least bankers are somewhat intelligent, as opposed to a lot of Congress. After seeing Maxine Waters on video, I am inclined to believe she is mentally retarded. As the Prussian general says, fear the industrious & stupid.While I very much dislike and am opposed to giving congress the ability to regulate the money supply in any way, I have to say that fundamentally I don't think that MMT is such much worse than what we are currently doing with QE. The problem isn't in the system, the problem is in the people controlling the system that are known to be corrupt.
"Giving money" to banks means they'll try to make more loans. But if they can't find any good borrowers, they don't have to destroy capital. And if they were on the hook for losses, they wouldn't be morally hazarded to make bad loans. Giving money to people will cause inflation in the absence of new products/services being created.So now that I've gotten that disclaimer out of the way, let's think of a couple things here. What is the difference between the Fed creating money and giving it to banks, and the Fed creating money and giving it to people?
If giving people money that was created out of thin air (as opposed to being created for a new good/service) to buy goods/services, and thus causing inflation, accomplishes a goal (increasing GDP), is that a good goal to have? GDP only seems useful if it's measuring a country's productivity/standard of living.What if instead of doing later rounds of QE they instead chose to stimulate the household sector (or some combination thereof)? Would that have accomplished their goal of increasing the economy and GDP? I would think so. Sure it would have increased inflation a bit, but they were hoping for that so they could start to bring up interest rates and unwind the QE. QE failed to accomplish their goals, and fiscal stimulus of some sort would have helped to those ends.
Will come back to this.Another thing is that MMT doesn't have to be cash given away, it can be used for services, and services can be chosen that specifically provide a high ROI. You can read Ray Dalio's recent paper about why capitalism needs to be reformed on this, he does a great explanation. But for a quick example he provided, what if the Fed created money and instead of giving it away to banks, they instead gave it away to K-12 schools around the country? Schools normally fall under state control, so they don't have the ability to print away debt like federal entities can. What happens if they stimulate our public school system, especially the schools that are in areas of rampant poverty that don't have the tax flows of schools in the better areas? Well a few things happen. First in the short term, schools have more money for resources. This stimulates the economy by them purchasing needed supplies, upgrades and raising teacher salaries. Teacher make more money, which means they pay more taxes, which means they spend more, which boosts the economy and GDP. Then let's look at the future impact... studies have shown that better schools and teachers lead to less drug use, less of the population in prison, and a more productive society that earns more money, pays more taxes, and buys more things. So in this case I would say a little fiscal stimulus wouldn't be such a bad thing. Might it boost inflation a bit? Sure, but I think that would be a welcome thing at this point in time so we can get interest rates back up off the floor. https://www.linkedin.com/pulse/why-how- ... -ray-dalio