Warren Mosler

[Gumby]

Reading some Beowulf posts, he seems to want to have a token asset tax linked to the T-bill rate as a way to get rich people to support low interest rates.
http://www.correntewire.com/the_choice_ ... nd_not_mmt

BUT as far as I can see, canny rich people want zero interest rates anyway as that gives a wonderland of speculative oppertunity

I'm not entirely sure if rich people want zero interest rates. I would imagine they'd rather just have a guaranteed return.

Looking again at MMT blogs, there seems to be a very nasty relish in building deceit and intrigue into the monetary system. People love the idea of some supposed elite insight. Hopefully I'm just being uptight and paranoid. To me though scrubbing away pointless bamboozlement would do a lot to create a just monetary system and economy.

Well, Warren Mosler ran for Senate on a platform of trying to demystify the monetary system. I believe he says that he understood the monetary system from his own first-hand experience — and not by reading any MMT literature. It would have been amazing if he won, but unfortunately he only got about 0.98% of the vote.

And Pragcap.com was created to help people demystify the monetary system.

Anyway, I think beowulf is speaking as a Washington insider. And truthfully, it seems unlikely that any rich person would ever want an asset tax. Lobbyists (who are paid by the rich and powerful) would be working overtime to make sure that an asset tax was never implemented. And media outlets (who are owned/controlled by the rich) would be working like mad to convince their base that an asset tax/citizens dividend would probably destroy capitalism as we know it. The corruption of politics is what makes good ideas nearly impossible to implement. Though, obviously if Mosler had been elected, he probably could have helped move the debate in the right direction. But, his inability to get more than 1% of the vote is disappointing — most people probably thought he was nuts.

If everyone actually understood that taxes serve no purpose — other than to prevent inflation — people would be even more motivated to get out of paying them — which is what already happens in politics every day. So, I see beowulf as being a bit of a realist rather than a pragmatist — knowing what can pass Congress and what can't. Though, he clearly reads Pragmatic Capitalism on a daily basis

[stone]

Gumby, you are quite right that the MMT blogs are just about explaining how things are and that is public spirited of them. I suppose my (probably unfair) issue was with how people seem to think that it is all well and good to "pull levers" so as to manipulate what the "ordinary" people do. To me the monetary system should ideally be fully understandable by everyone who uses it.

[stone]

I'm not entirely sure if rich people want zero interest rates. I would imagine they'd rather just have a guaranteed return.

Don't zero interest rates equate to leverage being free? If you have a trading edge, then free leverage is a license to loot. If you are trading against the real economy you have an edge.

[Gumby]

Gumby, you are quite right that the MMT blogs are just about explaining how things are and that is public spirited of them. I suppose my (probably unfair) issue was with how people seem to think that it is all well and good to "pull levers" so as to manipulate what the "ordinary" people do. To me the monetary system should ideally be fully understandable by everyone who uses it.

Agreed. Though, I believe it was Henry Ford who said, "It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

I'm not entirely sure if rich people want zero interest rates. I would imagine they'd rather just have a guaranteed return.

Don't zero interest rates equate to leverage being free? If you have a trading edge, then free leverage is a license to loot. If you are trading against the real economy you have an edge.

Yes, but I'm not entirely convinced that most rich folks are in the business of risking their fortunes with leverage. Certainly some do. But, I always imagined that ultra rich people put their money into something that would preserve their wealth, not risk it with leverage. But, who knows what the rich really do?

[stone]

Gumby, I suppose there are all sorts of rich people. Some have all their assets in the company they founded, some are land owners (the richest UK citizen, the Duke of Westminster is a land owner http://en.wikipedia.org/wiki/Gerald_Gro ... estminster ).

I suppose the phenomenon I was on about was how the fortune 400 is becoming more and more dominated by FIRE sector people. Those are the people who have grasped the oppertunity given to them by zero interest rates. Just as many centuries ago, the ancestors of the Duke of Westminster grasped the oppertunity to gain land by royal patronage, now key players in the financial world are grasping the zero interest rate oppertunity to carve up global wealth amongst themselves.

[stone]

Agreed. Though, I believe it was Henry Ford who said, "It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

I suppose I think it is essential that we all do understand it and if that means that we choose to change it, then I think that is what should be done. A revolution does not need to be traumatic. Abolition of slavery was revolutionary. Democracy with everyone having a vote was revolutionary.

[stone]

I'm not entirely convinced that most rich folks are in the business of risking their fortunes with leverage. Certainly some do. But, I always imagined that ultra rich people put their money into something that would preserve their wealth, not risk it with leverage. But, who knows what the rich really do?

Even if you consider someone such as steel tycoon Lakshmi Mittal: 
http://news.bbc.co.uk/2/hi/business/5142202.stm
Leverage is a very big part of his wealth. He owns 43% of Arcelor Mittal which has a net debt of $26.5bn.

[stone]

I've just been reading about the Bill Mitchell versus Cullun Roche spat. It reminds me of the "The Life of Brian" movie where the "People's Front of Judea" take great offense at being confused with the "Judean People's Front" .

[Gumby]

I've just been reading about the Bill Mitchell versus Cullun Roche spat. It reminds me of the "The Life of Brian" movie where the "People's Front of Judea" take great offense at being confused with the "Judean People's Front" .

Are you referring to this?

http://pragcap.com/the-fundamental-diff ... and-mmters

I've never read Mitchell before, but Cullen gives off the impression that Billy's a real hardliner and isn't open to competing ideas.

Stone, from what you've told me, it sounds like your initial adventure with MMT was pretty much limited to the seemingly warped world of Billy Blog. Whereas my MMT exposure has been mostly from Cullen.

Here's what Cullen says of Mitchell...

He’s mixing up the theoretical prescriptive aspects of MMT with the fundamental truths in the descriptive aspects. I don’t have a problem with prescriptions, but boy is it misleading to imply that one can only understand a modern fiat currency system by understanding potential govt policies. This is the sort of stuff that detracts from MMT going mainstream. Anyone with a bit of common sense sees right through it and says “well, that theory is pure ideology”?. And if it’s not in-line with your own personal ideology then you reject even the factual parts of MMT (because the policy prescriptions have poisoned the fundamental truths). It’s really destructive and explains in large part why MMT has had so much trouble being accepted. We’re shooting ourselves in the face with this sort of commentary…

That's why I never understood why you said you disagree with MMT's prescriptions. I wasn't even aware that there were any specific mandatory prescriptions. That's because there aren't any. Mitchell is pushing his own ideology and calling it "MMT". In reality, MMT just describes how the monetary system works from an operational standpoint. The prescriptions derived from MMT are theoretical and are open to interpretation — with the exception of those on Billy Blog, apparently. It's no wonder why your citizen's dividend/asset tax was shot down over at Billy Blog. You'll have far more luck discussing your ideas over at PragCap.

Like you, Cullen wants everyone to understand how the monetary system really works from an operational standpoint. And Mosler has always supported that.

[stone]

Gumby, thanks for the links to that pragmatic capitalism blog! I came across MMT by trying to find something that fitted in with how I thought things were being done. My preconceived notion of our monetary system was like the MMT description but I thought it was some despotic way by the banks etc to take over and to essentially enslave the world by pure sneakiness . I was completely dumbstruck when I found billy blog because it was describing the same phenomenon I had imagined was going on but in a positive light. Bill Mitchell is very egalitarian (in a statist way ) pro-trade unions and against plutocracy etc. I did spend a lot of time reading his blog and posting comments there. A lot of what I wrote was probably incoherent and he is clearly very busy writing a long blog everyday single handedly whilst traveling around the world and running a University department. In many ways I have a lot of admiration for him. He commented that there was "no logic" in my thinking that an ever expanding stock of net financial assets was a problem. The line he takes is that the way to deal with any FIRE sector expansion is through regulatory ways to cut it down to size. To be fair to him he makes a point of letting dissenting comments stay on his blog. I suppose it was only other commentators who were actively hostile to dissent.
I have read Warren Mosler's "severn deadly innocent frauds". He also seems to think that an ever expanding stock of net financial assets is no problem at all and to think different is to fail to grasp the mechanics of it all. Scott Fulwiller also takes part in the Billy Blog threads. The orthodox MMT line seems to be that increasing the stock of financial assets is like increasing your data on your computer. As you accumulate more, the significance of it diminishes due to increasing computor technology. Your almost full disk from 1985 is nothing now. I just don't buy that concept. I don't think it is a coincidence that the FIRE sector is taking over. To me there is a very clear mechanistic link. Contrived deliberate inflation is being diverted disproportionately to asset price inflation as compaired to wage inflation. That is a sneaky enslavement in my eyes.

[moda0306]

Gumby & stone,

I was also surprised that stone had seen so much grief... I didn't realize he wasn't at Pragcap, which can get a bit heated, but for the most part they answer your questions very considerately and have interesting discussions.

stone,

I kind of came upon it the same way... well maybe that's giving myself too much credit.  I thought there seemed to be, even from Keynesians like Krugman, way too much confusing rhetoric placed on not a very solid basis.  I didn't really understand what the treasury or fed did, and why... as soon as you understand that your government can print money, it starts a very large stream of questions about what the true consequences of that are... and the purposes for it..

For instance, PK would say that if Americans were convinced there would be an Alien attack, and the government took the proper measures, by building anti-space-ship missiles and ray guns and trained new soldiers, that this would be GOOD for the economy.  This seemed asinine in some ways... and it was in the fact that while labor was going to waste either way, building machines of war that isn't serving the public good is good only in terms of the engineering and production training it offers.  It was the net financial assets that would be created with this spending that would fix the economy, though the multiplier affect may be slower as people attempt to save instead of spend on ray guns.  The gov't SHOULD consider working on projects that promote public-purpose, and that includes teaching people ray-gun technology if there is something to be taught, with the hopes that they go out and bend that technology into something far more productive for mass prosperity.

I, on one hand, saw what he was trying to say... that these people would be earning an income, businesses would be supplying the effort, and otherwise idol labor would do work, even if it proved 100% unproductive in a real sense.

MMT made it so much clearer with the discussion of net financial assets in a balance sheet recession.  It's vital to understand these... because it's often our balance sheets (and the expected future change of those balance sheets... aka.. cash flows (mostly)) that drive our decisions.  It also demistifies what financial assets and liabilities truly are in many ways.  We just think of bonds and cash as having value, but often don't understand WHY they have value, or what they truly are in relation to the production of real goods & services and real wealth in the economy.

One thing... curently, our REAL system uses banks mostly as a transmission of monetary policy... hoping that we can do more, quickly, by adjusting the terms of the leverage the banks apply to the private sector, rather than create net financial assets themselves.

It's the regulations around these areas, and the haphazard way these net financial assets are distributed in unfair ways, that give the FIRE sector power, IMO.  Though I haven't really gotten to the bottom of this yet.  I think the real moral hazard happens when a bank can underwrite a loan, put a AAA stamp on it, and sell it to someone else who will package it with other loans, and then sell those packages to brokerages that will offer them as funds to their clients, you've separated the risk so far from the original responsible party, that you've created more moral hazard than any welfare program could ever be.

[stone]

Moda, prohibiting seperating originating the loan from collecting it is one of the sensible regulations the MMTers want. I just fear that the massive growing stock of net financial assets is such an unstoppable force that it will sweep aside such attempts to keep a lid on things.

[moda0306]

Mosler made a pretty decent point:

Spend based on public need.

Tax (or don't) based on economic need for currency (net financial assets).

If we are at a point where unemployment is unpleasantly high, we continue to spend what we were on "public need spending," plus whatever increase in safety-net spending are called for, plus maybe moving forward some infrastructure projects.

Then we lower taxes.

Lather rinse repeat until you have prosperity.

Notice that nowhere does it say we have to significantly debase the dollar, create moral hazards with the people that caused the recession, etc.

I know you realize this, but if our other option is taking the same number of net financial assets and try to make them work on bigger and bigger an economy, eventually the system will quit working, IMO.  Balance sheets simply need to be made up of enough financial assets to make the economy work, given the productive capacity of everything else.  Deflation WILL result as fewer dollars chase more and more goods (and we stifle credit), and trying to drive people into wildly different asset allocations to prevent losing 7% of their savings value seems to me to be something that can't be stable.

Further, our deflation, or strong currency, will mean Chinese goods appear even MORE cheap, driving even more of our dollars into Chinese savings accounts, even further reducing our net financial assets.

I don't think you can chase people out of their savings and into more risky, but likely more "productive" activities via high asset tax and have a system result that works.

[stone]

moda, I should have said that the asset tax would also have to be on USD and bonds held over-seas (or GBP for a British set up etc).  They are just computer entries in the Fed anyway so there is no technical obstical to that.

[moda0306]

So all these Chinese $$'s and bonds would be subject to the asset tax?

[stone]

So all these Chinese $$'s and bonds would be subject to the asset tax?

Perhaps some exemption should be made for bonds held by foreigners from before the asset tax was enacted. As the bonds matured, they would mature into bank reserves that would be subject to the tax (basically like negative interest). Any new bond issues would be subject to the tax where ever they were held.

I think such a system would help to ensure trade imbalances were self correcting. If say the UK and the USA both had such a system, then a US citizen holding UK bonds would be paying both the US and UK asset taxes. That discourages saving in foreign financial assets. I guess saving in foreign financial assets  is a prerequisit for trade imbalances. Unlike MMTers, I think trade imbalances are very very harmful.

[stone]

There is an interesting post on the origins of MMT and also a great summing up of what MMT is and how it fits in with the history of money etc.
http://neweconomicperspectives.blogspot ... lysis.html

[Gumby]

Speaking of Warren Mosler... The Economist just published a great article on the growing popularity of fringe economics and how they have thrived on the disillusion with mainstream economics.

http://www.economist.com/node/21542174

The article mentions Warren Mosler, and MMT, as well as the other competing economic schools of thought. MMT is compared and contrasted with Austrian economics and Market monetarists, and the author admits that we may never know if any of these schools of thought may be ultimately proven correct. But what I found somewhat humorous was that while the Austrian economists and Market monetarists mentioned in the article are sitting around waiting for their predictions to come true someday, Mosler has been harnessing his understanding of the monetary system to rake in hundreds of millions of dollars for many years now.

This insouciance towards debt opens up Mr Mosler’s ideas (which he used to call “soft currency economics”?) to all sorts of criticism. But its application has made him a lot of money. He turned a profit of over $50m for his fund and his clients buying Italy’s lira bonds in the early 1990s, when prominent economists flagged the danger of default. In 1996 he earned them over $100m after he pledged to buy more of a certain type of Japanese paper than the government had issued. And his bank made a monthly return on required equity of over 10% in 2011 largely by buying American Treasury bonds, betting against celebrated investors like Bill Gross of Pimco, the world’s largest bond fund, who sold his fund’s Treasuries in early 2011 before recognising his mistake later on.
Source: http://www.economist.com/node/21542174

[stone]

Warren Mosler advocates no longer issuing bonds and having zero interest rates. In a way that is a brave thing for a bond trader to say. In another way it could be talking his book . Someone who holds lots of gold might not be losing much by campaigning against gold mining.

[MachineGhost]

"Northern Trust’s landmark new study surveyed 1,014 U.S. high-net-worth households with $1 million or more in liquid assets on a wide range of topics, including investment behaviors and attitudes, their views on philanthropy, and their wealth transfer plans."

http://www-ac.northerntrust.com/content ... ca2008.pdf

Also, of interest:

"Northern Trust conducted its second Wealth in Black America survey to gain insight into the financial attitudes and preferences of affluent Blacks who have $250,000 or more in household income or at least $1 million in investable assets.  Survey questions focused on the use of advisors, financial planning/investing, charitable giving and interest in financial education programs. The first study was conducted in 2008. The 2010 study also looked at how the financial market and economic crisis impacted affluent Blacks. Select questions were asked of affluent non-Blacks."

http://www-ac.northerntrust.com/content ... ey2010.pdf

MG

Gumby, you are quite right that the MMT blogs are just about explaining how things are and that is public spirited of them. I suppose my (probably unfair) issue was with how people seem to think that it is all well and good to "pull levers" so as to manipulate what the "ordinary" people do. To me the monetary system should ideally be fully understandable by everyone who uses it.

Agreed. Though, I believe it was Henry Ford who said, "It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

I'm not entirely sure if rich people want zero interest rates. I would imagine they'd rather just have a guaranteed return.

Don't zero interest rates equate to leverage being free? If you have a trading edge, then free leverage is a license to loot. If you are trading against the real economy you have an edge.

Yes, but I'm not entirely convinced that most rich folks are in the business of risking their fortunes with leverage. Certainly some do. But, I always imagined that ultra rich people put their money into something that would preserve their wealth, not risk it with leverage. But, who knows what the rich really do?

[MachineGhost]

Then he's the Ron Paul of bond traders. 

MG

Warren Mosler advocates no longer issuing bonds and having zero interest rates. In a way that is a brave thing for a bond trader to say. In another way it could be talking his book . Someone who holds lots of gold might not be losing much by campaigning against gold mining.

[MachineGhost]

I don't pretend to have any clue what all these MMT people are all arguing about -- I've long ago learned that no single school of economic thought is the answer, but instead a composite of all schools of economic thought.  There is simply no reason to be religiously dogmatic over idealogy rather than pragmatic and empirical.

Anyways, I've always felt that the APT was the best approach to tax reform:

http://www.apttax.com/index.htm

Sadly, it gets no respect from the statists-cum-economists.

MG

[Gumby]

Introducing "Monetary Realism" — an offshoot of MMT devoted to the descriptive side of MMT. (Yay!)

http://pragcap.com/monetary-realism

What was formerly Cullen's introduction to the descriptive side of MMT has now been revised as an introduction to Monetary Realism.

http://pragcap.com/resources/understand ... ary-system

Cullen is joined by Michael Sankowski, Carlos Mucha (who often goes by the user name 'Beowulf'). Warren Mosler has given it his blessing and supports the movement.

What is Monetary Realism?
Monetary Realism is a description of the monetary system within a nation operating a fiat currency which involves an autonomous monetary system, monopoly supply of currency and floating exchange rates. Monetary Realism describes how a government creates, destroys and utilizes its monetary unit and also how the private sector utilizes the state’s monetary unit for its own benefit.   Monetary Realism is similar to Modern Monetary Theory (MMT) in many ways and utilizes many core aspects of MMT, but instead focuses on operational realities of the monetary system and attempts to eliminate the theoretical aspects of MMT that generate substantial political divisiveness and confusion.
Source: http://pragcap.com/resources/understand ... ary-system

Apparently the diehard MMTers say you can't really be an MMTer unless you 100% believe in the theoretical side of MMT — also known as the "Job Guarantee".

I'm not about to put my faith in the theoretical Job Guarantee just yet, so I guess that makes me a 'Monetary Realist' for now.

EDIT: See the comments on pragcap for more info and explanation.

[MachineGhost]

What is Monetary Realism?
Monetary Realism is a description of the monetary system within a nation operating a fiat currency which involves an autonomous monetary system, monopoly supply of currency and floating exchange rates. Monetary Realism describes how a government creates, destroys and utilizes its monetary unit and also how the private sector utilizes the state’s monetary unit for its own benefit.   Monetary Realism is similar to Modern Monetary Theory (MMT) in many ways and utilizes many core aspects of MMT, but instead focuses on operational realities of the monetary system and attempts to eliminate the theoretical aspects of MMT that generate substantial political divisiveness and confusion.
Source: http://pragcap.com/resources/understand ... ary-system

Jeeze, looks like I got the operational and descriptive mixed up.  Functional finance is the "theoretical" (what we know as Keynesianism) not the operational as I stated previously in another thread.

What I don't get is why all of these armchair economists don't just acknowledge Neo-Chartalism instead of rebranding it under a new theory to put their name to.  Sounds like too much ego involvement already.

MG

[Gumby]

What I don't get is why all of these armchair economists don't just acknowledge Neo-Chartalism instead of rebranding it under a new theory to put their name to.  Sounds like too much ego involvement already.

I don't think I'd say Cullen Roche is an armchair economist. He's a global macro asset manager. He has no interest in the theoretical aspects of MMT. He runs a blog that focusses on the operational realities of modern monetary systems, and how they affect the global macro environment. The diehard MMTers kicked him out of their club house. It was a big fight. They basically said he couldn't teach "MMT" if he wasn't going embrace the Job Guarantee. As an asset manager — living in the real world — he had no time or interest in theoretical political sideshows. Monetary Realism has no agenda. It basically just describes how Treasury auctions work (and are designed not to fail) and how it all affects the private sector.