Gyroscopic Investing

moda0306 wrote: This isn't to get into an argument about whether sustained prosperity will result, but simple answering the question: What will get people working and improve balance sheets in the short term?

Debt forgiveness would help a lot.

moda0306 wrote: The only thing I could see that would "fix" the economy in the short-term, while also improving private-sector balance sheets, is massive deficit spending.... which some think we're currently seeing, but I guess I'm thinking it's outside of the fed's hands at this point.  They're being asked to paint a color painting but the only color they have to use is black, while congress is sitting on gallons and gallons of colored paint, yelling at them for their lack of creativity.

After all this, do we want more paint?  It's like some kind of Jackson Pollock nightmare where every inch of the room and everyone in it is covered in smelly household paint.  Standing at the doorway is Paul Krugman shrieking that the only solution is more, more paint!  The more revolting color combination, the better!

Bush slathered the room with two wars and huge deficits, then papered it with all those "tax credit" checks he sent out to everybody.

Obama covered the floor six inches thick with the vaguely vomit-colored paint of the stimulus and deficits that made Bush look like a wannabe.  Buckets of new war here, a roller or two of cash for clunkers there, but the room still looked awful.

In the end, it's more paint than anyone in the entire history of the earth has ever seen packed into one room.  Ever.  And yet even though consumer spending has recovered and government spending is through the roof, we are still worse off than before we started painting.

Ultimately, people realize that this debt, public or private, must be either serviced or defaulted.  High public debt implies high future taxation and slower future growth -- the money always comes from somewhere.  Add to that the Charlie Foxtrot that is Obamacare, clumsy financial reform and now the threat of much higher taxes (perhaps almost immediately according to the new "Jobs Act"), it's obvious that we're making our problems even worse than they have to be.

moda0306 wrote: This isn't to get into an argument about whether sustained prosperity will result, but simple answering the question: What will get people working and improve balance sheets in the short term?

Unfortunately, any debt that can't be serviced has to be restructured or defaulted.  This will not be a painless process but it has to be done.  Making private debts public problems just invites even more pain.

Denial of reality is hazardous to your health, whether you're a powerful nation or just some schlub that can't stop buying things he can't afford.

LW,

Like I said, I was simply saying that the fed doesn't have the tools to bring about full employment in the short run, regardless what you think the long-term consequences will be of that.  I think you've admitted before that the government has the ability to generate full employment in the short-term.  What happens after that point when the gov't lets go of the reigns would seem to be the ultimate argument, would it not?

Lone Wolf wrote: High public debt implies high future taxation and slower future growth -- the money always comes from somewhere.  

But you just said the options are "service" or "default."  It takes higher taxes to service the debt, but not to default on it.  We absolutely do not need higher taxes in the future to manage our debt, and you've already admitted that by equating inflation with default.

I would agree that we can kind of "simplify" and "break down" what has to happen to public sector debt is either serviced or defaulted on.  In this description, the term "default" would mean "monetize" in terms of how it happens in the US, and the mechanics of monetizatin may be different than default, but in effect that's what happens (though in a way that the bond market seems to be far less sensitive to).

The reason our "soft default" is treated so much differently by bond markets than "hard default" of Greece is probably for two reasons: 1) It's not a self-fulfilling possible nightmare (hyperinflation aside , inflation doesn't self-create itself like default-risk does), and 2) (Important!!) It's built into the contract/expectations of the bond buyers.

Soft default, then, seems to be an option we've already given ourselves, and in doing so, have probably saved ourselves from the systemic risk of pegged currencies (even Ireland, a conservative's wet dream pre-2008, is in a horrible spot right now).

So while you are right in a way to say that default is what will need to happen if we don't service the bonds (tax people), trying to attach the Greek or Irish side-effect of currency breakdown to a "contractually-allowed default" is a huge stretch.  So therefore you've answered your own question.  We can default, and we can do it at very little cost if the economic conditions are right (see current interest rates).

So, yes, you are right, we will "default" someday, and that's why deficits don't carry the huge burden you think they do.   But as a side benefit, neither does the soft-default carry the burden of a hard default in its self-fulfilling and systemic risk nature, so it's like getting the default without most of the negative blowback in the markets.

Nowhere in there do taxes have to go up or does growth have to go down.  In fact, future growth is much more likely without generating inflation if we've already built the infrastructure to handle it when rates were 1.75% on 10 year bonds, than waiting until freeways are full, employment is full, and rates on 10-year bonds are 5%.  This points to the fact that maybe "sometimes inflation is MORE default than other times."  Such as, when our economy has unused productive capacity, and monetizing/spending is used to hire those people to do things that will make private sector growth more likely in the future.

Lastly, not considering any ability to bartar or develop self-usable wealth (used for ones own uses), how are we mathmatically going to be able to generate more savings, wealth and profits with less money to buy it with, as a whole?  A country with enough currency to net-save (all private-sector financial assets net to zero wealth) and have money left over to buy goods from businesses seems to me to be one where 1) more wealth is created and 2) more savings are acquired, than a world with less money.  Wealth isn't created in a vacuum.  It's most often traded for a common currency or not created at all if nobody is willing to use that currency to purchase it, and if you starve a nation of enough currency for the wealth-makers to work at close to full capacity, you are limiting the wealth-building potential of that society.

Please explain to me how a society with LESS money to save and trade for wealth is going to save more and develop more wealth?? I am in no way claiming government creates wealth.  I'm saying that our society, given our contracts, salaries, etc are almost 100% denominated in the dollar, will be starved of the very thing that will generate net financial savings/assets and motivate people to generate wealth.

There seems to me to be no mathmatical way around this.  I don't see how businesses generate profits (net wealth created) and people save & deleverage (aren't we both admitting that it's necessary?) with surpluses sucking dollars out of the private sector.

If this comes at the price of "defaulting" on China to get money into the hands of Americans (especially with low interest rates (interest being the potential "punishment" for default)), then it seems to me a no-brainer.

moda0306 wrote: I think you've admitted before that the government has the ability to generate full employment in the short-term.

Sure.  Hire people to dig ditches.  Hire other people to fill them in.

This does not, however, increase the stock of real goods within the economy.  It's simply creating activity that looks like economic activity but is in fact not.  We'd have the same stock of goods as if these people had all stayed at home with their families.

moda0306 wrote: So, yes, you are right, we will "default" someday, and that's why deficits don't carry the huge burden you think they do.

I think you're making two assumptions that I don't agree with:

• That inflation is always orderly and controllable.  You almost make it sound painless, which it assuredly is not.  All holders of dollars are badly hurt by high inflation.  Inflation is unpredictable, nasty and leads to further bubbles which tend to burst with louder and louder bangs.
• That the debt will never become a burden, as if you assume that today's interest rates are guaranteed to continue in perpetuity.

Walk yourself through what happens if interest rates rise.  At some point even servicing the debt's interest becomes horribly burdensome.  We roll most of our debt short-term so the national debt would balloon very quickly.  Interest rates were in the double digits not far back.  If they climb this high again, do we want a large national debt or a small one?

How would you address that situation?  Just keep printing?  Raise taxes?  What will you do if inflation starts to gallop during a stagnant economy a la the 1970s?

moda0306 wrote: Please explain to me how a society with LESS money to save and trade for wealth is going to save more and develop more wealth??

We seem to be going around in circles a bit on this.  Remember: the money supply can be increased with or without a national debt of any kind.  You do not have to waste money on silly things in order to give the Federal Reserve debt to buy.

I'm not talking about ditches yet... infrastructure will do... then just send out checks.

Inflation may not be painless and unpredictable, but what people can equate to monetary tomfoolery is often a supply shock or just dwindling supply where there once was abundance.  I don't necessarily think it will be painless, but not as painful as falling asset prices and no means to pay your bills and a labor force just sitting doing nothing.

If rates rise (which they seem to be FAR from doing, but I'm trying to be creative here), and the fed can't do anything about it (also which seems to fly in the face of logic), we can monetize debt as we acquire larger interest payments.  In no way do we run into a default spiral... MAYBE an inflationary one (where the increase in interest payment offset through monetization causes the very inflation that makes the next round of rate hikes happen, etc).  I just see that as a problem that seems to be FAR from being the case, and controllable if it rears its head.

Inflation isn't painless, but neither is deflation.  Neither is starving an economy of money when that's what people use to bargain for wealth creation and use to net-save.

Regarding monetizing debt, yes, the money supply can increase, but if it's simply a swap out of one form of money (bonds) for another form of money (cash), that's not really accomplishing much other than managing rates.  The deficit spending is the piece that actually gets the money into the economy and affecting balance sheets, as only then is the gov't trading money (cash) for non-money (labor to build a bridge).

QE is simply "rearranging of net private sector savings," not really increasing it.

Further, you say that "the fed can expand the money supply without deficit spending," but it's something that conservative/austrian folks are specifically against and endorse as the problem, not a solution, to our economic woes.  So let's clarify... austrian/conservative economists think we should NOT print and NOT run deficits, while some are realizing that the combination of printing/deficits (that results in what MMTers actually describe as the creation of money out of thin air to fund government) properly directs the increase in money supply in the form of tax cuts and infrastructure spending (and simply sending out stimulus checks) that gives the economy what it needs to generate wealth and savings.

So let me reform my question: Please explain to me how a society with LESS money to save and trade for wealth, as a result of balancing budgets and refusing to monetize debt, is going to save more and develop more wealth??

http://www.levyforecast.com/assets/Profits.pdf

LW,

I've tried to shoot this your way a few times... it's basically a long illustration that shows the flow of money between gov't and the private sector.

Let me know what you think if you can work up the time to read the whole thing.

LW (and anyone else),

One more thing... what's your take on the difference between

1) The MMT simplification where we create money when we spend it, destroy it when we tax, and bonds are simply money supply tools and ways for the gov't to reward willing savers.

Vs.

2) The way we actually do it, where we borrow to spend, but then print to monetize debt?


Do you think there is a fundamental difference between the two, or it's just a formality that really doesn't change anything, other than how it affects our perception on what is going on?

moda0306 wrote: So let's clarify... austrian/conservative economists think we should NOT print and NOT run deficits, while some are realizing that the combination of printing/deficits (that results in what MMTers actually describe as the creation of money out of thin air to fund government) properly directs the increase in money supply in the form of tax cuts and infrastructure spending (and simply sending out stimulus checks) that gives the economy what it needs to generate wealth and savings.

It's a bit more nuanced than that.

The Austrian believes that the money supply should have been much more stable all along.  The Monetarist agrees, although they may or may not agree on the question of whether a gold standard or private currency issuance is the best mechanism for achieving this.  Friedman recommended simply hitting money supply targets and creating a pseudo-gold standard.  Both approaches seem clearly superior to the current "dual mandate" of the Fed to both control inflation and provide "full employment".

An Austrian would probably say that the damage has already been done and that deflation must occur while the malinvestments are cleared from the system.  (This worked unbelievably well in 1920 under Harding, but it's a frightening, although short, process.)  The Monetarist would emphasize restoring the stability of the money supply.

I'm not qualified to or interested in picking a winner between the two.  My only point is that neither would say that the incredible deficit spending of today's government is necessary, independent of their views on where the money supply should be.

I was under the impression that Friedman thought the lack of monetary expansion (or quick enough monetary expansion) made the depression drag on significantly longer.

That doesn't sound very "quasi gold standard" to me, but I'll admit I don't know much about the man.

Again, mind answering the following:

what's your take on the difference between

1) The MMT simplification where we create money when we spend it, destroy it when we tax, and bonds are simply money supply tools and ways for the gov't to reward willing savers.

Vs.

2) The way we actually do it, where we borrow to spend, but then print to monetize debt, thereby effectively doing what appears to be the same thing?


Depending on how you view the difference between those two, it might serve to clarify that deficits are as much a part of effective monetary expansion as the fed's open market operations are.  Swapping one form of money (bonds) for another form of money (cash reserves) is just moving the savings pieces around, and when we're in a demand shock, appear to do little to the real money supply in the economy as everyone rushes to the exits.  

For instance, if we'd quit with the act and start simply spending out of nothing and just issue bonds to help stabilize inflation & interest rates, I think it would clarify everything.  Doing it the Bass Ackwards way we do it seems to just confuse the fact that when we spend and tax, we create and destroy money, respectively.  Bond issuance, in that context, is then a form of "destroying" money but with an asterisk that involves interest and term of recreation of money.

This seems to me to be a better way to visualize what happens, but maybe you can shed some light as to what you think the difference is.

moda0306 wrote: I was under the impression that Friedman thought the lack of monetary expansion (or quick enough monetary expansion) made the depression drag on significantly longer.

That doesn't sound very "quasi gold standard" to me, but I'll admit I don't know much about the man.

Right, he said that you're probably best just robotically increasing the money supply by some set amount and never deviating from it.  You target the new, slightly higher amount every year regardless of what else is going on to create stability.  The market then knows precisely what to expect from you.

In a way, this is like trying to simulate the slow expansion of the money supply without the wilder swings you get with the Fed's dual mandate, fractional reserve lending, etc.  Not a perfect analogy, but you get the idea that stability is the goal.

moda0306 wrote: what's your take on the difference between

1) The MMT simplification where we create money when we spend it, destroy it when we tax, and bonds are simply money supply tools and ways for the gov't to reward willing savers.

Vs.

2) The way we actually do it, where we borrow to spend, but then print to monetize debt, thereby effectively doing what appears to be the same thing?

I think that they are actually the same thing, but #1 (the MMT model) seems more like a big obfuscation that a simplification.  It seems unnecessarily complex to me and generally just makes the issue more opaque than it needs to be.

Consider how much time we've had to spend unwinding the confusion between expansion of the federal deficit and expansion of the money supply, which are not the same thing.  It's MMT's model that confusingly seems to imply that the federal government must run a budget deficit to expand the money supply, which is not the case for our system.

LW,

I guess I disagree and think that description clarifies it a lot (especially if it doesn't really fundamentally change anything to do the back-door fed method).

In their descriptions, they leave out the fed buying bonds because it simply replaces one form of savings with another, and usually at a time when people don't really care, they just want to save.

Remember, a bond, is basically "money with a term mechanism."  The nature of bonds is that they could be kind of handy as money themselves (think Die Hard!)... so when the fed prints money, but simply buys bonds with it, they're really not "increasing the money supply" in context of what's really happening in the real world, unless those savers that held a financial asset (that was just sold back to them) now see their new cash as being neutered and now have to go do something else with it (like buy a boat, or more likely invest in something riskier that pays better return now that rates are lower on the bonds they just had redeemed).

But in the end, fundamentally, the fed isn't really doing that much with QE unless the environment these investors are in changes as well.  If these investors no longer see their dollars as stores of value, and instead see them as a medium of exchange that can be used to exchange for value, then THAT is when the fundamental difference triggers.

When the gov't decides to buy something fundamentally different then money... like an hour of someone's time or a widget (or nothing at all... like a stimulus check) that's what really changes the supply of money.  A bond is just another quasi-money instrument that earns interest, and trying to trade one for the other when money is looked at as a store of value is not really accomplishing anything in the real economy, and is a great example of simply rearranging the deck furniture on the titanic.

Further, I tend to think the MMT folks don't like using QE for that very reason... it's viewed as printing money when it's really just changing the terms of the money/bonds in existence, and the real money printing happens when the government spends in excess of its tax receipts, while their goofing with bonds/cash is just that... trying to play with rates to change expectations, rates, supply of risk-free return, etc to influence the private sector money creation called debt expansion.

It appears that the Fed beginning QE1 and QE2 signaled a cyclical top for LTT yields (QE1 announced in Dec. 2008, QE2 hinted at in Sep. 2010, and compare that with a TLT chart).  So now that Operation Twist is official, maybe they're the contrary indicator and the party is almost over again?

kka wrote: It appears that the Fed beginning QE1 and QE2 signaled a cyclical top for LTT yields (QE1 announced in Dec. 2008, QE2 hinted at in Sep. 2010, and compare that with a TLT chart).  So now that Operation Twist is official, maybe they're the contrary indicator and the party is almost over again?

Moves like the last few days certainly can't go on for very long.

Unlike with stocks and gold, with LT treasuries you do have the 0% yield barrier to limit potential gains.

At the rate we have been going the last two days, we would hit 0% on the LT bond in a few weeks.

If Germany is any guide, however, we could linger down here for quite a while.

MediumTex wrote:

moda0306 wrote: This isn't to get into an argument about whether sustained prosperity will result, but simple answering the question: What will get people working and improve balance sheets in the short term?

Debt forgiveness would help a lot.

How does debt forgiveness work?

Research Jubilee.

Lone Wolf wrote:It's MMT's model that confusingly seems to imply that the federal government must run a budget deficit to expand the money supply, which is not the case for our system.

We can define a budget deficit as the government spending more than it takes in through taxes. So, how does the government increase the money supply without running a budget deficit? Every dollar in our pockets traces its way back to an original deficit dollar. Even every dollar created by a bank (which is also a debt) is backed by an original deficit dollar.

It's all debt-based money.

Gumby,

And isn't the idea of "monetizing money creation" a bit of a half-truth, when all you're doing is trading a green piece of paper with a president and a number on it for a blue (bonds are blue, right?  jk) piece of paper with a term and a number on it?

Is it really "increasing the money supply" to enact QE, or is it just changing the terms of existing money to affect private sector savings/investment/consumption?  That's a much better descriptor to me.  Only along side adequate deficit spending will QE have much bite, because simply changing terms of money in existence isn't going to do much when the dollar is looked at as a store of value and not just a medium of exchange.  It's almost the most accurate description of "rearranging the deck furniture on the titanic" analogy I can think of.  You're not really changing anything by giving a holder of a 1 month treasury bond cash in exchange for his bond.  You ARE changing things when you use that same cash to hire someone to build a bridge, or even if you send him a check for doing nothing, or lower the taxes of that person on the income he earns.  

THAT is what truly expands our money supply, or at least that's how it seems.

Gumby wrote: We can define a budget deficit as the government spending more than it takes in through taxes. So, how does the government increase the money supply without running a budget deficit? Every dollar in our pockets traces its way back to an original deficit dollar. Even every dollar created by a bank is backed by an original deficit dollar.

This is exactly why I think that MMT confuses far more than it illuminates.  Every dollar is traceable to the Federal Reserve, not necessarily to a budgetary deficit of the Federal government.

The Federal Reserve creates dollars via open market operations.  Normally, the FOMC buys government bonds.  However, they are free to purchase:

• Mortgage debt (as demonstrated recently by Operation Twist)
• Gold and silver
• Stocks (something the Bank of Japan actually tried, believe it or not)

All of these methods require no additional deficit spending by the Federal Government.  In fact, it's clear that the entire national debt could be paid off without preventing the creation of money.  (Obviously, I'm not suggesting this would ever actually happen, just fleshing out the hypothetical.)

Thus it's clear that MMT is really defining a "deficit" to include new money added to the Federal Reserve's balance sheet.  This is not the same as a "budget deficit".  However, MMT gauzes up the difference between the two and confuses many people into believing that without lots of deficit spending we're guaranteed a recession.  (Something that was empirically proven false in 1920.)

Does that make sense?

moda0306 wrote:And isn't the idea of "monetizing money creation" a bit of a half-truth, when all you're doing is trading a green piece of paper with a president and a number on it for a blue (bonds are blue, right?  jk) piece of paper with a term and a number on it?

That's my understanding. As I see it, the Treasury market is liquid enough to make that an equal swap in terms of real purchasing power. I used to think that bonds were some sort of holding pattern for cash, but the truth is that the liquidity of the Treasury market always allows an individual to swap a treasury bond into a dollar, exchange that dollar for a good, the dollar goes into the good-supplier's bank account, which then gets exchanged for Treasury bond and the process repeats itself. That process is happening continuously. "Dollars" are just the mode of exchange for goods.

moda0306 wrote:Is it really "increasing the money supply" to enact QE, or is it just changing the terms of existing money to affect private sector savings/investment/consumption?

According to Bernanke...

"What the purchases do… is… if you think of the Fed’s balance sheet, when we buy securities, on the asset side of the balance sheet, we get the Treasury securities, or in the previous episode, mortgage-backed securities. On the liability side of the balance sheet, to balance that, we create reserves in the banking system. Now, what these reserves are is essentially deposits that commercial banks hold with the Fed, so sometimes you hear the Fed is printing money, that’s not really happening, the amount of cash in circulation is not changing. What’s happening is that banks are holding more and more reserves with the Fed. Now the question is what happens the economy starts to grow quickly and it’s time to pull back the monetary policy accommodation. There are several tools that we have..."

The video is on C-SPAN: (skip to 18min 34sec)

http://www.c-spanvideo.org/program/296446-1

LW,

I just responded to that point.

Debt is money.  Previously spent/issued/etc dollars are paid BACK to the gov't when people want to save and earn interest from gov't bonds.  In return they get pieces of paper (figuratively) only slightly different than the ones they gave the gov't.

QE doesn't really change much... QE isn't buying homes & stocks, it's buying bonds, and almost always treasury bonds (I think they may have bought some mortgages, but I'm not sure on the details).

I will admit that the fed purchasing stocks, underwater homes, and other less monetary items would probably have more bite, but until they do this, their actions are going to be much less "money creation" and much more "term manipulation."

I think MMT ignores the fed actions (actually, they seem to, in some articles, have more understanding of the fed & banks than most economic pontificators) because the fed isn't really doing anything ballsy in terms of money creation.

When the fed starts buying widgets with QE instead of short (and now long) term debt that the treasury issued that's yielding pathetically low interest rates, then maybe it's worth expanding the MMT narrative, but until then they're actually clarifying things by leaving bond manipulation on the back burner... at least it's helped me clarify some of these concepts.

Gumby,

That's a good description... It serves to note that QE is simply reversing a swap (at FMV or close to) that was already enacted of one form of money (cash, or a super-duper short-term bond) for another (bonds, or a longer but often short-term bond).

LW is right in that the fed COULD monetize ALL the debt.  That's why looking at our debts as real liabilities, QE as "creating money," and gov't spending and taxation as a real flow of funds (as opposed to simply creating and destroying money) serves to confuse the fundamental truth of what's happening as a mathmatical/economic necessity of the pieces that our system is built with.

QE & treasury bonds are an interest rate & inflation management tool.  They don't fund government anymore.

Government spending is creating and destroying money.  It isn't revenue constrained anymore.

Lone Wolf wrote:Thus it's clear that MMT is really defining a "deficit" to include new money added to the Federal Reserve's balance sheet.  This is not the same as a "budget deficit".

As Bernanke explained (see above), when the Fed purchases anything, it's really just an asset swap. Every dollar added to the Fed's balance sheet is offset by the liability side of the balance sheet — which creates more bank reserves at the Fed. It's an asset swap. This is well known.

[align=center]
Federal Reserve assets in billions of dollars. Data source: Federal Reserve Release H.4.1.[/align]

[align=center]
Federal Reserve liabilities in billions of dollars. Data source: Federal Reserve Release H.4.1.[/align]

Gumby,

From there, then, we can look at some of the treasury actions, such as stimulus checks (swapping an asset (cash) for nothing), tax cuts (swapping an asset (cash) for nothing... well, maybe creating value as judged by others in the real economy), infrastructure spending (swapping an asset (cash) for labor & material to build a bridge), etc.

So let's compare that to swapping money for something pert' near money (cash for ST treasury bonds).

They're fundamentally different in terms of whether we're creating money, really, or simply changing its terms.

MMT makes that abundantly clear, and I think that serves to clarify, not distort, reality.

moda0306 wrote: QE doesn't really change much... QE isn't buying homes & stocks, it's buying bonds, and almost always treasury bonds (I think they may have bought some mortgages, but I'm not sure on the details).

You are talking specifically about QE.  (Perfectly reasonable given that this is a QE thread, so I'm the off-topic one.)  I'm speaking generally about open market operations and their role in influencing the money supply.

I certainly agree that QE is nothing particularly unique.  I think the federal funds rate target isn't nearly as meaningful as the supply of money (a point on which I agree with Milton Friedman.)  QE (to me) is really nothing more than a way of trying to increase the money supply and ignoring the federal funds rate target (since it's basically zero anyway.)

moda0306 wrote: I will admit that the fed purchasing stocks, underwater homes, and other less monetary items would probably have more bite, but until they do this, their actions are going to be much less "money creation" and much more "term manipulation."

Okay.  Sounds like although we may not be on the same page, at least we're perhaps reading the same chapter.

The crucial point to me is that the Fed can still do whatever it wants, regardless of how big the Federal budget deficit is.  My concern is that MMT very often gets used as a tool to give cover for our budget deficits as "required" for increasing the money supply.  This simply isn't true.  Increasing the money supply is trivial, Federal budget deficit or no.

Gumby wrote: As Bernanke explained (see above), when the Fed purchases anything, it's really just an asset swap. Every dollar added to the Fed's balance sheet is offset by the liability side of the balance sheet — which creates more bank reserves at the Fed. It's an asset swap. This is well known.

Sure.  This is the same thing that I mentioned above.  However, I do not consider a change to the Federal Reserve's balance sheet to be the same thing as a Federal budget deficit.  YMMV, but I think this point confuses a lot of people into thinking that more spending by Congress is required to increase the money supply (which is clearly not the case.)  If MMT is supposed to be a clarification tool, why do people come away believing this?

LW,

Maybe we stumbled accross something here.

Aren't the fed's "open market operations" and "QE" the exact same thing?

I'm under the impression that bond purchasing and selling is the fed's #1 tool, and others (window rates, reserve rates & requirements, and margin req'ments) are basically afterthoughts in terms of significance, with MAYBE the exception of reserve requirements.

LW, though the fed CAN maybe buy whatever it wants, the fact that this would be way outside its typical role would seem to indicate to me that it's ok that MMT ignores it, or at least puts it on the back burner while trying to simplify (at least to me) the fundamentals of what is happening.

I think there are some very good MMT articles that do dispense with their "wonderland" vision of straight-up print-spending and get into the guts of what the fed does and how that affects the whole system.  I should dip back into it again and see if it is consistent with our observations.