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Free class on money and banking.

JP Hochbaum

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I just signed up and those in the econ world are signing up for this class like crazy so I thought I would share. It's free and could provide a great discussion here:

https://class.coursera.org/money-001/class/index

Tens of thousands of people will be taking Perry Mehrling's Money and Banking course, which he taught last fall. Within YSI, we will be taking the course together and we'll have special access to Perry, whenever we want it. Some of us can volunteer to be Coursera Community Teaching Assistants and we'll try to collectively manage the Coursera community forum, in which questions and debates need our attention.

Please sign up if you are interested in participating. We'll try to find suitable meeting times once we have an idea of who wants to take part.

Sign up for the course here:
https://www.coursera.org/course/money

About the course:

The last three or four decades have seen a remarkable evolution in the institutions that comprise the modern monetary system. The financial crisis of 2007-2009 is a wakeup call that we need a similar evolution in the analytical apparatus and theories that we use to understand that system. Sponsored by the Institute for New Economic Thinking (INET), this course is an attempt to begin the process of new economic thinking, by reviving and updating some forgotten traditions in monetary thought that have become newly relevant.

Three features of the new system are central.

Most important, the intertwining of previously separate capital markets and money markets has produced a system with new dynamics as well as new vulnerabilities. The financial crisis revealed those vulnerabilities for all to see. The result was two years of desperate innovation by central banking authorities as they tried first this, and then that, in an effort to stem the collapse.

Second, the global character of the crisis has revealed the global character of the system, which is something new in postwar history but not at all new from a longer time perspective. Central bank cooperation was key to stemming the collapse, and the details of that cooperation hint at the outlines of an emerging new international monetary order.

Third, absolutely central to the crisis was the operation of key derivative contracts, most importantly credit default swaps and foreign exchange swaps. Modern money cannot be understood separately from modern finance, nor can modern monetary theory be constructed separately from modern financial theory. That's the reason this course places dealers, in both capital markets and money markets, at the very center of the picture, as profit-seeking suppliers of market liquidity to the new system of market-based credit.
 

joG

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I just signed up and those in the econ world are signing up for this class like crazy so I thought I would share. It's free and could provide a great discussion here:

https://class.coursera.org/money-001/class/index

Tens of thousands of people will be taking Perry Mehrling's Money and Banking course, which he taught last fall. Within YSI, we will be taking the course together and we'll have special access to Perry, whenever we want it. Some of us can volunteer to be Coursera Community Teaching Assistants and we'll try to collectively manage the Coursera community forum, in which questions and debates need our attention.

Please sign up if you are interested in participating. We'll try to find suitable meeting times once we have an idea of who wants to take part.

Sign up for the course here:
https://www.coursera.org/course/money

About the course:

The last three or four decades have seen a remarkable evolution in the institutions that comprise the modern monetary system. The financial crisis of 2007-2009 is a wakeup call that we need a similar evolution in the analytical apparatus and theories that we use to understand that system. Sponsored by the Institute for New Economic Thinking (INET), this course is an attempt to begin the process of new economic thinking, by reviving and updating some forgotten traditions in monetary thought that have become newly relevant.

Three features of the new system are central.

Most important, the intertwining of previously separate capital markets and money markets has produced a system with new dynamics as well as new vulnerabilities. The financial crisis revealed those vulnerabilities for all to see. The result was two years of desperate innovation by central banking authorities as they tried first this, and then that, in an effort to stem the collapse.

Second, the global character of the crisis has revealed the global character of the system, which is something new in postwar history but not at all new from a longer time perspective. Central bank cooperation was key to stemming the collapse, and the details of that cooperation hint at the outlines of an emerging new international monetary order.

Third, absolutely central to the crisis was the operation of key derivative contracts, most importantly credit default swaps and foreign exchange swaps. Modern money cannot be understood separately from modern finance, nor can modern monetary theory be constructed separately from modern financial theory. That's the reason this course places dealers, in both capital markets and money markets, at the very center of the picture, as profit-seeking suppliers of market liquidity to the new system of market-based credit.
I will look it up.
 

Onion Eater

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No tax raises needed, just have the federal government spend the money into existence.
If this is the sort of thing they're teaching, then I think I'll pass.

But thanks for providing me with some humorous content to put in my signature line. If you have any more gems of wisdom on the subject of money and banking, by all means post them - we can all use a laugh. :D
 

JP Hochbaum

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If this is the sort of thing they're teaching, then I think I'll pass.

But thanks for providing me with some humorous content to put in my signature line. If you have any more gems of wisdom on the subject of money and banking, by all means post them - we can all use a laugh. :D
How does money come into existence? WHo created currency?
 

JP Hochbaum

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Didn't sound like you were, but even if not, it's still valid. Money has always been an instrument of the state. Aristotle wrote about it.
I meant who created USD, our government.....
 

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How does money come into existence? WHo created currency?
A fantastic question and one that it think is misunderstood or not even given a thought. I like where you're going and am interested to hear your thoughts as I think we are on the same page.
 

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The collapse of the Continental was inevitable because, having spent Continentals directly into the economy (mostly for soldiers’ wages), the Continental Congress had nothing in their portfolio with which they could buy them back...

by buying only short-term Treasury Bills, the Federal Reserve has given itself a portfolio with which it can buy back dollars in the event that inflation should threaten to turn into hyperinflation...

selling T-Bills for cash and destroying the cash is a painful, recession-inducing process, as evidenced by our experience during Reagan’s first term, but it can be done.
Source: Is the Collapse of the Dollar Inevitable?

This is the same link that appears in my signature. All this time I've been mocking your little gem of wisdom and you never thought to follow the link?

just have the federal government spend the money into existence.
Just print it and spend it, huh? You seem to have missed an important step: Buying assets that can be sold in the event that inflation should threaten to turn into hyperinflation. Or were you planning on fobbing that problem off on the next administration?
 

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You seem to have missed an important step: Buying assets that can be sold in the event that inflation should threaten to turn into hyperinflation. Or were you planning on fobbing that problem off on the next administration?

Remember that a government that prints and spends money into the economy isn't creating a single dollar of debt. Every dollar that is created would be consumed by an equal amount of productivity assuming the money is spent efficiently (i.e. not wasted). Furthermore, if for some reason the balance of productivity and the quantity of money were ever to get out of balance, in the scenario you describe it would be to much money circulating relative to the value of goods and services in demand in the market. All the government would have to do is increase taxes and destroy the money collected, thus increasing the value of each dollar. The reason that we can't do that today is that money is borrowed into the economy and it must be paid back. In a case where the government creates the money it circulates indefinitely and never has to be paid back.

Not paying interest on money " backed" by debt would save the taxpayer 300 billion dollars a year. That's almost a trillion dollars every 3 years. The cost of backing money with something to prevent hyperinflation isn't worth it, especially when you consider the number of instances of hyperinflation in modern times.


This solution would not work without a paradigm shift in the banking industry. Fractional reserve banking would have to end as one example.
 

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A fantastic question and one that it think is misunderstood or not even given a thought. I like where you're going and am interested to hear your thoughts as I think we are on the same page.
Enroll in the course. It takes as much time as any moderate course, but it's good info, and fairly high level insofar as monetary systems, intermediate micro and macro are concerned. It seems like it'll prove highly educational on money market economics.
 

JP Hochbaum

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Source: Is the Collapse of the Dollar Inevitable?

This is the same link that appears in my signature. All this time I've been mocking your little gem of wisdom and you never thought to follow the link?



Just print it and spend it, huh? You seem to have missed an important step: Buying assets that can be sold in the event that inflation should threaten to turn into hyperinflation. Or were you planning on fobbing that problem off on the next administration?
Hyperinflation? Lol
 

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Enroll in the course. It takes as much time as any moderate course, but it's good info, and fairly high level insofar as monetary systems, intermediate micro and macro are concerned. It seems like it'll prove highly educational on money market economics.
Done.
 

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Remember that a government that prints and spends money into the economy isn't creating a single dollar of debt. Every dollar that is created would be consumed by an equal amount of productivity assuming the money is spent efficiently (i.e. not wasted).
When you can economically get past this problem, all problems end in theory. But for thousands of years and modern economic theory has been unable to find a solution to this problem. There will always be malinvestment which means the economy is not 100% efficient. Doesn't matter what economic system you use.. there is always malinvestment.

Which is why I think doubling down on the idea of QE is down right stupid. Easy money causes malinvestment in the first place and now we are gonna try it again hoping people are 100% correct all the time? What changed? Absolutely nothing.
 

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Remember that a government that prints and spends money into the economy isn't creating a single dollar of debt. Every dollar that is created would be consumed by an equal amount of productivity assuming the money is spent efficiently (i.e. not wasted). Furthermore, if for some reason the balance of productivity and the quantity of money were ever to get out of balance, in the scenario you describe it would be to much money circulating relative to the value of goods and services in demand in the market. All the government would have to do is increase taxes and destroy the money collected, thus increasing the value of each dollar. The reason that we can't do that today is that money is borrowed into the economy and it must be paid back. In a case where the government creates the money it circulates indefinitely and never has to be paid back.

Not paying interest on money " backed" by debt would save the taxpayer 300 billion dollars a year. That's almost a trillion dollars every 3 years. The cost of backing money with something to prevent hyperinflation isn't worth it, especially when you consider the number of instances of hyperinflation in modern times.


This solution would not work without a paradigm shift in the banking industry. Fractional reserve banking would have to end as one example.
This was an outstanding post. I've kinda understood this in theory, but this really brought it home for me - thank you.


Hyperinflation? Lol
I know this has been covered a dozen times before but if we could cover the counter arguments, it would be the icing on the cake that csbrown28 made.

I'll take a shot at this - hyperinflation is not a concern because:

* There is too much unemployment - more than enough slack in productivity to absorb any new spending ability.
* The money supply increase relative to the current supply is not dramatic (as it is in other examples of hyperinflation)
* The U.S. never needs to declare bankruptcy

Isn't the only real risk of hyperinflation in the fall of the Union and at that point aren't we screwed well beyond our currency anyway?
 

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When you can economically get past this problem, all problems end in theory. But for thousands of years and modern economic theory has been unable to find a solution to this problem. There will always be malinvestment which means the economy is not 100% efficient. Doesn't matter what economic system you use.. there is always malinvestment.
One does not have to have 100% efficiency in order to have a system that works. What I should have said in my quote above is not that there not be waste, but that waste be kept to a reasonable minimum.

Which is why I think doubling down on the idea of QE is down right stupid. Easy money causes malinvestment in the first place and now we are gonna try it again hoping people are 100% correct all the time? What changed? Absolutely nothing.
I would agree that, under certain circumstances that if money becomes to easy to obtain that it can have severe economic consequences, but that does not address my contention that government could create money and spend it (or some cases give it to private institutions to lend) into the economy.

That does not mean that the government could create unlimited sums of money, but an amount determined by prevailing conditions. Now that is a discussion unto itself, the point is it is possible to contro the quantity of money in an economy, which, IMO, is one of the most important factors.
 

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One does not have to have 100% efficiency in order to have a system that works. What I should have said in my quote above is not that there not be waste, but that waste be kept to a reasonable minimum.
You actually have to in the world of MMTers. The "class" that's being peddled here is taught by a closet MMTer. Any inefficiency would cause unaccounted inflation.



I would agree that, under certain circumstances that if money becomes to easy to obtain that it can have severe economic consequences, but that does not address my contention that government could create money and spend it (or some cases give it to private institutions to lend) into the economy.
You accept my premise (Austrian economic view) but only in certain circumstances? Any time money is supplied by government outside of normal functions, it "unnaturally" lowers the rate of borrowing. There is no "certain circumstances". It's an absolute in economics (supply and demand and time value of money). The payment of something today is more valuable then promise of payment tomorrow. That's why there are interest rates on every dollar we borrow.


That does not mean that the government could create unlimited sums of money, but an amount determined by prevailing conditions. Now that is a discussion unto itself, the point is it is possible to contro the quantity of money in an economy, which, IMO, is one of the most important factors.
Government adds to the money supply every year it runs a deficit. That means this year Uncle Sam added $1.2 trillion (before Syria costs) to the money supply while the Fed did another $480 - $960 billion (should also note FY 2014 starts Oct 1st). So $1.5 to $2 trillion was added to the money supply. Housing prices grew nationally by 12% this year. Wonder why?
 

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This was an outstanding post. I've kinda understood this in theory, but this really brought it home for me - thank you.
Check out this you tube channel

[video]http://www.youtube.com/user/PositiveMoneyUK?feature=g-subs-u[/video]

I know this has been covered a dozen times before but if we could cover the counter arguments, it would be the icing on the cake that csbrown28 made.

I'll take a shot at this - hyperinflation is not a concern because:

* There is too much unemployment - more than enough slack in productivity to absorb any new spending ability.
* The money supply increase relative to the current supply is not dramatic (as it is in other examples of hyperinflation)
* The U.S. never needs to declare bankruptcy

Isn't the only real risk of hyperinflation in the fall of the Union and at that point aren't we screwed well beyond our currency anyway?

To your first question, which you essentially got right, I'm just going to add to it and see if I can make it clearer.

There are different types of inflation that have different effects. The two types I'm concerned with in the context of this conversation are demand pull and cost push.

Demand pull happens when more money is in the hands of a significant portion of the population. That is, they have more disposable income. Since the vast majority of Americans spend nearly all of their disposable income, than increasing their disposable income increases the amount of money circulating in the economy. This increases the demand for goods and services. To your point, the effect depends on the current state of unemployment and productive capacity. If people are out of work and companies have productive capacity sitting idle, than increased disposable income will cause little if any increase in prices as producers don't increase prices until they cannot meet demand at a given price. That is, if demand rises, then employers hire more people and put their existing productive capacity back to use. Remember that even though the supply and demand curve that everyone is familiar with states that increased demand causes prices to rise, this only happens if a corresponding increase in supply cannot take place without large capital investment (buying more machines, moving to a new larger location ect.....

It's important to point out that not all industries have equal amounts of unused productivity, or have an equal number of people to tap into in the labor pool. Demand can pull prices higher in specific industries, the effect is not equal or across the board. Demand pull will eventually cause prices to rise when companies no longer have available labor or productive capacity to meet demand. Personally I'll take inflation caused by demand any day assuming the underlying reason for the increased demand is sound. However, both cost push and demand pull both trigger unsustainable feedback effects that must be identified and prevented as both can lead to instability.

On the other hand we have cost push inflation. This is really simple. Costs rise because because of supply shocks to the economy. The best example I can think of in my lifetime is the oil embargo in the 70's that caused the price of oil to rise (the cost of oil was pushed higher due to a lack of supply in an essential commodity). Most people's expenses rose as prices increased because of the decrease in availability of an essential commodity (oil in this case) that touches almost everything around us due to increase transportation costs (think trucking). This can happen with other essentials like food and even declines in the labor pool (during the world wars some countries would have seen a decrease in the number of workers due to people killed or wounded.


As far as the quantity of money introduced causing inflation, the way I understand it, QE is more about increasing the amount of money available to banks, not to the government or the public, which in turn affects overnight rates and helps keep interest low (preventing further stalling of the economy from rising rates). Since unemployment is relatively high and productive capacity is relatively low, keeping the availability of money reasonably cheap is ok as long as it doesn't get out of hand.

The only real threat of hyperinflation I can think of without a total system breakdown or hugh system shock is loss of the US dollar as the worlds default currency. There is a lot of US dollars outside the domestic economy (in the hands of other countries) that is used for international trade. If confidence is lost and countries replace the US dollar with another currency, many of the dollars in the world market will find their way home. This could cause high rates of inflation, but only if those dollars found their way into the productive domestic economy where we all live and work. It's something that's possible, but I lack the knowledge to speculate how this would happen.
 

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You actually have to in the world of MMTers. The "class" that's being peddled here is taught by a closet MMTer. Any inefficiency would cause unaccounted inflation.
This statement is a mere assertion that makes a claim that's so vague it's difficult to respond to.....



You accept my premise (Austrian economic view) but only in certain circumstances? Any time money is supplied by government outside of normal functions, it "unnaturally" lowers the rate of borrowing. There is no "certain circumstances". It's an absolute in economics (supply and demand and time value of money). The payment of something today is more valuable then promise of payment tomorrow. That's why there are interest rates on every dollar we borrow.
I don't ascribe to a group, or place labels on my thoughts. If I agree with a particular view, I'd point out that ideas don't have owners.

My comment in regards to money supply. Increasing the money supply is bad when unemployment is low and productive capacity is near maximum, however, if there is high unemployment and a surplus of productive capacity, then increasing the money supply can have positive effects.


Government adds to the money supply every year it runs a deficit. That means this year Uncle Sam added $1.2 trillion (before Syria costs) to the money supply while the Fed did another $480 - $960 billion (should also note FY 2014 starts Oct 1st). So $1.5 to $2 trillion was added to the money supply. Housing prices grew nationally by 12% this year. Wonder why?
First, your forgetting something important, while a lot of money is introduced through borrowing, all of that money has a date for destruction. That is, every dollar borrowed must be paid back, when it's paid back, the promise that created it, vanishes. So each year, there is money added and money removed. This is at the heart of the problem. We're reaching the point that we have to borrow just to pay off debts before we can use the borrowed money for productive uses. I think this is called monetizing debt (like using a credit card to pay off a credit card). I don't think this is at all efficient or sustainable. If government were to simply create money and circulate it, it would never have to remove that money at a future date to pay off a debt.

That doesn't mean that money create by government would be "easy". If the government prescribed to a price level formula and were bound by the Constitution to maintain near 0% inflation with the exception of "programmatic exceptions" (exceptions designed to deal with system shocks that would allow for temporary exceptions).

The problem is not that the money supply is increasing, if it didn't we would be in a perpetual state of deflation (assuming the population rises each year). The problem is that the money supply is outpacing productivity. Having said that, I'm not convinced that GDP is an accurate measure of productivity as much of the increase in GDP takes place in the financial sector where few "average Americans" have access.
 

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This statement is a mere assertion that makes a claim that's so vague it's difficult to respond to.....
It's not an assertion. It's a fact that 100% efficiency has to be reached or taxes has to increase to keep inflation at a minimum.





I don't ascribe to a group, or place labels on my thoughts. If I agree with a particular view, I'd point out that ideas don't have owners.
All ideas have owners or you wouldn't have differing economic views, political views or your own views (thoughts).



My comment in regards to money supply. Increasing the money supply is bad when unemployment is low and productive capacity is near maximum, however, if there is high unemployment and a surplus of productive capacity, then increasing the money supply can have positive effects.
And this has been completely disproved by what is known as Stagflation.



First, your forgetting something important, while a lot of money is introduced through borrowing, all of that money has a date for destruction. That is, every dollar borrowed must be paid back, when it's paid back, the promise that created it, vanishes. So each year, there is money added and money removed. This is at the heart of the problem. We're reaching the point that we have to borrow just to pay off debts before we can use the borrowed money for productive uses. I think this is called monetizing debt (like using a credit card to pay off a credit card). I don't think this is at all efficient or sustainable. If government were to simply create money and circulate it, it would never have to remove that money at a future date to pay off a debt.
Borrowing specifically is not whats being talked about here. Monetizing debt is not using a credit card to pay off a credit card. That's actually rolling over debt as the debt still exists and a large part of US Government policy. Monetizing debt is this.


That doesn't mean that money create by government would be "easy". If the government prescribed to a price level formula and were bound by the Constitution to maintain near 0% inflation with the exception of "programmatic exceptions" (exceptions designed to deal with system shocks that would allow for temporary exceptions).
The term easy money means when the Fed (or even US Government) pushes up the money supply (monetizing debt or lowering fixed rates), thus lowering open market interest rates for consumers and banks to borrow more "easily".


The problem is not that the money supply is increasing, if it didn't we would be in a perpetual state of deflation (assuming the population rises each year). The problem is that the money supply is outpacing productivity. Having said that, I'm not convinced that GDP is an accurate measure of productivity as much of the increase in GDP takes place in the financial sector where few "average Americans" have access.
Oh wow.. Deflation (decrease in general prices) is not a bad thing, nor is Disinflation (no increase in general prices). As it happens all the time, computers, tvs, cell phones have all gone through price deflation and it didn't kill those industries..SO it's a common misconception peddled and accepted by the masses due to the Great Depression. The reason why inflation is a "good" thing to most is because inflation brings down the real value of money over time. Basically meaning the debt Uncle Sam, Consumers and yourself hold today will be "cheaper" next year because you will be paying it back with dollars valued less then what you borrowed.

Fed policy is 3% inflation is a good buffer that won't "effect" the economy but as it gets higher it has a bigger effect as it would prevent consumers spending more. Now why can't you have up to 3% deflation then? If 3% inflation is good, how is 3% deflation bad? If the justification for inflation at 3% is it has no effect, then 3% deflation should have no effect as well. http://mises.org/daily/4618/

But as I said earlier.. inflation is only good for debt burden countries.

Now money supply will increase as population increases but there is a "natural" mechanism for that and it's called Fractional Reserve Banking. There is no reason for the Fed to increase the money stock every year with this mechanism.
 

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All ideas have owners or you wouldn't have differing economic views, political views or your own views (thoughts).
That is absurd....An idea is an opinion. Now some opinions carry more weight than others, but it's still an opinion and no one "owns" it.

And this has been completely disproved by what is known as Stagflation.
Not sure how stagflation disproves anything in regards to what I said.

The term easy money means when the Fed (or even US Government) pushes up the money supply (monetizing debt or lowering fixed rates), thus lowering open market interest rates for consumers and banks to borrow more "easily".
Again, if the money is lent during a period of high unemployment and low utilization of productive capacity, then increased spending can move the economy forward. Now I'd like to make it clear, I don't necessary support this idea, but speaking from a clearly hypothetical point of view.


Oh wow.. Deflation (decrease in general prices) is not a bad thing, nor is Disinflation (no increase in general prices). As it happens all the time, computers, tvs, cell phones have all gone through price deflation and it didn't kill those industries..SO it's a common misconception peddled and accepted by the masses due to the Great Depression. The reason why inflation is a "good" thing to most is because inflation brings down the real value of money over time. Basically meaning the debt Uncle Sam, Consumers and yourself hold today will be "cheaper" next year because you will be paying it back with dollars valued less then what you borrowed.

Fed policy is 3% inflation is a good buffer that won't "effect" the economy but as it gets higher it has a bigger effect as it would prevent consumers spending more. Now why can't you have up to 3% deflation then? If 3% inflation is good, how is 3% deflation bad? If the justification for inflation at 3% is it has no effect, then 3% deflation should have no effect as well. Is Deflation Really Bad for the Economy? - Frank Shostak - Mises Daily

But as I said earlier.. inflation is only good for debt burden countries.

Now money supply will increase as population increases but there is a "natural" mechanism for that and it's called Fractional Reserve Banking. There is no reason for the Fed to increase the money stock every year with this mechanism.
Well, like everything there is macro and micro....Deflation in certain industries would be considered micro deflation, just like rampant borrowing caused micro inflation in housing. What I'm referring to is macro deflation, and it is just as destructive as inflation. They both cause uncertainty. Inflation makes me want to spend my money now, before it's worth any less, deflation makes me question if I should make a purchase because holding on to my money might mean I'll be able to buy more with it later. In an economy that relies on spending, people holding their money and delaying purchases would be destructive.

Deflation causes wages to rise and can cause layoff and unemployment in some cases, though I admit there are a lot of variables.
 

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You actually have to in the world of MMTers. The "class" that's being peddled here is taught by a closet MMTer. Any inefficiency would cause unaccounted inflation.
The guy is not an MMT'er and you misrepresent MMt in any chance you get and bring it up whenever I post, lol Can't address the actual facts, change the subject!
 

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Sep 24, 2012
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You actually have to in the world of MMTers. The "class" that's being peddled here is taught by a closet MMTer.
INET is certainly heterodox, but isn't affiliated that strongly with MMT really, and Perry Mehrling himself doesn't associate with the mainstream schools anyway. When asked about his intellectual affiliation, he answers that there's two lines of thought he most associates himself with, and these are the Americans: Allen Young (esp), Alvan Hanson, Edward Shaw, Hyman Minsky, and the UK tradition: Bagehot (esp), Hawtrey, Ralph Sayers, and Charles Goodhart.
 
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