• This is a political forum that is non-biased/non-partisan and treats every person's position on topics equally. This debate forum is not aligned to any political party. In today's politics, many ideas are split between and even within all the political parties. Often we find ourselves agreeing on one platform but some topics break our mold. We are here to discuss them in a civil political debate. If this is your first visit to our political forums, be sure to check out the RULES. Registering for debate politics is necessary before posting. Register today to participate - it's free!

MMT False Counterpoint #1 - Inflation/Hyperinflation

Absentglare said:
I don't agree that creating dollars destroys a currency.

Let's say the government prints money so as to multiply every person's worth by 10. We may find that something that used to cost $2 now costs $20. Did our currency lose value ? In a relative sense, yes. But our GDP, inflation adjusted, might be exactly the same. Our GDP, in raw dollars, might be 10x as high.

Did anyone actually lose anything ? Obviously not. The point i'm trying to make is that the value of money is based on the production you can buy with it. Exchange rates would change, but we wouldn't be any richer or any poorer. We'd just have more dollar bills floating around.
Click to expand...

Either I am not saying this right or you are intentionally trying to ignore monumental facts.

We issue bonds, you do not get to escape that because of economic theory. No matter if you agree or not with the purpose of a bond, the reality is bond auctioned to the public are a way for the government to issue an IOU to someone other than itself. In this case the borrower, the government, makes a legal promise to pay back the borrowed amount at a future date with interest.

It would be both misleading and naive to assume the US government does not honor prior issued bonds. Irregardless if you remember the history of 1814 and 1979, the US rarely defaults on debt. It may get rolled, it may get manipulated, it may be honored with newer issued debt... but we auction debt all the time. In fact, below is the tenative schedule taking us through 2016 Q2.

https://www.treasury.gov/resource-c...er/quarterly-refunding/Documents/auctions.pdf

Again, no matter what your logic is on taking our money supply to 10x... the fact remains that even by MMT standards we have a potential issue in size of economy relative to money supply. Moreover, and using Krugman's argument... and paraphrased by me...

Under non-liquidity-trap conditions what matters is the reason for the government to either issue bonds or rely on the printing presses to handle deficit conditions. Even though it is technically true that a government in complete charge of its own currency cannot go bankrupt what it can do it destroy fiscal credibility (and by extension monetary policy credibility) by making choices devoid of investment sentiment.

If you discard investment sentiment for whatever theoretical reason (MMT or otherwise) the natural and probable economic response to a 10x increase in the money supply is inflation. The problem is you have zero economic theory supported reason (again, even by MMT standards) to assume you can control inflation to a precise and equal 10x target. Even on a college blackboard where you check at the door various realities on all modern Fiat monetary systems.

Why?

The US Dollar is not operating in a vacuum. Again like it or not, the US dollar competes against a basket of world currencies all with their own monetary policy and motivations for them. Like it or not the US Dollar is used in more places than just in this nation. And similar to above you do get to discard *FACT* for theory that is not entirely installed as the sole monetary policy guidance economic theory in any nation's money system on this planet including the US. Reserve status, use as a basis for world trade of some commodity, exchange rate, etc... you do not get to discard all that *FACT* for theory.

So you are wrong, even by theory, the value of money is not entirely and solely based on the production you can buy with it. Supply and demand makes an impact, but so does our currency value in relation to others.

Same conclusion... if you were right, at all, with your theory the US would not issue the first bond. As in ever.
 
Absentglare said:
Yeah, i tried to avoid the erosion of savings by saying that the government would hand out the new dollars based on worth.

I was basically trying to say that if every dollar amount was multiplied by 10 courtesy of Uncle Sam, the only thing that would change are the numbers. Nobody would actually be any less poor. While i can understand why drastic instability could be perceived as eroding our dollars credibility, i am skeptical to how that would translate into being bad for us.

And i think a small amount of inflation is a good thing, it can help to apply some pressure to spend or ensure that savings is invested.
Click to expand...

Ok, that makes a little more sense, but are you talking about EVERY dollar all over the world? If so I agree but it just becomes a math exercise and really is probably an example of "perfect" hyperinflation, and I'm not sure where the argument goes from there. I think OS might have taken you to mean a 10x increase only domestically which from a debate standpoint probably makes more sense as you're pushing domestic production at that point but 10x is in the relm of hyperbole. I don't think you meant it that way, but I do see the confusion.
 
pdog said:
Ok, that makes a little more sense, but are you talking about EVERY dollar all over the world? If so I agree but it just becomes a math exercise and really is probably an example of "perfect" hyperinflation, and I'm not sure where the argument goes from there. I think OS might have taken you to mean a 10x increase only domestically which from a debate standpoint probably makes more sense as you're pushing domestic production at that point but 10x is in the relm of hyperbole. I don't think you meant it that way, but I do see the confusion.
Click to expand...

I simply meant to say that if we shifted the decimal point to the right, everywhere, overnight (some kind of magical, spontaneous, international, dramatic, perfectly-uniform hyperinflation) it wouldn't really change much. As long as everything goes up evenly, inflation, itself, isn't necessarily a serious problem. It seems possible to me that it wouldn't change much.

I didn't respond to OS's comment yet because i want to consider it more later. I suspect that i misunderstood something, but what i really wonder about is the question of whether the size of the economy relative to the money supply is important. I guess what i'm more worried about is the change in the size of the money supply compared to the change in the size of the economy. The static sizes of the two don't worry me, but a scenario where the economy is contracting and yet the money supply keeps increasing would be undesirable. My suspicion is that such a scenario would still be undesirable if the money supply were constant.
 
pdog said:
There is no more truth to it than if I say my car only has 6 gallons of gas in it and ask you if I'll make it to my destination. You simply cannot answer the question without additional context and inflation is the same way. You CANNOT talk about inflation in terms of money supply alone.
Click to expand...
Yes, but I can tell you that at some point you will run out of gas. You cannot expect to drive forever on the basis that well.... we don't know how much gas we have so let's just assume it's infinite.


pdog said:
To be fair, I made a mistake by saying "defined" and should have said "caused". I had the context correct when referring to consensus causes, but did mess up the statement. Sorry. Does this change your argument?
Click to expand...
No, I agree that the things you mentioned can cause inflation, but those situations aren't really what we're referring to.

pdog said:
But unless we get into hyperbole, I hardly see that as a bad thing.
Click to expand...
But that's the real question. There is no debate that what I'm saying is correct "at some point." The real question is..."what is that point?" What can we get away with before we see a backlash? Nobody knows that point. I'm fine with inching towards it, but you better be very careful. If you cross that line we could be ****ed.

pdog said:
You've muddled your point by throwing currency exchange into the argument. What are you trying to say? There is nothing stopping any monetarily sovereign country from creating their own currency. But trading that currency happens in the markets. If they wanted 52.2 Trillion dollars they'd have to find somebody that ALREADY HAD dollars that wanted pesos instead and that has nothing to do with currency creation. Whether or not 900T new pesos would be inflationary or not depends on if there is 900T pesos worth of new productive capacity in mexico.
Click to expand...

It's not muddling. It's pointing out reality. The only reason America gets away with this is because we're America and people want American Dollars. Other countries won't be able to get away with it. But they will get angry at the fact that they can't. You'll have to deal with the fall out from that anger. It may be significant.
 
OrphanSlug said:
The US Dollar is not operating in a vacuum. Again like it or not, the US dollar competes against a basket of world currencies all with their own monetary policy and motivations for them. Like it or not the US Dollar is used in more places than just in this nation. And similar to above you do get to discard *FACT* for theory that is not entirely installed as the sole monetary policy guidance economic theory in any nation's money system on this planet including the US. Reserve status, use as a basis for world trade of some commodity, exchange rate, etc... you do not get to discard all that *FACT* for theory.
Click to expand...

Stop me if I'm not reading you right.

So the most basic policy prescription of MMT is a Job Guarantee, funded either by taxing the rich and/or deficit spending. More money, and more debt, resulting in more jobs and more prosperity. Since this alone probably isn't enough to get labor back to its Golden Age leverage, and because money trickles up, this also means more saved dollars/bonds hitting the foreign exchange markets. So is this going to negatively affect the value of the dollar, and, if so, will that be outweighed by labor's gains?

Personally, I don't think that a Job Guarantee will be all that costly, seeing as it would replace most other safety net spending. Everybody overestimates how much MMTers would increase deficit spending. And I think that a stronger U.S. economy would more than offset any investor fears about some extra dollars hitting the market. But if the value of the dollar goes down a little, won't that just make our exports more attractive, and imports more costly? The resulting lower trade deficit should be a self-correcting force, right?
 
JohnfrmClevelan said:
So the most basic policy prescription of MMT is a Job Guarantee, funded either by taxing the rich and/or deficit spending. More money, and more debt, resulting in more jobs and more prosperity. Since this alone probably isn't enough to get labor back to its Golden Age leverage, and because money trickles up, this also means more saved dollars/bonds hitting the foreign exchange markets. So is this going to negatively affect the value of the dollar, and, if so, will that be outweighed by labor's gains?

Personally, I don't think that a Job Guarantee will be all that costly, seeing as it would replace most other safety net spending. Everybody overestimates how much MMTers would increase deficit spending. And I think that a stronger U.S. economy would more than offset any investor fears about some extra dollars hitting the market. But if the value of the dollar goes down a little, won't that just make our exports more attractive, and imports more costly? The resulting lower trade deficit should be a self-correcting force, right?
Click to expand...

Understand that my interest in economics does not mean I am a economist, I do not have a degree in this academia. I am having to consider these questions in terms of the classes I have taken and the reading I have done since. Please, bear with me...

As I understand it one of the basic tenets of MMT is the goal of resource utilization through a better understanding of modern fiat money systems (i.e. the dynamics of economic and monetary policy on a mixed economic model such as ours.) One aspect of resource utilization is the labor market. Some of the MMT literature suggests a "Job Guarantee" as an economic policy, that really is a living minimum wage but characterized as an open ended public employment program. The idea being that at a minimum everyone has enough income to then have healthy participation in the economic model, especially one like ours that is mostly services and consumer debt based.

The question then becomes "more money" in relation to the economy size (level of system dependency notwithstanding.)

What I was challenging to the post you quoted was the ability of any economic/monetary policy combination increasing the money supply 10x but also having the absolute ability to ensure inflation hits and stays at 10x (instance based.) I do not consider that wise policy, I do not even think MMT suggests that. I would argue what Krugman argues that changing the money supply by "issuing bonds or has to rely on the printing press" without the economic growth needed would lead to an inflation that is not controllable. Krugman back in 2010 called that a method to hyperinflation. I am not skilled enough in economics to be able to model out how bad inflation would be by increasing the money supply 10x with no input on economic change, but I have real reservations that inflation would be explicitly linear.

Your question on swapping current social safety nets for a minimum living wage arrangement will still have a cost increase overall. I agree with you that conservative economists opposed to MMT are probably going to overstate that cost, but I would offer it will be impossible to ensure the swap ends up at the same cost. All social safety net benefits are not equal, yet the idea of a minimum living wage would be equal at the lowest level.

Also to your other questions, I am unsure I can model out exactly what increased economic policy debt based spending would do to the value of the US Dollar on the open market. If we rely on printing as a means to handle our increased debt based spending of course there will be negative value impact to the dollar, the longer we do it the more impact it will have. What I cannot do is attest to the idea that the change in dollar value will be one-to-one relational to trade deficit. And neither can you.

Why? You are still ignoring investor sentiment and really international movement of goods and services. No matter if the government relies on the printing machines or bonds our currency still competes and is subject to investment sentiment. Assuming the US goes at this alone with all other nations (or groups of nations, EU) going as is we cannot be for certain how much inflation harms us. But it would be foolish to assume there would be enough offset in trade disposition because we are not operating in a vacuum devoid of that investment sentiment. If trade balances change it would also be foolish to assume business makes no changes because of.

This is why I tend to agree with those critical of MMT, there is a purposeful intention by MMT to ignore investment. The risk is oversimplifying economic/monetary policy impacts. Krugman said that as well, I think he is right about that. How can you be for certain that as a government it can exert enough control to ensure targets? It seems a little fantasy thinking to me to assume these conclusions and leaving all other elements as constants.
 
MrWonka said:
Yes, but I can tell you that at some point you will run out of gas. You cannot expect to drive forever on the basis that well.... we don't know how much gas we have so let's just assume it's infinite.
Click to expand...
You're completely changing my point from lack of information and context to a nonsensical analogy. Oil is finite. Numbers (and the currency those numbers track) are not.


But that's the real question. There is no debate that what I'm saying is correct "at some point." The real question is..."what is that point?" What can we get away with before we see a backlash? Nobody knows that point. I'm fine with inching towards it, but you better be very careful. If you cross that line we could be ****ed.
Click to expand...
No, that IS the debate. As long as deficit spending does not outpace growth over the long term, there is no "at some point" it CAN go on forever. That said, NOBODY is saying that there are not bounds to the rate of deficit spending (the biggest one being inflation from outpacing resources). But we are saying that growth of the money supply alone, does not cause inflation. It's in the wikipedia article. This is not a concept that belongs solely to MMT. It is simple economics.

It's not muddling. It's pointing out reality. The only reason America gets away with this is because we're America and people want American Dollars. Other countries won't be able to get away with it. But they will get angry at the fact that they can't. You'll have to deal with the fall out from that anger. It may be significant.
Click to expand...
This has NOTHING to do with currency exchange. Other monetarily sovereign nations absolutely can do it. I'm going to repeat, NOBODY, believes that there are not limits to creating currency. What we are saying that inflation is one of the limits, but you will struggle to find any economist that says its a guaranteed result solely from currency levels increasing. If you don't beleive the wikipedia article, go site your own sources and change it.
 
Moderate Right said:
Yet another dodge. Is that the only way you guys know how to answer a question?
Click to expand...

Let me explain to you - a fallacy is an error in logic that somebody hundreds or thousands of years ago classified and gave a name to in order to mitigate distracting and pointless arguments in a debate.

Pointing out a fallacy is not a dodge - it's an exercise to avoid wasting everybody's time on nonsense.
 
pdog said:
You're completely changing my point from lack of information and context to a nonsensical analogy. Oil is finite. Numbers (and the currency those numbers track) are not.
Click to expand...
Dollars may be infinite, but the value they can represent is not. If you reach a point where the quantity of money outpaces the stuff that can be purchased with it the value of the goods will go up, and the value of the purchasing power of the dollar will decline. This is inevitable, it's simply a question of how far you can push it before that happens.

pdog said:
No, that IS the debate. As long as deficit spending does not outpace growth over the long term, there is no "at some point" it CAN go on forever. That said, NOBODY is saying that there are not bounds to the rate of deficit spending (the biggest one being inflation from outpacing resources). But we are saying that growth of the money supply alone, does not cause inflation.
Click to expand...
Then I would say we're in agreement about that, but where I take issue is this notion that we could just print money to pay off the entire national debt without consequences. We might get away with that, but we might not. I would be fine with slowly printing a bit more and seeing what happens, but I would warn against pushing things to high to quickly.
 
MrWonka said:
Then I would say we're in agreement about that, but where I take issue is this notion that we could just print money to pay off the entire national debt without consequences. We might get away with that, but we might not. I would be fine with slowly printing a bit more and seeing what happens, but I would warn against pushing things to high to quickly.
Click to expand...

Both dollars and bonds are liabilities of the government. If we have $15 trillion worth of bonds outstanding and $1 trillion in cash, the government has $16 trillion in total liabilities. If we have $10 trillion worth of bonds outstanding and $6 trillion cash, the government still has $16 trillion in total liabilities. There isn't much difference between the two.

Had we never bothered with bonds, there would be $16 trillion in cash in circulation, and no "debt." Perfectly do-able if you are a sovereign government. Now, for whatever reason, you decide to offer $2 trillion worth of bonds. Investors buy the bonds, and the government takes back $2 trillion in cash; total liabilities remain at $16 trillion. Is the government now at the mercy of these bondholders? Of course not.

Whether or not the composition of those liabilities has any effect on inflation is a debatable subject, but "paying off the debt" does not add or eliminate government liabilities. Only taxation can eliminate those liabilities.
 
JohnfrmClevelan said:
Both dollars and bonds are liabilities of the government. If we have $15 trillion worth of bonds outstanding and $1 trillion in cash, the government has $16 trillion in total liabilities. If we have $10 trillion worth of bonds outstanding and $6 trillion cash, the government still has $16 trillion in total liabilities. There isn't much difference between the two.
Click to expand...
Bonds accrue interest though do they not?

JohnfrmClevelan said:
Whether or not the composition of those liabilities has any effect on inflation is a debatable subject, but "paying off the debt" does not add or eliminate government liabilities. Only taxation can eliminate those liabilities.
Click to expand...

That's just speaks back to the point I was trying to make though. Ultimately taxes will be required to pay of those debts. If the interest on your debt is greater than your growth in GDP it requires higher taxes later to cover debt down the road.
 
MrWonka said:
Dollars may be infinite, but the value they can represent is not. If you reach a point where the quantity of money outpaces the stuff that can be purchased with it the value of the goods will go up, and the value of the purchasing power of the dollar will decline. This is inevitable, it's simply a question of how far you can push it before that happens.


Then I would say we're in agreement about that, but where I take issue is this notion that we could just print money to pay off the entire national debt without consequences. We might get away with that, but we might not. I would be fine with slowly printing a bit more and seeing what happens, but I would warn against pushing things to high to quickly.
Click to expand...

Good we agree then. Nobody that I've seen support MMT has said anything close to recommending paying off the national debt. Most of us know that makes no logical sense. It's like your bank with your savings account demand that you take your cash back. China doesn't lend us their dollars, they SAVE them in the form of bonds so they can get a lousy interest rate on the dollars they don't want to spend. You want to force them to take back dollars? You think it would be good for our currency if we force people to further exposure to inflation?
 
MrWonka said:
Bonds accrue interest though do they not?
Click to expand...

Yes they do. But the interest doesn't cost the government anything in real resources.

MrWonka said:
That's just speaks back to the point I was trying to make though. Ultimately taxes will be required to pay of those debts. If the interest on your debt is greater than your growth in GDP it requires higher taxes later to cover debt down the road.
Click to expand...

But we don't want to "pay off" these government liabilities. Those govt. liabilities include MB, which is reserves + cash. It is necessary stuff. And the government doesn't even break a sweat when it holds those liabilities indefinitely.

Let's say we paid off all government liabilities by eventually running about $15 trillion in government surpluses. That $15 trillion comes right out of taxpayer pockets. It doesn't get clawed back from China, Japan, and Saudi Arabia. Now consider that the only money we would have is M1, bank-created credit. As M1 is the product of loans, and is extinguished as those loans are paid off, there is no "net" M1. For every dollar saved by, say, China, some debtor would still be paying on a loan. For as long as the saver held that dollar. That is not sustainable.

Government liabilities are assets in our hands.
 
pdog said:
Nobody that I've seen support MMT has said anything close to recommending paying off the national debt.
Click to expand...
The very title of the other thread we were discussing in was called "how to erase the national debt" acting like it was easy peasy Japaneasy.

pdog said:
It's like your bank with your savings account demand that you take your cash back.
Click to expand...
I think you mean to say is that it would be like we are a bank asking our customers(China) to take it's money back.
 
OrphanSlug said:
What I was challenging to the post you quoted was the ability of any economic/monetary policy combination increasing the money supply 10x but also having the absolute ability to ensure inflation hits and stays at 10x (instance based.) I do not consider that wise policy, I do not even think MMT suggests that. I would argue what Krugman argues that changing the money supply by "issuing bonds or has to rely on the printing press" without the economic growth needed would lead to an inflation that is not controllable. Krugman back in 2010 called that a method to hyperinflation. I am not skilled enough in economics to be able to model out how bad inflation would be by increasing the money supply 10x with no input on economic change, but I have real reservations that inflation would be explicitly linear.
Click to expand...

I was NOT taking a policy position of any kind.

I was engaging in a thought experiment. I was intending to explain that inflation that results *only* from an increase in the money supply isn't necessarily all that bad.

The fact is, if the government has useful ways of spending money, there is little justification to avoid doing out of fear of something that isn't really all that bad, anyway.
 
Absentglare said:
I was NOT taking a policy position of any kind.

I was engaging in a thought experiment. I was intending to explain that inflation that results *only* from an increase in the money supply isn't necessarily all that bad.

The fact is, if the government has useful ways of spending money, there is little justification to avoid doing out of fear of something that isn't really all that bad, anyway.
Click to expand...

Actually it very well can be very bad.

Again, the US Dollar is not operating in a vacuum. For the last time, our currency competes and is subject to investment sentiment. It is possible lose fiscal and monetary policy credibility because of actions devoid of these factors you *continually* ignore.

The thought exercise is compelling, just as compelling as the rational that any nation that has absolute control over their currency cannot go bankrupt. However, reality sets in for the very reasons I have been mentioning with just about every post.
 
OrphanSlug said:
Actually it very well can be very bad.

Again, the US Dollar is not operating in a vacuum. For the last time, our currency competes and is subject to investment sentiment. It is possible lose fiscal and monetary policy credibility because of actions devoid of these factors you *continually* ignore.

The thought exercise is compelling, just as compelling as the rational that any nation that has absolute control over their currency cannot go bankrupt. However, reality sets in for the very reasons I have been mentioning with just about every post.
Click to expand...

We face no such risk, hell, has china ever faced that risk when they spend?
 
pdog said:
Good we agree then. Nobody that I've seen support MMT has said anything close to recommending paying off the national debt. Most of us know that makes no logical sense. It's like your bank with your savings account demand that you take your cash back. China doesn't lend us their dollars, they SAVE them in the form of bonds so they can get a lousy interest rate on the dollars they don't want to spend. You want to force them to take back dollars? You think it would be good for our currency if we force people to further exposure to inflation?
Click to expand...

China's interest in our debt or currency has nothing to do with earning interest lousy or otherwise.

For one they buy them from their exporters in exchange for Yuan so their exporters can do things like pay their workers and or maintain a savings of RMB

They also accumalate dollars as Forex reserves to offset the effects of China's trade surplus on their currency and can even use them as a exchange currency for Oil
 
MrWonka said:
The very title of the other thread we were discussing in was called "how to erase the national debt" acting like it was easy peasy Japaneasy.
Click to expand...
You need to go back and read that thread. It never said "paying it back".

I think you mean to say is that it would be like we are a bank asking our customers(China) to take it's money back.
Click to expand...
Same difference. If somebody voluntarily chooses to save their money, does it make any sense for the bank to change their mind and say "stuff this under a mattress instead"? You're so fixated on the loan or "borrowing" aspect, you're missing the fact that china could hold either one, dollars or bonds. Both are worth the same TODAY. The only difference is that one pays interest and another doesn't. And it's a lousy interest rate, yet china still CHOOSES to SAVE.
 
Fenton said:
China's interest in our debt or currency has nothing to do with earning interest lousy or otherwise

For one they buy them from their exporters in exchange for Yuan so their exporters can do things like pay their workers and or maintain a savings of RMB

They also accumalate dollars as Forex reserves to offset the effects of China's trade surplus on their currency and can even use them as a exchange currency for Oil
Click to expand...

I suppose you've identified some things that they do with USD directly. I'd say so what. You still didn't recognize the bonds they DID buy nor did you recognize that somebody else still holds those dollars after any exchange is done.
 
You must log in or register to reply here.
Back
Top Bottom