Overt Monetary Financing

[JohnfrmClevelan]

For those of you who worry about our national debt, hyperinflation, etc. - here is something that should ease your minds:

OMF is when the govt. simply issues dollars without debt.

...Monetary finance of increased fiscal deficit will always stimulate aggregate
nominal demand: in some circumstances it will be a more certain and/or less risky way to
achieve that stimulation than any alternative policy lever: and the scale of stimulus can be
appropriately calibrated and controlled – there is no knife edge nonlinearity which makes
dangerously high inflation inevitable.

But it is also clear that great political risks are created if we accept that monetary finance is
a feasible policy option: since once we recognise that it is feasible, and remove any legal or
conventional impediments to its use, political dynamics may lead to its excessive use.

The most important question relating to monetary finance is therefore whether it is possible
to construct a set of rules and responsibilities which will guard against its dangerous misuse,
while still enabling its use in appropriate quantities and in appropriate circumstances. But
the majority of this paper is still devoted to making the technical case, since the fact of
technical feasibility and desirability is still not universally accepted within the economics

The Case for Monetary Finance – An Essentially Political Issue

It's a long PDF, but we have already talked about much of what is in there.

Scroll down to the bottom for charts and figures, starting on page 37.

Some more background reading:

Overt Monetary Financing – again (directly discusses the paper)

Good idea, or not?

 

[austrianecon]

Adair Turner is full of **** and assumes alot.

So you eased nothing but circle-jerk of ignorance.

 

[mmi]

Adair Turner … assumes alot.

Britton's objection seems to be that the gubmint would expect the action to be repeated. That's like saying a recommended surgery shouldn't be performed … because the patient will want it done over and over. And fwiw (nothing of course), I'm sure yer use of "alot" isn't a typo, but rather lousy English language skills.

>>So you eased nothing but circle-jerk of ignorance.

At first, I thought you were describing the James-Conservative-MR exchange.

Chancellor fears inflation in an era where it won't develop. The Fed's policy is proper and effective, and if RWers are kept out the way the unwinding should be accomplished without any great difficulty. In fact, it's already underway.



See much inflation out there? CBO's forecast is for two percent annually over the next ten years. All yer BS will sure look stoooopid if they're correct.

 

[austrianecon]

Britton's objection seems to be that the gubmint would expect the action to be repeated. That's like saying a recommended surgery shouldn't be performed … because the patient will want it done over and over. And fwiw (nothing of course), I'm sure yer use of "alot" isn't a typo, but rather lousy English language skills.

Miss of the space bar (keyboard needs to be replaced). But no, the analysis is that the Government can't do it either way. You can't write of debt which is owned to the masses without destroying the masses.

At first, I thought you were describing the James-Conservative-MR exchange.

Chancellor fears inflation in an era where it won't develop. The Fed's policy is proper and effective, and if RWers are kept out the way the unwinding should be accomplished without any great difficulty. In fact, it's already underway.

View attachment 67207337

See much inflation out there? CBO's forecast is for two percent annually over the next ten years. All yer BS will sure look stoooopid if they're correct.

And you'd look like eejit if you are wrong. I'd rather be wrong with 2% over 10 years then wrong over 10 years at have unknown inflation. But alas you are willing to bet the farm on a fantasy on. :lol:

 

[mmi]

Miss of the space bar (keyboard needs to be replaced).

Quite the coincidence that the space bar didn't work in that same string five times in this thread alone:

www.debatepolitics.com/sports-talk/246998-mlb-2016-thread.html

Yes, I did run a search on yer username and alot. Twenty-eight threads. I searched on the first one in the list — five "alots."

As I often say, these posts are informal communications and not legitimately subject to demands for precise language usage. I was just joking (sort of) in light of the ""Being naive and gullible" discussion in the Explaining Federal Deficits thread. It's a shame you don't just acknowledge that you seem to use alot … a lot. It's non-standard, but completely acceptable in this context.

My advice to people is that things like this are nothing to be concerned about … unless they becomes a habit that you fail to recognise and then allow to seep into yer more more formal writings. The good news is that a spellchecker should catch it.

So yer an Orals fan? You have my sympathies. Gausman pitched as good a game as I've seen in a very long time the other day, and Britton (the closer, not the financial consultant) was lights OUT, but it looks like you guys just don't have enough starting pitching.

Heartbreaker last night with Hanley's heroics and yer rally falling short, eh? Maybe next year. ☺

>>But no, the analysis is that the Government can't do it either way. You can't write of debt which is owned to the masses without destroying the masses.

Fwiw, I'm not at all familiar with the proposal, and I don't feel at all qualified to evaluate it, but from my skim of that piece, I correctly identified Britton's objection.

>>And you'd look like eejit if you are wrong.

It's CBO's forecast, not mine.

>>alas you are willing to bet the farm on a fantasy on.

I haven't said I support the idea. I'm wondering if we could try doing a little to see what happens. Tbh, I don't at this point see how it would make any difference one way or the other. Apply liberal policies and avoid RW SSE crap — we should be fine.

 

[JohnfrmClevelan]

Adair Turner is full of **** and assumes alot.

Britton fails on a couple of points right out of the box. First, he fails to understand that those "perpetual bonds" (not really the subject of the thread, but...), like dollars, are still government liabilities, and as such they are not "writeoffs" at all. They are simply an exchange of one type of liability for another. Nobody has lost out. Hell, they still earn interest, just like reserves do anyway (in our system). Second, his bigger point is that we should be happy that the government wrongly believes that they are constrained by the bond market, and that we are better off being led by ignorance than by a government that would at least understand the real constraints they are actually under - real resources. That we are better off with poverty and high unemployment than with the mere possibility of inflation, which, as mmi pointed out, we are nowhere near. And that threat of inflation is never explained to boot.

So you eased nothing but circle-jerk of ignorance.

I, like most posters here, are not subscribers to the WSJ, so I can't comment on your other link.


What it all comes down to is that you, or somebody else, needs to demonstrate that OMF would lead to inflation.

 

[Kushinator]

Good idea, or not?

If government could function properly, and not operate entirely on ideological binds, this discussion would be fruitful.

 

[mmi]

I, like most posters here, are not subscribers to the WSJ, so I can't comment on your other link.

AM, not are! ☺

On a page like that, you can often get the content by stopping the page load before it does whatever it does to hide the content. An alternative is to look in the page source (CTRL-U). Running a find on a snippet of text that does get displayed, or on a page like this just on PARAGRAPH tags (<p>) can get often get the text. WSJ wants subscribers, but they don't go nuts hiding content.

View attachment Chancellor.txt

 

[JohnfrmClevelan]

If government could function properly, and not operate entirely on ideological binds, this discussion would be fruitful.

I'm hoping for a Sanders-like shift in ideology, and I'd be happy if some of the current economic thinking end up in the trash heap at the same time.

 

[JohnfrmClevelan]

AM, not are! ☺

yeah, %$#@^&!. I try hard to get spelling and grammar right. Drives me nuts when I see mistakes and it's too late to edit them.

On a page like that, you can often get the content by stopping the page load before it does whatever it does to hide the content. An alternative is to look in the page source (CTRL-U). Running a find on a snippet of text that does get displayed, or on a page like this just on PARAGRAPH tags (<p>) can get often get the text. WSJ wants subscribers, but they don't go nuts hiding content.

Worked! Thanks for the tip.

 

[JohnfrmClevelan]

So you eased nothing but circle-jerk of ignorance.

Now that I was able to read the article (with mmi's help), why do you believe that higher interest rates would solve our problems? To me, it just seems like more money for banks, more interest paid to banks by the government, and less overall economic activity.

 

[mmi]

why do you believe that higher interest rates would solve our problems?

My thought exactly. RW ideological dogma, seems to me. I figure our approach may be a little boring (no talk about five percent growth), but I think it's more viable. Of course, you may well see me as being overly cautious.

 

[JohnfrmClevelan]

My thought exactly. RW ideological dogma, seems to me. I figure our approach may be a little boring (no talk about five percent growth), but I think it's more viable. Of course, you may well see me as being overly cautious.

I just don't see the upside of high interest rates at all. It's a giveaway from the government to the banks (and to savers, a bit). And when has decreased economic activity ever helped an economy?

I also think that Volcker's approach to combating inflation with high interest rates was stupid.

 

[mmi]

Volcker's approach to combating inflation with high interest rates was stupid.

Oh I agree. I'm just saying that I know I'm stridently frugal in my approach to personal finances, and I figure that affects my attitudes toward fiscal policy. I want to invest, but my preferred levels would likely be short of optimal.

I don't concern myself much about it though, cuz how much influence is our side gonna have on the budget process? We'll likely need to fight to the death to get much of anything.

 

[Kushinator]

On a page like that, you can often get the content by stopping the page load before it does whatever it does to hide the content. An alternative is to look in the page source (CTRL-U). Running a find on a snippet of text that does get displayed, or on a page like this just on PARAGRAPH tags (<p>) can get often get the text. WSJ wants subscribers, but they don't go nuts hiding content.

I use a script to remove page cleaning via grease monkey. Works like a charm on virtually every restricted website.

 

[Visbek]

At a quick pass, and having already read similar discussions about helicopter money, I'd say I agree with some parts of Turner's arguments, but on the whole disagree.

In particular, the general tenor (we could engage in monetary financing during a severe liquidity crisis, without causing harmful inflation) is probably correct. E.g. Japan could probably engage in some type of monetary financing without causing hyperinflation or otherwise decimating its economy.

However, I think the article underplays some of the risks. In particular, we need to emphasize:
- It will be difficult for governments to restrain themselves from overuse
- It could be detrimental to confidence in the national banks
- It could discourage better options like traditional stimulus

While he is aware that monetary finance could undermine the system, I think he overestimates the ability to restrict its use.

In other words, I think that by the time an economy is in such bad shape that monetary finance is actually a feasible option, it's probably going to be too late to use it.

 

[Kushinator]

I also think that Volcker's approach to combating inflation with high interest rates was stupid.

It worked!

 

[mmi]

I use a script to remove page cleaning via grease monkey.

Bah! Where's the fun in that? I like old-fashioned, hands-on surgery. Don't need nor want no machine that goes "Ping!"

It worked!

Toward what end? Precipitating a severe recession?

 

[Visbek]

I just don't see the upside of high interest rates at all. It's a giveaway from the government to the banks (and to savers, a bit). And when has decreased economic activity ever helped an economy? I also think that Volcker's approach to combating inflation with high interest rates was stupid.

And yet, Volcker's policies worked.

Inflation was too high in the 70s, and the economy as a whole was not doing well, notably unemployment was high - hence "stagflation." The Fed was trying to stimulate the economy with low rates (with big cuts in 1970 and 1974, but it was backfiring as it exacerbated the asset-based (oil) inflation. The situation defied the understanding of many economists... then and now.

Increasing interest rates did cause a painful recession, but it also helped get inflation under control, and the economy bounced back fairly quickly. At that point, the Fed was able to reduce rates to a more normal level (6-8%).

 

[Kushinator]

Toward what end? Precipitating a severe recession?

Between 1967 and 1979, the Federal Reserve allow inflation expectations to reach levels that were dangerous to long term economic growth. The central bank has an obligation to reign in inflation, and by the time it was far too out of hand, extraordinary steps had to be taken.

 

[JohnfrmClevelan]

It worked!

How? Was inflation caused by too much economic activity? I have a hard time buying into that.

 

[mmi]

Increasing interest rates did cause a painful recession, but it also helped get inflation under control

There were two rounds of jacked-up rates — the second was unnecessary and very destructive.

>>the economy bounced back fairly quickly.

Unemployment above seven percent until Nov 1986.

>>At that point, the Fed was able to reduce rates to a more normal level (6-8%).

The prime rate was above eight percent until the summer of '86. The effective fed funds rate was above eight percent until May '85, and above seven percent until Apr '86.

 

[JohnfrmClevelan]

And yet, Volcker's policies worked.

Inflation was too high in the 70s, and the economy as a whole was not doing well, notably unemployment was high - hence "stagflation." The Fed was trying to stimulate the economy with low rates (with big cuts in 1970 and 1974, but it was backfiring as it exacerbated the asset-based (oil) inflation. The situation defied the understanding of many economists... then and now.

Increasing interest rates did cause a painful recession, but it also helped get inflation under control, and the economy bounced back fairly quickly. At that point, the Fed was able to reduce rates to a more normal level (6-8%).

But that doesn't explain how raising interest rates helped solve the problem. We had a gas crunch, which explains (some of) the inflation, and probably the unemployment, too. Fed rates were all over the place in the 70's, but relatively high even before Volcker's action. That also adds to cost.

Pin far more of the blame on oil prices, and it makes more sense.

 

[Kushinator]

How? Was inflation caused by too much economic activity? I have a hard time buying into that.

A mixture of poor fed policy and, as Romer and Romer put it in their 1989 paper Does Monetary Policy Matter, inflation scares.

 

[austrianecon]

Quite the coincidence that the space bar didn't work in that same string five times in this thread alone:

www.debatepolitics.com/sports-talk/246998-mlb-2016-thread.html

Yes, I did run a search on yer username and alot. Twenty-eight threads. I searched on the first one in the list — five "alots."

As I often say, these posts are informal communications and not legitimately subject to demands for precise language usage. I was just joking (sort of) in light of the ""Being naive and gullible" discussion in the Explaining Federal Deficits thread. It's a shame you don't just acknowledge that you seem to use alot … a lot. It's non-standard, but completely acceptable in this context.

My advice to people is that things like this are nothing to be concerned about … unless they becomes a habit that you fail to recognise and then allow to seep into yer more more formal writings. The good news is that a spellchecker should catch it.

LOL! It is informal communication here so I don't worry about mundane stuff. Only issue I have is when people use Figuratively and Literally wrong.

So yer an Orals fan? You have my sympathies. Gausman pitched as good a game as I've seen in a very long time the other day, and Britton (the closer, not the financial consultant) was lights OUT, but it looks like you guys just don't have enough starting pitching.

We'll be fine.

It's CBO's forecast, not mine.

That makes it even worse.. CBO is rarely right.

I haven't said I support the idea. I'm wondering if we could try doing a little to see what happens. Tbh, I don't at this point see how it would make any difference one way or the other. Apply liberal policies and avoid RW SSE crap — we should be fine.

But what if the issue is a Supply side problem?