Your Taxes Don't Pay For Anything

[Handlethetrutb]

Lets just look at the fact the only presidents that lowered deficit in the last 40 years.

Bill Clinton Obama are the only ones that raised taxes in order to lower deficit then debt.

Both bush's and Trump spent like crazy. And gave high tax cuts that ended up as debt.

 

[JohnfrmClevelan]

Lets just look at the fact the only presidents that lowered deficit in the last 40 years.

Bill Clinton Obama are the only ones that raised taxes in order to lower deficit then debt.

Both bush's and Trump spent like crazy. And gave high tax cuts that ended up as debt.

The point of the thread is that tax receipts are not needed to fund the government. The corollary point is that debt and deficits don't really matter so much, and there is a real need for government deficit spending into the economy. So while a lot of people on the left enjoy pointing out that Republican presidents increase the deficit (and debt) more than Democrats, this extra spending is usually better for the economy than trying to decrease deficits. I'm not crazy about what Republicans spend on, as it helps the rich disproportionately, but Bush's tax rebate in 2001 was exactly the right move.

 

[fmw]

Who do we owe this debt to?

You have to ask that? We owe it to countries and people who have loaned money to the U.S. government.

 

[JohnfrmClevelan]

You have to ask that? We owe it to countries and people who have loaned money to the U.S. government.

Buying a U.S. Treasury Bond is nothing like lending $1000 to your buddy. It is basically money; if you want to spend your money, you can easily sell the bond and spend your money. There are a ton of other savers who are happy to buy and hold Treasuries. They are assets, pretty liquid ones, too. Nobody is down $1000, like when you lend money to your friend and need him to pay you back before you can spend.

The $20 trillion (or whatever it is now) in bonds held by the private sector are straight-up assets to us. Risk-free savings. And the part held by China and other countries (which isn't as much as you probably think) is just sitting there, or being used in international transactions, but doing the American economy zero harm.

Treasuries are an end in themselves; they are what people choose to hold instead of dollars. As a whole, they aren't waiting for maturity; bonds just get rolled over. Assets to the private sector, not debt.

 

[Mika-El]

All we ask is a well formed argument based on economic principles and/or empirical data.

Do you have any of that to, combat anything, that @JohnfrmClevelan has said in this thread?

Any of the theories John presented were repudiated on this thread.


Let's try break it down:

1-the rules of double entry accounting dictate that when banks create a new loan asset, they must also create an equal and opposite liability, in the form of a new demand deposit;

2-the demand deposit, like all other customer deposits, is included in central banks’ measures of broad money;

3-so in that very specific and narrow content if and when banks lend out money they "create" money but it is silly to use that term because this money was not invented or come from “spirited from thin air, it comes from a value backed by a new asset backing the" new" money-so in fact the money we are talking about is being recycled or recirculated to create new value to it but it already existed, its value is what changes;

4-the so called creation of money by commercial banks through lending is the recirculating it to add to its value by charging interest on its pay back and so is dependent on the borrower’s ability to repay the loan with interest when it is due-yes there we go again the word interest a word John skips over;

5-in the real world commercial banks’ ability to create money is constrained by capital- if and hen a bank creates a new loan, with an associated new deposit, the bank’s balance sheet size increases, and the proportion of the balance sheet that is made up of equity (shareholders’ funds, as opposed to customer deposits, which are debt, not equity) decreases- if f the bank lends so much that its equity slice approaches zero – as happened in some banks prior to the financial crisis – even a very small fall in asset prices is enough to render it insolvent- this is why we there are government regulatory capital requirements because those regulatioons try iensure that banks never reach such a fragile position;

6-something John's world does not acknowledge is that we have to guard that banks do not lend more than the population can realistically afford to pay back which is exactly what happened in the US causing a banking collapse from lack of regulation of its banks and something Canada avoided by its regulations but then Canada at the time of our regulations had much less people than the US and a tradition of more federal intervention in banking activites than the US-in Canada our federal government has exclusive control over banks while in the US that is not the case. Canada's system is like the UK system which we based it on-so in comparisons we must appreciate these legal differences that led to many diverse bank activities and banks being created under different state laws.

7- a country's federal or central banks’ ability to create money is constrained by the willingness of their government to back them not the ability of people to pay backgthe debt,

8-in theory a central bank could literally print and crate money from thin air, i.e., without asset purchases or lending to banks yes but if it did this without asset purchases Tthe central bank would become technically insolvent unless the government was able to tax the population sufficiently which also becomes impractical as taxes reach a threshold where they would be higher than the income a person earns to pay them and this is exactly what happened in Chile to make it go bankrupt and in fact all the theories John advocates as if they are new led to many countries in South America and particularly Brazil and Argentina collapsing their economies as their governments imploded and the paper currency became worthless. We also see this repeatedly in third world countries and in countries like Spain, Greece, Italy and right now Russia.


9- central bank can create money without limit, though doing so risks inflation-commercial banks simply can’t do this

10- what I have cautioned and John is not prepared to acknowledge is that governments can't just create money because its difficu to estimate the present and future productive capacity of the respective economy to know how much to print dependent on a myriad of possible factors.

 

[fmw]

Buying a U.S. Treasury Bond is nothing like lending $1000 to your buddy. It is basically money; if you want to spend your money, you can easily sell the bond and spend your money. There are a ton of other savers who are happy to buy and hold Treasuries. They are assets, pretty liquid ones, too. Nobody is down $1000, like when you lend money to your friend and need him to pay you back before you can spend.

The $20 trillion (or whatever it is now) in bonds held by the private sector are straight-up assets to us. Risk-free savings. And the part held by China and other countries (which isn't as much as you probably think) is just sitting there, or being used in international transactions, but doing the American economy zero harm.

Treasuries are an end in themselves; they are what people choose to hold instead of dollars. As a whole, they aren't waiting for maturity; bonds just get rolled over. Assets to the private sector, not debt.

We know TReasuries aren't debt for the private sector. They are debt for government.

 

[Integrityrespec]

Obviously they aren't too concerned with tax receipts.


Can you support this with data? 2008 is the best argument that the number of dollars doesn't affect valuation.

Also, deficit spending doesn't create money, it creates bonds. Treasury issues bonds, private sector buys those bonds, and the proceeds are spent right back into the economy. More bonds, more demand, but same number of dollars. The central bank tinkers with MB as they see fit. M1 is largely out of their control, unless you believe interest rate changes matter much.


ANY kind of taxation is going to be political.

Except for when those bonds mature and have to pay out.

 

[JohnfrmClevelan]

Except for when those bonds mature and have to pay out.

Bonds mature and are paid out every day. This isn't one big loan with a balloon payment at the end.

 

[JohnfrmClevelan]

We know TReasuries aren't debt for the private sector. They are debt for government.

Well, is it real debt when the government can pay it without expending any real resources? Who, exactly, do you think is on the hook here? Can't be the citizens, because you just said (correctly) that treasuries are assets in their hands.

 

[JohnfrmClevelan]

1-the rules of double entry accounting dictate that when banks create a new loan asset, they must also create an equal and opposite liability, in the form of a new demand deposit;

2-the demand deposit, like all other customer deposits, is included in central banks’ measures of broad money;

3-so in that very specific and narrow content if and when banks lend out money they "create" money but it is silly to use that term because this money was not invented or come from “spirited from thin air, it comes from a value backed by a new asset backing the" new" money-so in fact the money we are talking about is being recycled or recirculated to create new value to it but it already existed, its value is what changes;

No, it's not being "recycled." Money created by loans is brand new. It doesn't come from anybody's account, and it doesn't come from the bank's assets. You were doing pretty good until you decided that you had to find some way to explain away the obvious truth, that banks create new money on ledgers.

4-the so called creation of money by commercial banks through lending is the recirculating it to add to its value by charging interest on its pay back and so is dependent on the borrower’s ability to repay the loan with interest when it is due-yes there we go again the word interest a word John skips over;

When have I ever "skipped over" any discussion of interest?

And of course the value of a promissory note is dependent on the borrower's ability/likelihood to repay it. Otherwise, banks wouldn't risk making the loan. I don't know what point you think you are making here, but it sure seems like you are determined to make it look like banks don't create new M1 money, when they plainly do.

5-in the real world commercial banks’ ability to create money is constrained by capital- if and hen a bank creates a new loan, with an associated new deposit, the bank’s balance sheet size increases, and the proportion of the balance sheet that is made up of equity (shareholders’ funds, as opposed to customer deposits, which are debt, not equity) decreases- if f the bank lends so much that its equity slice approaches zero – as happened in some banks prior to the financial crisis – even a very small fall in asset prices is enough to render it insolvent- this is why we there are government regulatory capital requirements because those regulatioons try iensure that banks never reach such a fragile position;

OK, couple of issues. *When banks create loans, their balance sheet expands. Correct.
*Does the proportion of equity get smaller? That depends on how much equity they gain from the new loan. Also, why would that matter?
*Bank lending does not decrease their "equity slice." Bank loans are how banks make a profit, primarily.
*Excessive lending did not cause the financial crisis, nor does bank solvency have anything to do with their "equity slice." The financial crisis was caused by a larger-than-normal bolus of bad mortgages. The banks' capital crisis was due to the subsequent dive in the value of MBSs, which most banks held as capital. And this was a problem that banks couldn't solve themselves, because other banks are the primary market when a bank needs to sell some assets and clean up its books. So the Fed had to step in and buy MBSs.

6-something John's world does not acknowledge is that we have to guard that banks do not lend more than the population can realistically afford to pay back which is exactly what happened in the US causing a banking collapse from lack of regulation of its banks and something Canada avoided by its regulations but then Canada at the time of our regulations had much less people than the US and a tradition of more federal intervention in banking activites than the US-in Canada our federal government has exclusive control over banks while in the US that is not the case. Canada's system is like the UK system which we based it on-so in comparisons we must appreciate these legal differences that led to many diverse bank activities and banks being created under different state laws.

Banks don't lend out more than borrowers can afford to pay back, because making such loans puts banks at risk. If this seems like a circular argument, that's because it is, but it's the same circular argument you just tried to make. The fact is that it is impossible to tell the future, and some safe-looking loans will default, and some lousy-looking loans will be paid off. Banks do their best to make sure they lend to creditworthy borrowers, but things happen.

 

[JohnfrmClevelan]

7- a country's federal or central banks’ ability to create money is constrained by the willingness of their government to back them not the ability of people to pay backgthe debt,

That's kind of a pointless argument, isn't it? And backwards, too?
The central bank's ability to create money by buying assets is unlimited, period. The government doesn't "back" the central bank at all; all the government does is meet its obligations, which it has no trouble doing. And even if the government, for some strange reason, stopped issuing bonds, the CB could still produce dollars by buying private sector assets, like MBSs and corporate paper.

8-in theory a central bank could literally print and crate money from thin air, i.e., without asset purchases or lending to banks yes but if it did this without asset purchases Tthe central bank would become technically insolvent unless the government was able to tax the population sufficiently which also becomes impractical as taxes reach a threshold where they would be higher than the income a person earns to pay them and this is exactly what happened in Chile to make it go bankrupt and in fact all the theories John advocates as if they are new led to many countries in South America and particularly Brazil and Argentina collapsing their economies as their governments imploded and the paper currency became worthless. We also see this repeatedly in third world countries and in countries like Spain, Greece, Italy and right now Russia.

Lots of mistakes to clean up here. Yes, CBs can operate in the red, no problem. No, the government can't do anything to "save" a technically insolvent CB, but as CBs can still operate in the red, what's there to save? They don't need rescuing. Taxation doesn't go the the central bank, it goes to the government's account at the central bank, and even then it ceases to be part of any measure of the money supply.

Finally, you have no idea why those South American economies had problems. Their problems certainly weren't connected to anything I have said in this thread anyway. Spain, Greece, and Italy are not sovereign in their own currency - they all use the Euro, and the ECB sits above countries in the Euro money hierarchy. And Russia's problems are due to near-worldwide sanctions against them. Also not connected to anything I have said in this thread.

9- central bank can create money without limit, though doing so risks inflation-commercial banks simply can’t do this

Central banks can create money without limit, but they only create money by buying assets (i.e. with a willing borrower). Central banks operate largely like any other bank - they don't add net financial assets to the economy. In fact, they remove some financial assets when they make a profit.

Commercial banks can also operationally create money "without limit," again by buying assets. But their natural limitation is the borrower's ability to repay.

10- what I have cautioned and John is not prepared to acknowledge is that governments can't just create money because its difficu to estimate the present and future productive capacity of the respective economy to know how much to print dependent on a myriad of possible factors.

Governments don't print money in response to a growing economy, so it's not a matter of forecasting and printing the "right amount" of money. Money always comes first - nothing gets produced without money up front.

 

[Mika-El]

Central banks can create money without limit, but they only create money by buying assets (i.e. with a willing borrower). Central banks operate largely like any other bank - they don't add net financial assets to the economy. In fact, they remove some financial assets when they make a profit.

Central banks like any institution that create anything have limitations. Policies do not work in a vacuum they create positive and negative effects as to the goals they seek to achieve. That is common sense.

Central banks have numerous considerations to keep in mind when they make any decisions and to say these considerations are not considered limitations is absurd.

To start with inflation and deflation a direct result of interest rates which a direct result of circulating too much money limits how much to circulate. To ignore that and pretend as you do that you can go on your merry way ignoring what inflation is and how its related to interest rates is par for your course of denial.

The rest of your comments are not relevant to the denial you make nor were they denied or debated by me.

No, it's not being "recycled." Money created by loans is brand new. It doesn't come from anybody's account, and it doesn't come from the bank's assets. You were doing pretty good until you decided that you had to find some way to explain away the obvious truth, that banks create new money on ledgers.

Every time banks loan funds to consumers and businesses you claim they "create new money" which you call "brand new" and deny is part of a recycling process. In fact, in the real world the loaned money, in turn, gets deposited back into the banking system where it gets loaned again, creating more new money. So its recycled. It didn't just appear brand new from this. Despite your constant attempts to claim money magically appears from thin air and its brand new its not.

 

[Mika-El]

That's kind of a pointless argument, isn't it? And backwards, too?

I stated that central banks and for that matter commercial banks are different in operations and unlike you I do not compare them as being similar as you do. I disassociated myself and continue to do so as to your descriptions of commercial banks and the central banks of nations. I believe your descriptions are inaccurate and I have stated why.

I did state the limitations of any government when managing its economy including borrowing and paying back debts is the extent of revenue it can collect in taxes to pay back its debts.
No its not pointless to state there are limits. Its the very point to showing why your theories are fallacious because they do not acknowledge limitations that exist.

Here are the limitations again that you deny:

1-printing more money doesn’t increase economic output – it only increases the amount of cash circulating in the economy
2-if more money is printed, consumers are able to demand more goods, but if firms have still the same amount of goods, they will respond by putting up prices. and so printing money will just cause inflation
3-inflation is a real limitation because it creates:
a- if people have cash savings, then inflation will erode the value of their savings
b-If inflation is very high, then it becomes harder to make transactions.
c-high inflation creates uncertainty and so discourage firms from investing and can lead to lower economic growth adding to less people able to pay taxes
4-governments raise money to pay their debts by charging taxes or issuing bonds-high inflation means less money left over from which people can pay taxes and
5-it means people will not buy bonds if there are high prevailing interest rates because the money made on interest on the bond will not keep up with the ever devaluing amount of money caused by inflation
6-examples of hyperinflation are Germany in 1922 and Zimbabwe during Mugabe's years

Now I note you are now talking in circles avoiding anything that does not suit your theories so I will only say this: you do not understand that the economic crisis in Span, Greece, Italy were cased by the very approach you advocate, likewise in Argentina and Brazil and to pretend as you do, that you do not know this and they are unrelated is absurd.

In fact the European sovereign debt crisis was a period where we saw several European countries suffer the collapse of their financial institutions, due to allowing high government debt, and rapidly rising bond yield spreads in government securities. Go look at what happened to Iceland's banking system and what triggered a recession from 2008-2012 if you want "empirical data".

In fact this debt crisis began in 2008 with the collapse of Iceland's banking system ad by the end of 2009, Greece, Spain, Ireland, Portugal, and Cyprus could NOT repay or refinance their government debt or bail out their beleaguered banks without the assistance of third-party financial institutions. Each of these countries chose to run large debts and not worry about the consequences following your theory that they could just print more money and bonds and who cared if people were not paying taxes. Argentina, Chile, Brazil, exact same collapse.

 

[Mika-El]

Bonds mature and are paid out every day. This isn't one big loan with a balloon payment at the end.

That wasn't the point.

 

[JohnfrmClevelan]

Central banks like any institution that create anything have limitations. Policies do not work in a vacuum they create positive and negative effects as to the goals they seek to achieve. That is common sense.

Central banks have numerous considerations to keep in mind when they make any decisions and to say these considerations are not considered limitations is absurd.

To start with inflation and deflation a direct result of interest rates which a direct result of circulating too much money limits how much to circulate. To ignore that and pretend as you do that you can go on your merry way ignoring what inflation is and how its related to interest rates is par for your course of denial.

I never claimed that central banks don't consider things when they operate. What I think you are missing here is that when it comes to deficit spending, the central bank really doesn't have any say in things, any more than your bank makes decisions about your spending. When the government wants to deficit spend, they do; the CB is merely a conduit. Where central banks factor in conditions is in effecting monetary policy - adjusting interest rates, adjusting reserve levels, etc. These are two completely separate operations.

Also, the link between interest rates and inflation and unemployment are very much in question. Even Powell has admitted as much. But he's under pressure to address inflation, no matter what is causing it, and the Fed only has one tool, interest rates. It's the wrong tool for the job, but when all you have is a hammer...

Every time banks loan funds to consumers and businesses you claim they "create new money" which you call "brand new" and deny is part of a recycling process. In fact, in the real world the loaned money, in turn, gets deposited back into the banking system where it gets loaned again, creating more new money. So its recycled. It didn't just appear brand new from this. Despite your constant attempts to claim money magically appears from thin air and its brand new its not.

You don't have to believe me, although it would save you some reading time.

https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy

Basics of Banking: Loans Create a Lot More Than Deposits

The school book story you remember about a bank taking deposits, holding reserves and then later lending them out is all wrong.

www.cnbc.com

Ask yourself how M1 and MB can grow otherwise. Credit is the only answer.

 

[Bullseye]

“...[with an] inconvertible currency, a sovereign national government is finally free of money worries and need no longer levy taxes for the purpose of providing itself with revenue… It follows that our Federal Government has final freedom from the money market in meeting its financial requirements… All federal taxes must meet the test of public policy and practical effect. The public purpose which is served should never be obscured in a tax program under the mask of raising revenue.”

Beardsley Ruml, former Chairman of the Federal Reserve Bank of New York, 1946

Mr. Ruml's point here is that the government - even in 1946, when we were on the gold standard - can create and spent its own currency, so they don't need tax receipts to fund their operations. Rather, taxation is used for other things - driving policies, such as encouraging homeownership and investment, and creating fiscal space into which the government can spend (reducing potential private sector demand so that the domestic economy is able to meet (government + private sector) total demand. Even FICA taxes were a concession; FDR calculated that the idea of people paying into a fund would make it more difficult for Republicans to scrap the program in the future.

So we aren't paying for wars; even during WWII, when the economy was producing at or near capacity, privates sector demand was kept in check by taxation, war bonds, rationing, and price controls, so inflation did not become a problem. Our taxes also won't pay for student loan forgiveness, bank bailouts, PPP loan forgiveness, interest on the national debt, or aid to Ukraine. Government spending pays for all of these things, and deficit spending in particular.

Here's another way to look at it - if you take the central bank and the government together, like a black box, government spending increases government liabilities, while tax receipts extinguish some of those same government liabilities. Tax receipts are extinguished upon receipt, much like M1 is extinguished when loan payments are made.

Discuss.

Sounds like a version of Modern Money Theory; one of the most laughed at theories of the century.

 

[JohnfrmClevelan]

I stated that central banks and for that matter commercial banks are different in operations and unlike you I do not compare them as being similar as you do. I disassociated myself and continue to do so as to your descriptions of commercial banks and the central banks of nations. I believe your descriptions are inaccurate and I have stated why.

Then explain how you believe the government "backs up" the central bank.

I did state the limitations of any government when managing its economy including borrowing and paying back debts is the extent of revenue it can collect in taxes to pay back its debts.
No its not pointless to state there are limits. Its the very point to showing why your theories are fallacious because they do not acknowledge limitations that exist.

Then show me where the government has EVER been unable to pay for their deficit spending. Or when they have been unable to meet their bond obligations.

Here are the limitations again that you deny:

1-printing more money doesn’t increase economic output – it only increases the amount of cash circulating in the economy

Again, the government doesn't print money when they deficit spend, they only issue bonds. And that spending goes to pay for things, which increases production. At worst, it's given to people who will spend it. The government doesn't just print money and sprinkle it around. It gets spent, and the economy increases production to meet that demand.

2-if more money is printed, consumers are able to demand more goods, but if firms have still the same amount of goods, they will respond by putting up prices. and so printing money will just cause inflation

Again, people earn that money. And it's a silly assumption to make, saying production doesn't adjust to demand. If the demand for cars increased, Ford would produce more cars, as long as the capacity to do so is there (and it is). Simply raising the price would allow competitors to undercut them.

3-inflation is a real limitation because it creates:
a- if people have cash savings, then inflation will erode the value of their savings
b-If inflation is very high, then it becomes harder to make transactions.
c-high inflation creates uncertainty and so discourage firms from investing and can lead to lower economic growth adding to less people able to pay taxes

Your whole answer here rests on the dubious assumption that more money = higher prices. That is incorrect.

Money Growth Does Not Cause Inflation! | Real Progressives

It is conventional wisdom that printing more money causes inflation. The only problem is, it’s not true. That’s not how inflation works.

realprogressives.org

4-governments raise money to pay their debts by charging taxes or issuing bonds-high inflation means less money left over from which people can pay taxes and
5-it means people will not buy bonds if there are high prevailing interest rates because the money made on interest on the bond will not keep up with the ever devaluing amount of money caused by inflation

The whole point of the thread is that governments do not need tax receipts to pay their bills; taxes serve other purposes.

Bonds will always sell, even if their return doesn't keep up with inflation, because the only alternative is to keep money in bank accounts that earn little or no interest. (If you are about to reply that there are other assets to invest in, there are, but those transactions don't result in fewer dollars, they just move money in bank accounts from buyer to seller.)

 

[JohnfrmClevelan]

6-examples of hyperinflation are Germany in 1922 and Zimbabwe during Mugabe's years

Neither instance of inflation was caused by printing money; printing money was just a (poor, but politically understandable) response to real inflation that was caused by real factors. In Germany, they were paying reparations, which took a ton of their production out of the production/consumption cycle. So if Germany produced $100 billion worth of stuff, and,, let's say, 40% of that is whisked away to England and France, Germans have $100 billion in national income to spend/invest, but only $50 billion worth of goods to buy. And investing in new production when you know ahead of time that 40% of it will be taken away is a non-starter. THAT is what initially caused their inflation. In fact, it was MMT-style deficit spending that got Germany out of the Depression; they produced tanks, and the government bought them. Germany was out of the Depression before the U.S. or other European countries were.

As for Zimbabwe, they infamously carved up the big, productive farms in a stupid land redistribution program. Agricultural production fell off a cliff, food was scarce, and they didn't produce enough to trade for what they needed. When food is scarce, prices shoot up. Their government's response was to hand out money, but prices stayed high until production returned to something near normal.

If you look at other examples of hyperinflation, you will always find an underlying cause of inflation that eventually leads to money printing. War, drought, famine, political upheaval, drastically reduced production, or drastically reduced global prices of your production are what cause hyperinflation. Not government spending.

Now I note you are now talking in circles avoiding anything that does not suit your theories so I will only say this: you do not understand that the economic crisis in Span, Greece, Italy were cased by the very approach you advocate, likewise in Argentina and Brazil and to pretend as you do, that you do not know this and they are unrelated is absurd.

Those European nations do not control their own currency, so, not on point at all. Argentina and Brazil had different problems, including foreign-denominated debt - also out of the control of the government.

In fact the European sovereign debt crisis was a period where we saw several European countries suffer the collapse of their financial institutions, due to allowing high government debt, and rapidly rising bond yield spreads in government securities. Go look at what happened to Iceland's banking system and what triggered a recession from 2008-2012 if you want "empirical data".

Euro countries that were in crisis were competing with Germany. You have to offer a higher rate of return if you expect bond buyers to choose your bonds. It is more akin to states - Mississippi's bonds will lose to California's bonds in the market, and Greece's will lose out to Germany's.

In fact this debt crisis began in 2008 with the collapse of Iceland's banking system ad by the end of 2009, Greece, Spain, Ireland, Portugal, and Cyprus could NOT repay or refinance their government debt or bail out their beleaguered banks without the assistance of third-party financial institutions. Each of these countries chose to run large debts and not worry about the consequences following your theory that they could just print more money and bonds and who cared if people were not paying taxes. Argentina, Chile, Brazil, exact same collapse.

Iceland's banking crisis was due to foreign-denominated debts, over which the government has no control.

 

[JohnfrmClevelan]

Sounds like a version of Modern Money Theory; one of the most laughed at theories of the century.

Well, the quote is from the Chairman of the NY Fed, and came well before the development of MMT.

We've been through this before, Bullseye. You don't understand monetary operations enough to meaningfully participate in this thread.

 

[fmw]

Well, is it real debt when the government can pay it without expending any real resources? Who, exactly, do you think is on the hook here? Can't be the citizens, because you just said (correctly) that treasuries are assets in their hands.

The citizens pay for it in having their dollars devalued as government monetizes the debt. You already knew that but weren't willing to say it.

 

[OrphanSlug]

Any of the theories John presented were repudiated on this thread.


Let's try break it down:

1-the rules of double entry accounting dictate that when banks create a new loan asset, they must also create an equal and opposite liability, in the form of a new demand deposit;

2-the demand deposit, like all other customer deposits, is included in central banks’ measures of broad money;

3-so in that very specific and narrow content if and when banks lend out money they "create" money but it is silly to use that term because this money was not invented or come from “spirited from thin air, it comes from a value backed by a new asset backing the" new" money-so in fact the money we are talking about is being recycled or recirculated to create new value to it but it already existed, its value is what changes;

4-the so called creation of money by commercial banks through lending is the recirculating it to add to its value by charging interest on its pay back and so is dependent on the borrower’s ability to repay the loan with interest when it is due-yes there we go again the word interest a word John skips over;

5-in the real world commercial banks’ ability to create money is constrained by capital- if and hen a bank creates a new loan, with an associated new deposit, the bank’s balance sheet size increases, and the proportion of the balance sheet that is made up of equity (shareholders’ funds, as opposed to customer deposits, which are debt, not equity) decreases- if f the bank lends so much that its equity slice approaches zero – as happened in some banks prior to the financial crisis – even a very small fall in asset prices is enough to render it insolvent- this is why we there are government regulatory capital requirements because those regulatioons try iensure that banks never reach such a fragile position;

6-something John's world does not acknowledge is that we have to guard that banks do not lend more than the population can realistically afford to pay back which is exactly what happened in the US causing a banking collapse from lack of regulation of its banks and something Canada avoided by its regulations but then Canada at the time of our regulations had much less people than the US and a tradition of more federal intervention in banking activites than the US-in Canada our federal government has exclusive control over banks while in the US that is not the case. Canada's system is like the UK system which we based it on-so in comparisons we must appreciate these legal differences that led to many diverse bank activities and banks being created under different state laws.

7- a country's federal or central banks’ ability to create money is constrained by the willingness of their government to back them not the ability of people to pay backgthe debt,

8-in theory a central bank could literally print and crate money from thin air, i.e., without asset purchases or lending to banks yes but if it did this without asset purchases Tthe central bank would become technically insolvent unless the government was able to tax the population sufficiently which also becomes impractical as taxes reach a threshold where they would be higher than the income a person earns to pay them and this is exactly what happened in Chile to make it go bankrupt and in fact all the theories John advocates as if they are new led to many countries in South America and particularly Brazil and Argentina collapsing their economies as their governments imploded and the paper currency became worthless. We also see this repeatedly in third world countries and in countries like Spain, Greece, Italy and right now Russia.


9- central bank can create money without limit, though doing so risks inflation-commercial banks simply can’t do this

10- what I have cautioned and John is not prepared to acknowledge is that governments can't just create money because its difficu to estimate the present and future productive capacity of the respective economy to know how much to print dependent on a myriad of possible factors.

Actually, all if it has been refuted.

But fundamental to your argument are two real flaws, the constraint on an economy is resources and the 101's of how banks create and destroy money through loans.

 

[fmw]

Actually, all if it has been refuted.

But fundamental to your argument are two real flaws, the constraint on an economy is resources and the 101's of how banks create and destroy money through loans.

Refuted to the satisfaction of you folks. Sorry I favor the majority economic opinion. You have the tiny minority with all the flaws. You are trying to beat a dead horse with me. Nothing you say meets my common sense. Everything you post is misinformation.

 

[OrphanSlug]

Sorry I favor the majority economic opinion. You have the tiny minority with all the flaws. You are trying to beat a dead horse with me. Nothing you say meets my common sense.

Where is your source for this "majority economic opinion?"

 

[Bullseye]

Well, the quote is from the Chairman of the NY Fed, and came well before the development of MMT.

We've been through this before, Bullseye. You don't understand monetary operations enough to meaningfully participate in this thread.

Which is why I said ". . . a VERSION of MMT". Or maybe YOU don't understand it was well as you think. - I'm voting for that.

 

[Mika-El]

Sounds like a version of Modern Money Theory; one of the most laughed at theories of the century.

Which is why I said ". . . a VERSION of MMT". Or maybe YOU don't understand it was well as you think. - I'm voting for that.

He doesn't. He also thinks he's come across something new.

He recycles a theory that was first enunciated by Georg Friedrich Knapp back in 1905. can be found in a text entitled State Theory of Money .