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New Currency Theory (NCT)

You keep misquoting and misrepresenting my statements, setting up straw men to knock down.  When I say I am comparing a revised monetary and financial system with the one we have now, why do you and Cullen keep asserting that I am descibing the current system? Is the concept of a competing system so threatening to you that you can't even think outside your box?

Of course banks create money  - did I ever claim anything different? If so show me where - otherwise retract your statement.

Do you understand the difference between exogenous money and endogenous money?  Sounds like you are just spouting terms that sound impressive.  Why even use the term endogenous if exogenous money is impossibly in your view?

I have not made one error in my balance sheet examples.   Show me one.   Nevertheless, the balance sheet diversion is a complete red herring.  The accounting system is not the monetary system.

Here is a definition of credit as opposed to your seat-of-the-pants assertion: "the ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future."  There is nothing in this definition that implies that bank-created money is the only form of payment.  Under monetary reform that repayment is in the form of US-created money.

You clearly are unaware of monetary history in the US.  I would bet you haven't read any of the journal articles and working papers on sovereign monetary reform and, frankly, you don't care.  Because of that, your comments are just plain uninformed.

There are meaningful critiques, caveats and concerns over any money system. Neither you nor Cullen have made your case against monetary reform.  Probably a good idea to pack it in and close the thread then, clearly you intentions are not to shed light.

 

 

 

Good grief. I wrote an entire book about the subject. My research papers on these topics are some of the most widely read in the entire world. My expertise on this subject is unquestionable.

The bottom line is that there's nothing new in NCT. A T-bill is essentially money. The govt can create as many t-bills as they want. This gives them virtually limitless spending power (up to an inflation constraint). You just don't like paying interest on t-bills so you want to have the govt issue interest free money. There's nothing new there. In fact, t-bills paid virtually no interest for most of the last 10 years.

I am not sure why you have so much trouble understanding this. It's very simple. There's nothing new in NCT except that they constrain banks from being able to create money. That's a bad idea for reasons that have been explained.

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche

In our last set of messages I made it perfectly clear that my objection is first to the government not being able to issue the money required, interest free or not.  You replied that they could if they really wanted to.  That is meaningless from a practical standpoint due to political contraints - borrowing, no matter how benign it is, is politically unnacceptable from the right (althought its their standard tax avoidence ploy) as well as the left. You also talk as if there is an infinite market for US bonds - not close to true. Taxing is not a political option either - we'll never see a 70% bracket in your or my lifetime.  Second, interest is a serious concern.  It distorts the value of money and leads to wealth inequality since mainly the wealthy (who have investment portfolios), foreigners,  and large institutions benefit from interest on bonds. Third, you have asserted that there would be a scarcity of money if banks could not create it as needed.  Point me to a chapter in one of your books that demonstrates that lending of goverenment-created money would be insufficient.  I'm open minded enought to read it.   Fourth  Bank credit-money always favors non-public purpose spending, by defintion.  Only the government can spend for public purpose without violating a responsibility to shareholders to maximize profit.

But we're going round and round.  My points are deflected with comments on my ignorance and sideshows over bookkeeping protocols.

Let's stop being personal. I don't like it and it solves nothing.

Let's look at your first point because it's pretty simple to deconstruct.

There is always a political constraint. Spending is done via appropriations. The Congress sets a budget and that spending gets financed somehow. In the current system we appropriate spending and then we sell bonds if necessary. In your "new" system the govt would just be able to print money and spend it directly. But that would still require a Congressional appropriation process FIRST. And the Republicans would still constrain spending by claiming that too much govt spending will cause X, Y, Z problem.

Sorry, but this isn't different from the way things are currently done.

See, it took me 3 minutes to debunk your main point. Do you get it now?

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche

Thank you.  Republicans might still object - but on what grounds?  It used to be that true Republicans stood for sound fiscal spending that didn't increase debt or overly tax; they did not object to Eisenhower's interstate system (passed in the house 388 to 19, 89 to 1 in the senate).  If people would stop harping on false and irrelevant images of Zimbabwe and Venezuela, there would no "X,Y,Z" to stand on.

I think even you believe that, from an inflation standpoint, spending is spending, private or government.

The need to tax would be significantly diminished - mainly used for cooling the economy, rebalancing distribution, incentives and maintaining the integrity of the dollar.  What Republican is going to rail against lower taxes?

On what grounds? I think they'd simply change the narrative. Instead of telling scary stories about the US govt going bankrupt I think they'd tell scary stories about Zimbabwe more often.

I don't know how much truth there would be to any of those stories, but I definitely don't think Conservatives would start falling in love with govt spending just because we financed it with "money" instead of "debt". In fact, most of Conservative economic theory is constructed entirely around the idea that money financed spending is more inflationary than debt financed spending so you'd have Conservative economic advisors shitting a brick over this sort of thing. In other words, the NCT world might actually make Conservatives even more averse to govt spending because it's not debt financed.

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche

Both MMT and NCT are, in my view, either incompatible with our political and economic system, or have true structural flaws.

1.)  It is simple to create a theoretical model which encompasses some of the operational views of MMT or NCT.   A simple model which is in the spirit of both:

a:) One currency is issued by the government and is required for paying taxes and is used for all government payments (the mechanism of distributing the currency to the public).  There is no offsetting debt obligation.

b:) Spending and taxes would be controlled by a PID type algorithm using inflation as the sole feedback variable.  Spending and taxes would adjust marginally for all/most spending and taxation.  It is probable that the spending/taxes ratio would be asymmetric, larger marginal increases in spending when below the target inflation rate, larger marginal tax increases when above the target.

c:)  This only works when marginal spending is productive.   Obvious choices would be infrastructure and scientific research, both of which are readily able to productively apply a marginal change in budget (given the changes are small to first order).

d:)  Banking is treated just as current secondary lending markets operate, loans are 100% backed by deposits.

In such a system there is no Fed as lender of last resort.   There are no panics because all credit is 100% backed.  The government would provide a clearing system that banks could participate in with deposits in this system separate from other deposits and paying 0% interest but fully backed by the government (these are similar to bank reserves, they could not be mixed with loanable funds).  Banks could/would charge fees for these demand transaction accounts.

I find this model fully satisfies the requirements of a stable monetary system.

However, I don't see any way to get there from our current system.   This I think is the core problem with MMT and NCT.  You can't just bolt it onto our current system, and there is no clear route to transform our current system into a system like the one proposed.

I don't like putting links in these posts  - no one reads them and its somewhat of cop out. But you asked specifically or at least claimed specifically that there is no way to get there from our current system.  HR2990 of 2011/12 congress, is a clear path that transitions from our current system to the one you described.   An economy under variations of such a system  has been modeled by Benes and Kumhof, Yamaguchi, Laina.  The increased economic stability is striking, One can debate the details of their methods and findings but to just dismiss it as garbage as some have done here is a cop out and sheds no light.

Of course Republicans will always be contrarian, the authoritarian breed we have now cares not for the constitution and providing for the general welfare -  utterly unAmerican in my book.  But they would have little to stand on trying to pull the Zimbabwe card.  The implication would be that we are no better than a third-world nation - not very patriotic.  In addition there are already examples to the contrary right here in the US.  The impact of the government creation of Greenback notes, no interest, no repayment, has been studied specifically in terms of impact on inflation. They at one time comprised 40% of the money supply. No inflation. So yes, there would be a political battle but the opponents would be on very shaky ground.

It also would be somewhat ironic to argue against the icon of conservative economics, Milton Friedman, who was a proponent of many of the underlying principles of monetary reform.  The case is easily made that the impacts on business and true capitalism would be very advantageous, despite unfounded fears of money shortages.  Its somewhat humorous but those deflationary claims against monetary reform should be contrasted with the predictions of Zimbabwe-like inflation.  Gotta make up one's mind.

This bill failed miserably in 2011. It got zero co-supporters and was never even taken to the House floor for a vote. Why are we still talking about it in 2019? It's filled with basic mistakes and has gained no legitimate support.

This whole thread is a waste of time. Sorry, but I won't stand for people promoting politics on this site so I am going to have to close this thread. Thanks to everyone who contributed.

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche