Okay, the claim is that the US government raises funds by generating inflation, that is clear. The details are the problem. Say the US government issues a bond, some bank buys it, and eventually they sell it to the Federal Reserve. The US government has the same debt, and it seems to me that the only thing that has changed is that the bank now has cash where before it had a bond. How does this 1) create inflation and 2) is leveraged by the US government as a taxation strategy? That's what I'm asking.
MMT[0] is relatively new in our lives, I find it hard to understand myself, let alone try to explain it.
> Say the US government issues a bond, some bank buys it, and eventually they sell it to the Federal Reserve. The US government has the same debt, and it seems to me that the only thing that has changed is that the bank now has cash where before it had a bond.
This is mischaracterizing the situation. It actually is: 1. A bank buys a newly issued bond; 2. The government spends that bond money on the private sector. 3. The Fed buys the bond by changing the values in its database (i.e. "printing money").
The best I can do to explain MMT is this:
1. The government spends as much as it wants and collects as much debt as it wants.
2. The government plays a game of chicken with the private sector (including other countries).
2.1. As long as everyone plays along, its a ponzi scheme that spirals upwards until it hits a ceiling (hyper inflation).
3. Meanwhile, until it hits the ceiling, it creates "manageable inflation" and/or deflates the rest of the world's assets.
3.1. As long as the rest of the world plays along (which it does), the extra cash funds innovation (i.e. the private sector) and improves quality of life world wide (i.e. better pharmaceuticals, cheaper computing, etc).
3.2. Meanwhile, in the US the "manageable inflation" is paid for by the poorest.
My personal thought: the world's interconnected market is so complex, that no one understands cause and effect (including the people making the rules). Currently, there is an emergent property of that complexity that the US, Japan, etc can "print infinite money" and some large group of people somewhere are left holding the bag worse-off for the US' decision, but no one really knows who this group is nor how much those people got fucked. Even the impacted individuals don't realize they are impacted because individually its a small impact, and innovation keeps improving their lives enough to not complain.
Hopefully a denationalized crypto (i.e. no ability for a single nation to print money) will help us simplify all of this to be understandable again.
The fact that you don't understand monetary theory, doesn't mean economists can't figure it out. Maybe this is why developed nations haven't experienced hyperinflation in almost 100 years. And telling people that they should stop what they're doing for the sole reason that you don't understand the ramifications of their actions seems a little arrogant. I guess we also should get rid of money altogether, production and saving, in order to simplify the economy so you can finally understand it.
From what I can read, no one knows how it works, people just know that it works.
Without a simpler design how can I know I’m not being harmed? I think this is one question that will help drive people to adopt a denationalized currency.
Do I know how works what? The monetary system? The economy? The idea that a simpler design will help people like you avoid getting scammed is hilarious considering that you have already fallen for the biggest and most blatant scam of all which is bitcoin. Central banks are not there to rip you off, they have other concerns. And the wholesale adoption of bitcoin as unlikely as it is would definitely harm you in a way that you can't even imagine. Do some research on the gold standard, the problems it had and the reasons it was abandoned.
:( its become clear to me you're not having this conversation in good faith. I apologize that I wasted your time.
FWIW, I do not own any BTC or other crypto coins.
P.S. I highly recommend you research MMT. I think you'll find that no-one (including the most experienced economists) understands the details of how the emergent property works, they only understand that it works.
Re-reading you comments, I think you might be confused with regards to what MMT is. MMT is a novel monetary theory, it's definitely not the standard monetary theory, and it's not widely accepted by economists. The standard theory of money is the Quantity Theory of Money, which has been re-discovered many times since the ancient times. Why you think MMT is important in this discussion, I don't know.
> Why you think MMT is important in this discussion, I don't know.
Because over the last decade the US has been quietly transitioning to the MMT mental model. MMT is how we got out of the 2008 recession and also how we are funding both the pandemic stimulus packages (in 2020 and again in 2021).
The inflation we previously discussed in this thread is, in my understanding, a direct consequence of MMT.
What is the MMT mental model? It seems to me that you're under the impression that MMT is some kind of monetary policy, when it is not. Monetary policy along with fiscal policy are the two major counter-cyclical policies used by governments since the 1930s. MMT is an economic theory, and is much more recent than that.
MMT is actively being leveraged for fiscal/monetary policy in the US, and has been since 2008 (by both Democrat and Republican POTUS and Congress).
> "Congress has been showing us — in practice if not in its rhetoric – exactly how M.M.T. works: It committed trillions of dollars this spring that in the conventional economic sense it did not ‘have.’ It didn’t raise taxes or borrow from China to come up with dollars to support our ailing economy. Instead, lawmakers simply voted to pass spending bills, which effectively ordered up trillions of dollars from the government’s bank, the Federal Reserve. In reality, that’s how all government spending is paid for." [0]
> When President Trump signed the $2 trillion CARES Act into law, the federal government sold bonds to fund the new spending, expanding the government debt. However, the largest purchaser of those bonds was the Fed. ... As a currency issuer, the federal government can create more money to buy Treasuries and pay off its debts, making an involuntary default impossible. Under the Fed’s jurisdiction, it could purchase all U.S. Treasuries tomorrow and retire the entire U.S. federal debt, something Japan has already done with nearly half of its debt. ... Is the Fed’s financing of the debt created by the CARES Act fueling inflation? Not quite. The annual U.S. inflation rate currently stands at around one percent, half of the Fed’s two percent target. In fact, over the past decade, the Fed has struggled to increase the U.S. inflation rate. There actually is not enough spending (aggregate demand) in the U.S. economy to hit the Fed’s inflation goal. [2]
> Modern Monetary Theory (MMT) is alive and well in the United States. While MMT is derided by mainstream economists, the federal government is practicing MMT. From running massive federal government deficits, to the operations of the Federal Open Market Committee (FOMC) by the Federal Reserve Bank, the United States is practicing a policy of MMT that is currently underpinning the economy of the United States. ... The U.S. Federal Reserve (Fed) began its own form of quantitative easing (QE1) on November 25, 2008 by purchasing $600 billion in agency mortgage-backed securities (MBS) and agency debt. [3]
> While MMT may seem like a purely theoretical construct, it should be recognized that many governments, including the U.S. government, are effectively already putting MMT into practice. [4]
If you're still not convinced that the US is actively applying MMT in practice thats ok, lets wait and find out more. Meanwhile, thanks for catalyzing my motivation to research all of this! :)
Okay... I still don't know what it means to "apply MMT". I already told you that monetary policy has been used by governments since the 1930s long before MMT was invented. But, anyway, what is your point? Do you think that QE was a mistake? What do you suggest would have been an appropriate monetary policy during the 2008 financial crisis?
Given inflation didn't run rampant, I don't know if there was a better strategy.
However, the continued liberal application of QE 1. Could hit a hyper inflation ceiling (hurting the poorest). 2. Weakens USD compared to other currencies (as we have seen through 2020. Hurting every entity that holds cash i.e. typically the poorest). 3. Reduces the ability for the US to apply QE in the future. Hurting our ability to tackle the next crisis, which will predominantly hurt the poorest.
All of this to say, a portion of the lost trust in the USD is being put into crypto to hedge for the medium term, and (for better or worse) to create a long term denationalized currency where no handful of politicians can choose to use QE rather than making good fiscal policy decisions quickly.
So when the next economic crisis comes you would rather have central banks not interfere with the crisis at all. Just let the crisis solve itself. Is that what you're saying? Also, you seem to think that taking monetary policy away from central banks will lead somehow to governments making good fiscal policy decisions, whatever that is. Where do you get that from? The gold standard never stopped governments from going bankrupt. Monetary policy in the hands of incompetent authorities can be disastrous, but this is no reason to get rid of it. Otherwise we should also get rid of many things, including laws and government.
I'm not making a judgement about its merits, it might end up horrible.
All I'm saying is, there is a trend towards denationalized currency as a hedge against bad monetary policy. Based on this trend something like BTC will likely become the new gold standard used for slow transactions (i.e. reconciliation) between governments and large corporations.
Will it be BTC? I don't know. Will it be a good thing? I don't know.
I do know, the trend suggests a particular future, and trying to root out the motivations suggest the trend will continue.
People who believe removing power from central banks is a good way of avoiding bad monetary policy are a tiny minority of lunatics. This will never be the motivation behind a widespread adoption of a bitcoin by governments, corporations and the general public.
By your definition from earlier in the thread, any entity that buys BTC is a lunatic, so I'm not sure you'll have much to learn from this :P
But, if you are willing to acknowledge both Square and Tesla are run by very intelligent people, these are quotes about their motivations:
> However, when fiat currency has negative real interest, only a fool wouldn’t look elsewhere. [0]
> Square believes that cryptocurrency ... provides a way for the world to participate in a global monetary system, which aligns with the company’s purpose. [1]
Based on my research into the motivations for BTC (or any crypto), these quotes are not unique. The majority of the root motivations seem to be 1. "to hedge against bad monetary policy" and 2. "to create a global monetary system" i.e. create a single global monetary policy.
Meanwhile, if enough S&P companies follow Square and Tesla the US government will find BTC is "too big to fail" and adopt it wholly. But I'm not convinced other S&P companies will follow. Lets see.
The anti-government, anti-bank ideology behind the creation of bitcoin and other crypto-currencies is indeed a bizarre political cult whose adherents are definitely lunatics. That doesn't mean everybody who owns bitcoin is necessarily a lunatic. What is true though is that, generally speaking, proponents of bitcoin don't seem to really grasp basic economic concepts. For example, what does it mean for a fiat currency to have "negative real interest" rate? Currencies don't "have" real interest rates. Real interest rates are not set by governments nor central banks, but by the market, and they are independent from currency (that's what "real", as opposed to nominal, means). At least Musk is decent enough to admit he doesn't know what he's talking about, which is good. Bitcoin is a non-income generating asset, which means the only way it can produce a positive return is if it increases in price, and it can only increase in price if the demand for it grows. Therefore I'd be a little sceptic about opinions put forth by people who are invested in bitcoin, as they have a strong financial interest in promoting bitcoin in order to make its price rise, as this is the only way they can safeguard their investment. If I were you, I'd look elsewhere for opinions on this matter.
