Professors of economics managing to confuse themselves....

tweet from Pontus Rendahl (PhD economist):

Why would they say that all government spending is financed by creating new money? What’s the reasoning?

It seems to imply that government spending can’t happen in a constant money supply world. But of course it can, through taxes or through debt. What am I missing?


1. All government spending  COULD be funded with free money issued by the currency-issuing government when the required resources are available for purchase by the currency-issuing government.

2. If all money is in the private sector, then government taxes indeed decrease purchasing power in the private sector (in a "constant money supply world"), freeing up resources for the government.

3.  But government debt rewards buyers of government bonds, an inequity.
 

Aside from all of that, an economy which works for all needs a ZIRP and a JG, by definition; higher interest rates hurt borrowers and investors while  rewarding  savers and owners of capital, and everyone needs to have access to an above-poverty job.   

https://www.msn.com/en-au/video/news/a-lot-of-people-%E2%80%98don%E2%80%99t-unde...

A lot of people ‘don’t understand’ where money comes from

Story by Sky News Australia

Author and economist Paul Sheard says working in the financial markets, he's realised a lot of people “don’t actually understand” where money comes from.

“When you go back to fundamentals you realise money comes into the system in two basically complementary ways,” Mr Sheard said.

“One is through the banking system; banks create money when they lend.

“The other one … governments create money and that money comes into the economy when they run budget deficits.”

.....

Duh; and the dumb Sky News host's  first question in the video (after the explanation of money creation ) is: "won't this give governments the ability to institute "a social credit system of sorts"...

What a paranoid smuck; no, it will give governments the ability to eradicate poverty, via a ZIRP and a JG.   

https://billmitchell.org/blog/?p=61662

"US debt meltdown"

Bloomberg published a ridiculous article yesterday (April 2) –

A Million Simulations, One Verdict for US Economy: Debt Danger Ahead

– which I thought might have been a delayed April Fool’s joke.

It was on the on-going theme that the media have been pushing hard in the last few months about how the US government is going to run out of US dollars – a proposition that any one who reflects for a second should work out is impossible.

Alan Kohler's thoughts (Milei take note....)

https://www.thenewdaily.com.au/finance/2024/04/01/alan-kohler-monetary-theory

Alan Kohler: Modern Monetary Theory has become modern fiscal practice

"A few years ago everybody was talking about Modern Monetary Theory, both ardently for and scornfully against, but nobody was doing it.

Now everybody is doing it but hardly anybody is talking about it, apart from American economist Stephanie Kelton, promoting a film on the subject.

Doing what, exactly? Governments are showing by their deeds that deficits and debt don’t matter."

Speaking of accountable government spending:

https://billmitchell.org/blog/?p=61663

When is responsible government spending not responsible spending?

The government is keen to tell us that they are spending ‘our’ money responsibly.

We hear the phrase bandied about by politicians all the time.

Over the past week or so, Australian Treasurer Jim Chalmers has been sprouting off about the government’s latest cost of living relief plans.

He was reported by the UK Guardian article (March 14, 2024) –

Don’t expect a ‘big cash splash’ in this year’s budget, Jim Chalmers tells taxpayers

– as saying:

Any extra help will be targeted, responsible and affordable. There will not be big cash splashes in the budget, simple as that …

All this talk about responsible and affordable spending and resisting the urge to splash around cash willy-nilly make great sound bites for the media.

It makes the government sound like they really know what is going on and that they are great economic managers (another phrase politicians are fond of using).

The problem with these comments and the ideology that they derive from is that the notion of what is responsible is completely wrong.

They simply reinforce misguided mainstream economic thinking and play along with neo-liberal ideological beliefs.("small government"/"free market"/"taxpayer money"/"governement debt is bad", etc,)   

The madness of the current UN  "rules based order" (rendered dysfuctional by the veto powers of the permanent members of the UNSC) reflected in the madness of the global financial system:

https://www.msn.com/en-au/money/news/top-banker-says-economic-environment-could-...

Top banker says economic environment could eclipse anything since WWII

JPMorgan Chase CEO Jamie Dimon (pictured), revealed that geopolitical events might be creating an economic environment that 'may very well be creating risks that could eclipse anything since World War II.'

The nation's most influential banker pointed to Russia's invasion of Ukraine and the Israel-Hamas war, as well as US political polarization, as reasons for concern for economic stability.

The fallout from these events should also lay to rest the idea that America can stand alone,' Dimon wrote. 'Of course, US leaders must always put America first, but global peace and order are vital to American interests.'

The comments came in an annual shareholder letter from Dimon, who often uses the letter to weigh in broad topics like politics, regulation and global events and what it might mean to JPMorgan Chase, as well as the broader economy. His concerns however came against the backdrop of a more positive outlook, as he also told investors that he continues to expect the US economy to be resilient and grow this year. 'America's global leadership role is being challenged outside by other nations and inside by our polarized electorate,' Dimon added in the letter. 'We need to find ways to put aside our differences and work in partnership with other Western nations in the name of democracy. During this time of great crises, uniting to protect our essential freedoms, including free enterprise, is paramount.'

Yes ....well Dimon, whose bank was complicit in the GFC (as were all the big banks), wants to talk about "our essential freedoms" when he really means HIS essential freedom to rob people and get rich, while many are blighted by entrenched poverty.

So he wants to go to war - against  a country whose stated goal is common prosperity - because it is not a democracy.

Deplorable.

He should put his mind to working out how to fix the US's own "polarized electorate" which has nothing to do with China.   




 

Following from the last post: so in an effort to compete with China, Biden introduced the IRA which is national socialism** on a grand scale, $880 billion of taxpayer -funded subsidies and tax rebates to fast track transition to the green economy.

** like the massive productivity enhancing Autobahn project in Germany under Hitler.

Which all goes to show the limitations of free markets; the US would have been swallowed  by Chinese manufacturing (eg wind turbines, PVs, EVs and batteries) unless Biden intervened in the global green transition. 

Back in Oz, the usual suspects are already rubbishing Albo's "Made in Australia" plan; they are already saying the risk is resources will be diverted from wealth- creating private sector (free market) activity, without specifying how that 'wealth creation' will actually materialize.

Losers.   Governments in the modern world have to take acount of pressing social and environmental issues, beyond the (mal-)distribution of private sector profits in free markets. 

The delusions of mainstream economists and politicians with their often heard refrain: "There is no magic money tree" succinctly demolished:

tweet:

"There is no magic "RESOURCE" tree. Money is infinite. Resources are finite and that's what our government officials are refusing to acknowledge to their constituents.