goosecat wrote on Sep 8
th, 2024 at 3:02pm:
The whole printing money, bonds and inflation thing is complex and arguable. FD is wrong if he is in fact implying all economists agree on these areas. Perhaps that is the case at low level first degree economic studies but it is most definitely not the case at higher masters levels.
Milton Friedman certainly believed in a foundational economic reality that increasing money supply, does indeed increase inflation and there are still plenty of economists subscribing to that reality.
Fed /RBA Bond buying is indeed increasing money supply, that is it's goal. There are arguments however, even within the RBA and it's own economists on the possible true inflationary effects of such programs. Many now want to break it down further into what instant effects such money printing has on different types of money (currency, money base, M1, M3, Broad etc). The arguments being; bond purchase money printing doesn't directly effect each different type equally and therefore has a reduced inflationary effect.
For some however it is more foundational in reality and this is just the sort of area where economists and their like often screw it up and get things wrong. It really all depends on your TIMEFRAME of analysis.
At some point it time, eventually, via all the different available financial tools and mechanisms, that extra printed money does eventually flow through to all the varying types of MONEY. As such, the reality of Friedmans theory is in fact correct. Eventually, that money finds it's way through the system and exists, it doesn't disappear out of economic existence. Therefore it is in fact, no matter how you try to group and itemise it, extra printed money, added to the economy.
PS: A little off topic but still connected. (Maybe belongs more in MMT thread)
Whilst some on here have a mental issue with links, I recommend looking at this quick couple of minutes from Nayib Bukele and give some thought to this viewpoint. Those with a high enough IQ will have the ability to look past the forum agenda and consider the actual content.
https://www.tiktok.com/@nayibbukele/video/7339722385123233029?lang=en Excellent post.
He asks (in the video, after stating government is financed by treasury bonds, not taxes):
"how does the Fed buy bonds"?Answer:
"by printing money. So basically you finance the government by printing money out of thin air.
2nd question:
"If the government can print unlimited amounts of money out of thin air, why do they collect taxes.?"
"The answer is shocking: it's to uphold the illusion you are funding the government, which you are not.
"Paper backed by paper, a bubble which will inevitably burst" .....
Observation: after correctly explaining how government is financed, he goes astray with the 2nd question, because he doesn't understand MMT.
The government can theoretically print unlimited amounts of money, but in practice money printing is
limited by the nation's available resources, to avoid inflation Milton Friedman - and the current crop of neoclassical economists - did/do not understand this.
The mainstream says 'money doesn't grow on trees' which is true, (apples do); but money IS always created out of thin air, whether in private banks when they write loans for credit worthy customers, or in the government's Treasury to fund government.
[Put another way, as Keynes knew: "if you (the govt.) can build it, you can afford it", also an MMT axiom].
So his worry that "paper backed by paper' will eventually result in the collapse of the US is unfounded: US debt can increase indefinitely, so long as the nation's
productive capacity remains intact.
(US debt is projected to be $100 trillion by 2030, but it's immaterial: the US government cannot run-out of US dollars).
As Alan Kohler correctly stated in the article I linked in another post (available in the MMT thread): governments will HAVE to accept growing public debt, if they want to get elected, and supply the services people want, without raising taxes (as fewer workers will be available to pay tax when the population ages - as per the mainstream myth).
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