Fiscal sustainability: post hoc Kelton notes

So these are the outline notes I took during the second talk of the fiscal sustainability counter-conference by Stephanie Kelton while I lacked wifi:

• Stephanie Kelton: Are there spending constraints on governments sovereign in their own currency?
  • MMT is not the right brand---it's a misnomer. Neither non modern nor a theory.
  • It is simply a description of operational realities of money without [gedanken]experimental assumptions.
  • Diff between conventional economics and MMT approach.
    • Conventional: things start with barter. emerges spontaneously. some entity (gold, etc) used as exchange. Money is a private system in which government has intervened.
    • MMT: money *really
    • comes from state obligations. Taxes are a debt imposed on the public that must be repaid via money. It is the government who makes fiat money necessary/acceptable.
  • Central MMT thesis: government's power to tax and its power to create and destroy money is the right framework to think about monetary policy
  • Household/gov't analogy:
    • Household budget constraint: How much we can transfer in government liabilities to other entities.
    • Gov't ability to spend NOT limited by its ability to tax or borrow.
    • Gov't is ISSUER of currency, it must spend first.
    • Any other constraint is self-imposed.
  • Gov't spending
    • Illusion that gov't spending is based on raised taxes.
    • It is simply the scorekeeper: it doesn't have or not have money.
    • Gov't cheques to private sector increase the money supply---new money. Debit Treasury account/score.
    • Taxes destroy money by marking up the Treasury account.
  • Why tax?
    • TREASURY SHREDS CASH submitted as tax payment.
    • Gov't doesn't NEED the money.
    • All taxes do is maintain the demand for money. Gov't uses it for demand regulation.
  • What are bonds, then?
    • "Nothing more than a savings account at the fed."
    • Get more money at a future date for parting with money now.
  • Debt clock: a lie. Should be called "World US dollar savings account."
  • Solvency: can the US gov't run out of money?
    • NO! No more than a sports stadium can run out of points.
    • Greenspan: Fiat money system cannot run out of money.
  • PIIGS in trouble because they are in the Euro zone: they are no longer using a sovereign currency.
    • Solvency is now a legit problem for gov'ts that use Euro.
    • Euro nations are now states like US states---just users, not sovereign.
    • We see the same problem for all of the other countries that converted their currency into another country's currency (e.g. mexico, russia).
      • Kelton cannot name a country with a fiat floating non-convertible currency that has these problems.
  • Can the gov't spend without limit? NO!
    • Spending will be needed to regulate inflation.
    • But we need to loosen up now.
  • Q&A
    • Harrison from audience: What's diff between Russia and Argentina? [I didn't quite understand Mosler's answer.]
    • Kelton [off of another question from Harrison]: debt-to-GDP relation irrelevant.
      • Mosler: inflation is a political problem. Italy had double-digit inflation, did well in 80s.
      • Tcherneva: Argentinian provinces generated their own currencies during crisis. Not needed when Argentina's currency again floated.
    • Series of questions on treasury bonds: do governments need to sell them?
      • General answer: only if their laws require it; otherwise, if they pay interest on reserves, no.
      • Is deregulation connected to this? Deregulation of private sector vs. extreme regulation of monetary policy.
        • Desire to choke public sector due to distrust of democracy among conventional policy-makers.
    • Question from journalist: did EU policymakers know about the consequences of introducing common currency without common states?
      • Yes, but they were hoping for political union to eventually ensue.
      • Why expand Europe so much: various reasons, generally political.
    • Ed Harrison: another question why we need US treasury bonds. Liquidity? Setting fed funds interest rates?
      • Mosler: bonds not necessary for that; only political. Other countries do not use that mechanism.
    • Investment manager asks: fed can create currency, what is the inflation consequence? "Democracy only lasts until the voters realize they have access to the purse strings."
      • Wray: deal with this in terms of real issues and real resources. Do we want to allocate resources one way or another? That's democracy. [As opposed to setting artificial ceilings.]
      • Auerback: Do we apply affordability to defense? No. We only argue about money when it comes to eg. health care. Skewed values.
      • Kelton: interest payments on debt paid by current generation, not allocation issue.

That's it for talk summaries. In a few hours, I'll write my own summary thoughts/reactions to it. In a nutshell, I liked most of what they had to say but have one or two reservations.

Comments

[ifthethunderdontgetya™³²®©]

Hi Mandos,

I read about the anti-Peterson confab at Digby's.

Thank you for attending and posting your notes.

P.S. http://digbysblog.blogspot.com/2010/04/sacrificial-scams.html
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