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Cleveland Fed Estimates of Inflation Expectations :: Federal Reserve Bank of Cleveland
Inflation expectations at an all time low.
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The Oil Drum | After The Gold Rush: A Perspective on Future U.S. Natural Gas Supply and Price
Don’t you just see a buy, buy, buy on drillers?
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FT Alphaville » One giant leap for America’s credit cards
It’s all that QE. It’s all taking effect at the same time.
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How much education did the greatest creative geniuses of all time need? – Barking up the wrong tree
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At least one guy at the IMF accepts MMT/MMR thinking on QE as being an asset swap.
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Balloon Juice » Blog Archive » every other pundit’s fallacy
“Nations are not people. Socioeconomic platforms have nothing to do with “adulthood.” And the scrimp-and-save behavior that people think should be rewarded with economic growth is in fact rewarded with horrible stagnation and failure.”
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Born In The U.S.A. – MMT And Monetary Sovereignty
“here admits that the irrelevance proposition that any State “can run budget deficits that help to fuel current account deficits without worry about government or national insolvency” applies indeed only to the US: “precisely because the rest of the world wants Dollars. But surely that cannot be true of any other nation. Today, the US Dollar is the international reserve currency—making the US special. … the two main reasons why the US can run persistent current account deficits are:” Read more to find out!
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Economists, Liquidity Mongers and the Banker Assault on Financial Reform « naked capitalism
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Saudi Arabia to Send More Crude Oil Supertankers to the US | gCaptain – Maritime & Offshore
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The Monetary Economics Of Sovereign Government Rating
“So in the case of Japan, while the government is a huge debtor, the nation as a whole is a creditor, whereas in the case of Australia, it is the opposite. So the rating agencies get it wrong or opposite!” Amen!
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Australian House Prices down 10% from Peak | Steve Keen’s Debtwatch
Posted from Diigo. The rest of my favorite links are here.
Inflation correctly defined is non production accepted for production.
Modern money is non production is inflatiom but there is continous effor to convince us that prices are inflation so that we will mblame merchants instead of banksters. We have had 100 per cent inflation since our silver coins were removed from banks in 1968.
So are you switching your dollars into gold or silver bullion as soon as received, other than the reserve you expect to spend in the immediate future. If you are doing so, what is the problem. If not, why not?
For a few men to control the world with inflation, fear,
lies, disease and amusements that inhibit thinking,
they must keep the majority from understanding what
inflation is and that we are controled. Inflation is the
ultimate means of getting something for nothing and
is a synonym for money. The St. Louis Fed admitted
this when they said: “Inflation reduces the wealth of
money holders in proportion to their holdings of
money.”
You could go to an auction and bid say 100,000 with-
out owning a dime. Eventualy you quit bidding and
the last bidder pays an inflated price because you
were offering nothing for something. The nothing
that you were bidding was the inflation.
If you accept a gold coin as full weight when it has
a hole in it, the hole is inflation. Inflation is non pro-
duction accepted for something. The money that
a bank creates is non production is inflation. Banks
do not create paper or metal, they only create con-
fidence which is nothing, better known as credit.
The New York Fed said their system “works (us) only
with credit.” This constitutes admission that no one
pays taxes and our misleaders spend nothing since
taxes cannot be paid with credit. We have perpetual
warfare because soldiers and supliers pretend they
are paid with credit that we all call money.
The perfidious state controlled press must keep the
majority believing that prices are inflation so that we
will blame merchants instead of banks. When they
have inflation headlines, the story below is always
about prices and when the headline have price head-
lines, the story below is invariably about inflation,
so what must readers in error conclude? That
prices are infkation!
Fools insist “The system works” while it works all of
us out of our land, our labor and our lives. Any
veteran’s cemetary is vivid proof that the sustem
does indeed work. http://www.morpix.biz/x4
http://www.morpix.biz/dc http://www.morpix.biz/fkills
IRS = Imaginary Revenue Scam The head of the
New York Fed read a paper in Jan.1944 stating
“taxation for revenue” is obsolete and here is a
report on that by the late great Alan Stang:
http://www.morpix.biz/x17
I ENCOURAGE NO ONE TO FIGHT TAXES EXCEPT
AS JURORS IF YOU WANT TO STAY OUT OF JAIL.
People concerned about the Treasury should see: http://www.morpix.biz/wxyz
Pardon the misplacement of this post, but I’m having a forum debate where a certain aspect of MMT is being challenged:
One of the members at gyroscopicinvesting.com/forum is suggesting that the fed IS independent and that the treasury is a currency USER because the treasury DOES have an account at the federal reserve that can’t reach zero, and all the fed does is facilitate auctions. It is up to bidders to actually buy the debt and at a certain price (interest rate). This, he says, indicates that the treasury is still a user of the currency, and its debt is similar to private debt. Can somebody point me in the best direction possible to information on how the auctions are designed not to fail, and how that is achieved, or sum it up here?
http://monetaryrealism.com/marriner-eccles-explains-it-all/
“during the war”
http://www.ibiblio.org/hyperwar/ATO/USGM/FRS.html
Of course the United States can default as I show here
http://www.concertedaction.com/2012/05/04/the-monetary-economics-of-sovereign-government-rating/
Ramanan,
Good analysis, but I think you’re skipping a step. You say:
“In 2022, foreigners are no longer willing to finance the debt. ”
Okay, but WHY? Why do foreigners stop buying domestic bonds? Why did the CA balance grow out of control? What was going on? It’s my presumption that this would revolve around a deteriorating production base. Something that could certainly be exacerbated by govt printing over a CAD claiming it doesn’t matter as long as they fill the demand leakage (basically the MMT position). But I think you’re essentially making an argument similar to the hyperinflationists, no? Yes, if production collapses then it’s game over for the currency issuer. They might not “run out of money”, but they’ve run out of the production base backing that currency leading to all sorts of other issues and ending in currency collapse….
I think we basically agree here, but I want to be clear….As you know, we totally agree on the foreign sector view.
Cullen,
Maybe an exaggeration – not in my original post – just in the above comment of mine.
Think of a country like Hungary. It’s exchange rate floats. However it (govt) frequently has issues in raising funds. While it is true that the Hungarian government can use its line of credit at the central bank which may issue central bank bills or government bills to domestic banks to soak the reserves created, the Hungarian government needs to keep foreigners attracted to purchase its debt.
The issue of debt to foreigners is indirectly financing the current account deficit via the fiscal deficit – since both are related by an accounting identity.
One monetary operational technicality here. mmters (and others such as Paul de Grauwe – one of the better Nkeists) argue that if one foreigner sells bonds, some other has to buy it necessarily. However it is not necessarily true. When foreigners make a capital flight, the banking system as a whole becomes (more) indebted in foreign currency. Sometimes the currency depreciates to a point to attract foreigners to purchase domestic currency debt (marketable or non-marketable) reversing this but this is not necessarily so. Hence the official sector intervenes in the fx markets.
I haven’t followed closely recently but Hungary did have its share of troubles. Last I saw some news of some bailout by the EU.
There are two different kinds of people – domestic and foreign. Usually foreigners have less preference to buy the domestic debt. In a closed economy, since the government debt is a mirror image of the private sector assets, there is no shortage of funds. However in the case of an open economy, while foreigners have more funds because of the CA deficit, they are less willing to purchase the debt – except for the case of the United States where foreigners purchase from the proceeds they get from their exports to the US.
Because of this there is a depreciation pressure on the currency. That’s the reason one sees currencies of poor nations having a much lower value than what PPP etc suggests. of course this is just one of the reasons (CAD), currency traders look at other things also etc.
So a nation which has a large current account deficit has limited choices – a fiscal expansion may deteriorate its external position further via higher imports and this may cause more troubles. There is no theory for the movement for exchange rate movements – nor cannot be but a deterioration of current account leads to the exchange rate markets changing their expectations about future exchange rates which can put pressure on the currency and sometimes even sudden stops.
So as per Reinhart and Rogoff, they observe that nations have defaulted in their own currencies because funding from foreigners can become increasingly expensive and its better to default.
What I was pointing out was that it is a bit misleading to say “govt x cannot default” and so on because the same argument can be applied to other nations as well – where there can be doubts such as Hungary.
However while it is less likely for the US, its precisely because at some point the US will do something or the other about its external sector rather than behaving like mmt that “current account deficit” doesn’t matter.
“However while it is less likely for the US, its precisely because at some point the US will do something or the other about its external sector rather than behaving like mmt that “current account deficit” doesn’t matter”
Someone cynical would say that all the US has to do in order to increase net exports is start a big war and export lots of high tech military goods, which it is always geared up to do.
Hi Ramanan,
I am not that familiar with the case of Hungary. My understanding is that they have substantial foreign denominated debt. I am not sure why they’ve been accumulating foreign denominated debt though. Are you aware of the reason?
Cullen
Reason is private mortgages , the locals borrowed in EUR and CHF not their own currency.
Cullen,
partly the reason is because residents borrowed in foreign currency and foreign currency linked mortgages in domestic currency. But that alone is not the full explanation.
Hungary had been running a huge current account deficits since the last so many years (although the trade is probably small positive now). Such as 8-9% of GDP. As a result of this current account deficit, it has accumulated a lot of foreign debt – a lot of which is in foreign currency.
The MMT intuition is a bit confused – they think that all the current account deficit is reflected in foreigners’ purchase of domestic debt. But this is not right. Foreigners make portfolio shifts abroad (as in away from the country under discussion) and if the exchange market does not clear, the government has to intervene in the currency markets. It does not have a choice but to pick debt in foreign currency. The objective is to not use the proceeds to make domestic expenditures but to use the proceeds to have more central bank fx reserves and/or sell them in the markets to clear the markets.
Because the currency has depreciated and because of slowdowns, Hungarian households have not been able to pay their debts and the government launched a scheme which sort of guarantees a fixed exchange rate. this has made the situation worse as more foreign currency is needed. But it alone is not the entire reason – the main reason is the current account deficit.
What I am saying is that except for a few debtor nations such as US, UK and Canada, it is impossible for nations to freely float and as a consequence not have indebtedness in foreign currency. But the markets can force the currencies of UK and Canada to become “non-sovereign”.
The mmters try to say that it was all government’s fault – why did it borrow in foreign currency etc or that the government did not behave in the MMT prescribed way. But this is a fallacious piece of reasoning similar to Milton Friedman’s argument that he is right because the government/CB did not behave as per his theory or that it is incompetent. It is true policy makers are confused but you can’t always place the blame on them for everything. I am sure governments know that issuing debt in foreign currency is dangerous as the rating is less to start with. But yet they do that and the reasons are not silly.
MMTers are “locally right” when they start saying things like no government debt in foreign currency but looked as a story – a nation with zero government debt in foreign currency but later having to borrow in foreign currency due to troubles in the external sector even in the case of floating rates and then ending up in troubles says a different story.
Ramanan
Reading this made me very curious and wonder what your thoughts are
http://www.tradingeconomics.com/hungary/current-account
They went from a huge deficit almost overnight to quite a big surplus (not small positive) sometime around late 2009 at almost the same time that they banned these foreign exchange mortgages (december 09 I think). That massive turnaround seems kinda weird.
Dont shoot the messenger again please
should explain that I work in international trade and one thing i do find uncomfortable is running CADs for long periods, maybe possible to do but dont think that its sensible to do so.
I guess the trade was “brought” in balance because of a huge recession in Hungary
http://www.tradingeconomics.com/hungary/gdp-growth-annual
Since we are discussing by comparison to MMT, let me analysze it using their language. MMTers give the impression that the trade is because of foreigners’ “desire to net save” in the currency of the issuer or something like that – giving the impression that foreign trade is entirely determined as a result of foreigners’ behaviour. Now that is a bit dubious because what if hungarians don’t like foreign products and that the domestic producers are far better and diverse than foreign ones? The MMTers come back by saying “it takes two to tango” etc. Vague. It’s similar to the neoclassical story of 2000s where they though that since the sectoral balances identity has an I, the US current account is due to foreigners investing in the US or such. Just mixing accounting identities with behaviour.
In Keynesian way of putting it, the imports depend on the propensity to import times the income – i.e., higher the propensity and/or higher the income – higher the imports. Similar is the case for exports where it is the propensity to import in the foreign nation times the income there.
So that’s part of the “balance-of-payments constraint” story. When a nation’s current account starts creating issues, fiscal and monetary policy are tightened so that it is hoped that imports are reduced.
Banning mortgages will work slowly over time. Getting a mortgage in foreign currency does not increase the net indebtedness of a nation. The indebtedness is increased when interest is paid on the mortgages. (Or if its the case that the home seller is a foreigner – less likely). More “complicatedly”, only if the bank is foreign controlled. The bank also pays Hungarian employees etc. So the amount of undistributed profits (as opposed to interest income itself) leads to higher indebtedness to foreigners.
So I wouldn’t think banning mortgages is the explanation for the reduction of the current account deficits.
Thanks for the reply Ramanan, btw you should also note im English so more concerned about current account deficits than the americans would be. Im just trying to understand individual cases at the moment then make up my mind from there..as in the mexico case, some dodgy goings on there with corporations (not banks) playing with things they shouldnt causing nasty side effects, (similar been going on with SMEs in the UK being sold interest rate swaps) There always seems to be more to the story the deeper you dig.
“More “complicatedly”, only if the bank is foreign controlled.”
curious as I was under the impression that most of the banks in the old east european block were now foreign owned? mostly Austrian I believe?
Andycfc,
Sorry – should have stressed in a different manner. Yes I think 60% of banking in Hungary is foreign controlled.
I guess my stress is on the territorial perspective of looking at things, rather than a currency way of looking at things. (for example my obsession with indebtedness to foreigners, domestic or foreign currency).
In the Mexico story, as per the BIS article you linked, it’s true that the domestic corporate sector had a lot of currency exposures in their holding of derivatives, but IMO it cannot be said to have caused the crisis. The genuine reason I thought was a flight to quality and hence a capital flight from Mexico and the derivative exposures exacerbated it – just as a fall in stock markets in the USA led to a deeper crisis but cannot be said to have caused the crisis.
I agree with you in a general sense – more regulation can obviously help but IMO it is difficult to deal with problems with the foreign sector by regulation alone.
Ramanan
Really liked your article, very well written, and it is giving me much to mull over.
One thing I seem to get from the article is that talk about currencies can sometimes be misleading because strengths of currencies do not necessarily always reflect a countries “real” economic strength. Eventually, if you just look at a countries currency strength or some financial metric you can be misled. Its not unlike looking at a companies balance sheet or listening to their own sales projections when considering their stock price and whether it is cheap or expensive.
Buying someones debt does not have the same outcomes as buying someones automobiles, yet it seems like in our financialized world we sort of forget this. Debt and currency can be manipulated, and not even for nefarious reasons. Sometimes its the “proper” domestic policy to intervene or “manipulate” so to speak.
The US is unique not ONLY because we issue our own currency and float it we are unique because basically there is not a thing on this planet we cant produce ourselves. If our factory isnt producing it anymore our investment is producing it somewhere else and we could, in a heartbeat if necessary, bring it back and produce it here. This is certainly true of things we NEED to function as top dog on this spinning orb. Hungary cant say that, Mexico cant say that…….. heck only the US, China, France, Germany, Russia, maybe Brazil and Japan and maybe Australia and Canada can.
Thanks!
It’s all a reserve drain. The Primary Dealers are required to make a market in govt debt. So the Fed tracks reserves, reports to Tsy and they allocate bond purchases knowing in advance that there will be enough demand. If there isn’t enough demand the Fed supplies the reserves to settle the bond purchases. This is why auctions don’t fail and why, even though the Fed technically needs to supply funds to the Tsy’s account in advance, it’s really just a distraction from the way it’s actually happening.
http://pragcap.com/n-y-fed-explains-government-spends-issues-bonds
A very simple and pretty intuitively obvious response is to ask why if the Fed is independent as he claims, it turns its profit over to the Treasury instead of distributing it to shareholders (member banks). That certainly is a strange way for a private company to behave. How does he account for that.
The only currency that we ever had was gold and silver coins
that were made “current as money” in Coinage Act of 1972
The Fed cannot tell the truth that money, credit and inflation
are synonyms. They must keep us believing that prices are
inflation so we will blame merchants instead of the Fed.
Who taught me this? Merrill Jenkins, Monetary Realist,
inventor of the dollar bill changer that is erroneously
called a “currency changer.”
Learn what people think of him today 32 years after he
passed away: google: “merrill jenkins” money
using quote marks exactly as I did and find his
“Money” The Greatest Hoax on Earth at Amazon.com
It is 49 bux with a 30 day money back gyarantee
Well “inflation” isn’t a very useful term to us if we can buy as much with the money we have as we did before the “inflation.” The very point of a non-static money supply is to grow with the growing needs of a modern economy. We can start defining inflation as an increase in the money supply, if you wish, but we’ll have to come up with a new name for something that is actually usable in managing a modern currency.
Per the Bolshevicks at Wikipedia:
“In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.”
The only general price rise that is actually significant economically is asset and good prices generally rising without a corresponding increase in the price of a labor, meaning a decreasing real wage. Yes, creditors take a hit since the real value of debt falls, helping debtors, but if the real wage falls, too, debtors aren’t helped, and creditors could have protected themselves by primary investing instead of lending.
You say the Fed is independent? Nobel Laureate, Paul Samuelson said the
Federal Reserve is “an omnipotent counterfeiter” –Economics 4th Editition
Independent, indeed!
With all of us dependent on strips of paper that the first users get without
limit for nothing, WHOSE independence is celebrated annualy on the FARCE of July ? Shortly after his first inauguratuion as president of the United States,
Ronald Reagan said: “We must respect the independence of the Fed.”
NOW YOU KNOW, and don’t forget whose independence you celebrate on
the FARCE of July!
I believe it was 1979 that Parade Magazine said the Board of Governors of
the Federal Reserve “answer to no one, not to the Congress or the President,
NO ONE! So, WHY do you vote? “That you vote does not prove yu are free,
it just shows you are a slave who votes.” –anon
“None are so hopelessly enslaved as those who falsely believe that they
are free.”–Johann W. vonGoethe
This will give you a lot to think abour: http://www.morpix.biz/wxyz
I had no idea Ronald Regan was an authority on monetary economics. Please post all of his work on the subject here do we can all catch up on this body of work you know so well and we don’t.
One of the few things I know about the Fed is it was created by an act of Congress and works daily with the Treasury….
Thanks well I think all thats fair, going by the examples with all i have seen (and im including the UK in the 70s as that was the result of a 5 billion usd debt, took some digging there i might add to find that! ) all of them seem to have some sort of foreign currency debts, Pegs etc involved somewhere along the line… not that they are the cause, you are right there of course I didnt actually suggest or mean that apologies if thats what you thought i meant, but it does then lead policy as there is little room to manouver and makes things a hell of a lot worse.
Andycfc,
Oh apologies was for having implied that Hungarian banks are less foreign controlled.
One will always find government debt in foreign currency for a nation having external issues. After the Bretton Wood system broke down and nations freely floating their currencies, they realized it is actually difficult to just float and let the fx markets find the clearing price. Hence there is official intervention in the currency markets, issuance of debt in foreign currency, holding of foreign reserves etc. Most people look at official intervention as the central bank preventing the price from falling too much but it’s more than that. It clears markets and prevents a prophecy to build up. For example if the currency falls, it may lead to expectations building leading to further outflows. So I saw STF in the mikenormaneconomics thread saying that the government didn’t behave in an MMT prescribed way and such – but it is impossible for the Treasury of most nations to behave that way. It’s “operational reality”.
Ah right ok with you now, so its unavoidable running them up as things currently are. Makes sense thanks for the explanation.
Promoted your comment to a post at MNE to get some discussion going on the issue.
Thanks Tom.
And there is a discussion going, I see.
If your summary of the MMT position is wrong, I don’t see how.
(Update: better way to say it “wrong, how many non-pro MMTers are getting it right?”
Ramanan or Andy,
I am confused. Why would accumulating private foreign debt impact the sovereign? If Hungaraians were borrowing from foreigners to buy houses then this isn’t impacting government spending and its limits, right? Or is it?
Seems to me FDO15 although I could have it wrong of course (which is why i was asking Ramanan in the first place) is that they borrowed in CHF not their own currency, so yes they were borrowing from foreigners but also borrowing foreigners currency as well, its bound to impact the government as their people have a need for CHF. yeh mad innit! who the hell thought that was a good idea was mental
Okay, thanks Andy. It seems crazy, but it’s a tangled web. It’s not implausible to see how a multitude of factors could make it more affordable to borrow in the foreign currency. Especially being a small nation bordering a larger safer country. And once this becomes a broad economic problem the government is the only entity large enough to deal with the clean-up. MMT doesn’t address this very clearly or correctly. It’s nice to be the USA, but not everyone is in such a desirable situation.
It’s actually another case of MMT getting the order of importance wrong. Everything starts at the govt level for them when the reality is that govt is just a facilitator. Get the order of importance wrong in the monetary system and you might conclude that the state should be “center stage”.
You help nothing by repeating the BS
from the Fed. Why not repeat some of
their facts?
They said their system “works (us) only
with credit” that would keep its value
“if there were fewerpeople bidding
against each other.” Since taxes can’t
be paid with credit, have they admitted
here that no one pays taxes and that
our misleaders spend nothing?
Hey im English so dont have that luxury either! got to remember with Europe and the EU though that things get a lot more intermingled, I can go out tomorrow and get my mortgage in EUR, would never do it but doesnt mean I cant, looking at Hungarys case though is slightly odd as they were looking to join the euro so having a mortgage in EUR wouldnt have made any difference eventually, but the odd thing is how the CHF got used instead and I dont know why.
You’re English, huh? So perhaps that CFC does reference the club I happen to be a supporter of? Or are you a certified financial consultant as I originally suspected?
If its the one that has a date in Munich on that 19th (my birthday i hope thats an omen!) then yes.
Certified something considering the dosh ive spent following Chels around lol… although curtailed last few years, kids tend to do that!