tag:blogger.com,1999:blog-2546602206734889307.post4160804585276935101..comments2024-03-29T12:16:15.785+00:00Comments on mainly macro: The latest IMF paper on debtMainly Macrohttp://www.blogger.com/profile/09984575852247982901noreply@blogger.comBlogger27125tag:blogger.com,1999:blog-2546602206734889307.post-67643238901091509242015-06-10T20:56:22.706+00:002015-06-10T20:56:22.706+00:00This was a hilarious read because I'm also rea...This was a hilarious read because I'm also reading Stiglitz's book detailing his exasperation with his job at the World Bank. <br /><br />It doesn't matter what IMF economists finally discover to be simple truth. What matters is the clueless opinion of the plutocrats running the IMF.I Will Never Accept The Terms of Servicehttps://www.blogger.com/profile/09422355923256894207noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-11507925769052601812015-06-10T07:29:13.800+00:002015-06-10T07:29:13.800+00:00There's nothing wrong with your THEORY here Cy...There's nothing wrong with your THEORY here Cyrille - the income effect could dominate the substitution effect on leisure so that heavy tax would make you work more, not less. But empirically it usually just aint so - as innumerable microeconomic studies of the question over the last 60 years have shown.<br /><br />Mind you, those same studies tell you that the net effect (ie how much less you work if you are taxed) is typically smaller than the 'small government" people would have you believe - probably because of either diminishing marginal utility (your point) or rank utility. Just don't make their mistake of believing what it is personally agreeable for you to believe though.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-70623008687801376132015-06-09T20:59:29.444+00:002015-06-09T20:59:29.444+00:00http://www.3spoken.co.uk/2012/04/fixed-exchange-ra...http://www.3spoken.co.uk/2012/04/fixed-exchange-rate-system-at-heart-of.html?m=1<br />Government spends by crediting the reserve accounts of private banks, who then credit their deposit accounts and taxes by debiting reserve accounts at banks who debit deposits. Taxes are not actually paid in deposits. When you pay tax, you have to stump up real money otherwise the tax is not settled.<br />Debt does not "finance" spending. The govt always spends by "printing money." Taxes "unprint money." The govt just borrows back what it spends to allow the central bank to hit its overnight rate.<br /><br />"MMT primarily describes the policy benefits of a particular system – one where the private banks are locked in a fixed exchange rate system for their own liabilities with the liabilities of one or more central banks under a legally enforced arrangement, but where that central bank floats their own liabilities on the currency markets.<br /><br />It also describes the follies that ensue when the central banks fix the exchange rate of their liabilities with each other or with a supranational central bank.<br /><br />To pay your taxes you need to present the government’s own bank’s liabilities to settle that debt. If you don’t then you haven’t settled them.<br /><br />Therefore for the taxes to be credited to the National Loan Fund Account or Consolidated Fund Account (using the UK as an example), the banks making the payment have to have access to central bank liabilities.<br /><br />It is the function of the intermediary Government Banking Service to translate whatever liabilities the punter provides into central bank liabilities which can be transferred to the Tax accounts at the central bank.<br /><br />And that is the key driver in the system. The operation of the tax account at the central bank is the way that central bank liabilities are given to and taken from the private banks rather than lent to them.<br /><br />And that matters – due to the fixed exchange rate between the central bank and the private banks.<br /><br />I’ll use Treasury rather than Government. Government owns or controls both the central bank and the Treasury in modern states. MMT generally consolidates the balance sheets of Treasury and Central Bank to avoid the confusion of the internal transactions.<br /><br />The Treasury can’t create central bank money. If it credits an account, one has to be debited as well. The tri-party transaction involves the Treasury, the central bank and the private bank.<br /><br />What the Treasury is doing functionally is purchasing new private bank liabilities with central bank liabilities via the internal fixed exchange rate mechanism.<br /><br />So an amount of central bank liabilities are transferred to the private bank. That causes the private bank to increase its own assets and liabilities via the fixed exchange rate structure. Those private bank liabilities are then transferred to the target of Treasury’s beneficence.<br /><br />You’ll note that mechanism is functionally the same as the private bank issuing a loan. Assets and liabilities are increased and the private bank receives an income from the assets (interest on reserves). It is forced private bank money creation.<br /><br />Similarly in reverse. The overburdened tax payer presents some private bank liabilities to the Government Banking Service at a private bank. The private bank transfers some central bank liabilities to the Treasury central bank account and the private bank extinguishes an amount of its own assets and liabilities under the fixed exchange rate mechanism to maintain parity with the central bank.<br /><br />Again functionally the same as paying off a private loan. Assets and Liabilities go down and the private bank loses the income from the assets. In other words forced private money destruction."Randomhttps://www.blogger.com/profile/04445772572707818311noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-89757698636452778802015-06-09T20:53:21.206+00:002015-06-09T20:53:21.206+00:00OK, if government is issuing debt it means on the ...OK, if government is issuing debt it means on the other side of the fence the private sector is saving more then they are borrowing. The "debt" (which could be base money) will be paid off when the private sector stops doing this. Currency issuing government borrowing is borrowing in the same way a bank borrows when you get paid and your deposits increase. Trying to "pay off" this is ridiculous.Randomhttps://www.blogger.com/profile/04445772572707818311noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-30609870921441547222015-06-08T08:19:09.196+00:002015-06-08T08:19:09.196+00:00Does anyone have a view on what the equivalent IMF...Does anyone have a view on what the equivalent IMF report on private debt levels would look like and how much fiscal space (whatever that's meant to mean) exists in each country? What is the endogenous view on debt sustainability? My bet is that this graph would be the mirror of the other and allow us to frame this question optimally. Hugo Evanshttps://www.blogger.com/profile/12705056750207255618noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-24196184317825303062015-06-08T07:13:55.954+00:002015-06-08T07:13:55.954+00:00Is this paper historically well-informed?
Or doe...Is this paper historically well-informed? <br /><br />Or does it rely on macro-theory?<br /><br />When you are talking about the impact of debt on the political and economic stability of a country, you really should look over almost a century. I would hope, if this is serious, that there is a lot of good qualitative and quantitative historical documentation.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-31937831640703368662015-06-07T21:40:13.968+00:002015-06-07T21:40:13.968+00:00Simon considers only changes in taxes to change de...Simon considers only changes in taxes to change debt. I think that most people who wish to reduce debt wish to do so by reducing certain expenditures that they believe have NPV<0 at the borrowing rate (e.g., transfers from high income taxpayers who reduce their output to low income non-payers who may also reduce their output). I has little to do with multipliers and interest rates and discount rates. Thaomashttps://www.blogger.com/profile/14747215297590200584noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-40718220899355853902015-06-07T20:08:18.428+00:002015-06-07T20:08:18.428+00:00"But we we talk about fiscal policy at ZLB, w..."But we we talk about fiscal policy at ZLB, we are in a very rare situation."<br />It does not have to be. Warren Mosler advocates permanent zirp and just using fiscal policy.Randomhttps://www.blogger.com/profile/04445772572707818311noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-68077764524264403762015-06-07T18:24:20.377+00:002015-06-07T18:24:20.377+00:00RGC - Public debt directly generate private WEALTH...RGC - Public debt directly generate private WEALTH - it means taxes have been stopped in favor of borrowing the cash instead, by way of transferring an asset to this class.<br /><br />The UK, Japan, the EZ, and the US (in particular) are wealthy.<br /><br />Let us raise taxation to recapture the unearned windfalls of poor public policy and distorted labor markets of the last 30 years so borrowing can be lowered. This should in fact keep the borrowing costs of the public's govt lower (principal and its interest costs) - allowing the public a lower cost way to finance public goods (real things and systems) that have benefits that also occur in the future - the classical public finance reason why states issue 30 year bonds to finance big bridges, etc. - it makes no sense to burden the current period with all the costs, which are significant, when many if not most of the benefits occur over 50 years.<br /><br />What is "optimum" cannot be just a sense of 12-month period flows.<br /><br />This notional goal should consider the net wealth of residents within the polity (particularly if a period or periods of economic policy caused major distortions in markets and wealth-distributions).<br /><br />JFAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-14782637750094785262015-06-07T16:09:32.529+00:002015-06-07T16:09:32.529+00:00Interesting discussion: regarding the intertempora...Interesting discussion: regarding the intertemporal solvency condition a zero discount rate (compared to a greater one) means a clear preference for a backloading fiscal consolidation path over a frontloading one which is usually considered by IMF as a stronger solvency requirement.Anonymoushttps://www.blogger.com/profile/16820032624481604225noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-4803840613109377252015-06-07T16:03:29.679+00:002015-06-07T16:03:29.679+00:00This comment has been removed by the author.Anonymoushttps://www.blogger.com/profile/16820032624481604225noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-161675176161409552015-06-07T09:47:01.893+00:002015-06-07T09:47:01.893+00:00It is beyond irritating that professors of economi...It is beyond irritating that professors of economics still talk about reducing public debt when discussing sovereign, fiat currency issuing nations. Such a nation, having an unlimited supply of money, needs never to pay off its debt, it doesn't need to borrow for economic reasons at all. And the GDP equation shows quite clearly that public debt generates private income. And history shows that public surpluses eventuate in recessions. Why does this message not penetrate?RGCnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-9528480620536813772015-06-07T08:18:10.171+00:002015-06-07T08:18:10.171+00:00Good question. That makes it much more likely that...Good question. That makes it much more likely that we have a real interest rate above the discount rate (=0) - not inevitable, because the real rate needs to be growth corrected, so its that r-g thing again. So positive long run debt is likely to be sub-optimal, but the optimal path from present levels is still likely to be very slow (see my paper that I linked to). Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-46945144564105937312015-06-07T08:06:05.094+00:002015-06-07T08:06:05.094+00:00Speaking as an MMTer, watching the IMF struggling ...Speaking as an MMTer, watching the IMF struggling with the question as to what the optimum amount of debt is, is like watching a child grow up: the IMF is gradually tumbling to ideas that are second nature to MMTers.<br /><br />First, it’s good to see the word “optimum” being used. That concept is beyond the grasp of most of the World’s so called “intelligentsia”. But if the IMF is now thinking about what the optimum debt is, that’s a step forward.<br /><br />Second, the standard MMT view is, first that the state must provide the private sector with what MMTers call the “private sector net financial assets” that the private sector wants, else the private sector will try to save so as to acquire those assets and we get Keynsian paradox of thrift unemployment. (Incidentally PSNFA equals debt plus base money.) A second point often made by MMTers is that a country that issues its own currency can pay any rate of interest on its debt that it likes.<br /><br />As to what the optimum rate is, that’s a difficult question. Leading MMTer Warren Mosler (in common with Milton Friedman) advocated a ZERO rate: i.e. those two advocate/d that the only liability the state should issue should be base money.<br /><br />Personally I’d advocate any old rate as long as it’s less than inflation. That way the state profits at the expense of its creditors.<br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-62203832686260514882015-06-07T07:45:08.008+00:002015-06-07T07:45:08.008+00:00Fiscal space is a nonsense concept as explained re...Fiscal space is a nonsense concept as explained recently by Bill Mitchell, and as I’ve pointed out for years on my own blog. For Mitchell, see:<br /><br />http://bilbo.economicoutlook.net/blog/?p=31093<br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-12066934700630346642015-06-07T07:07:29.986+00:002015-06-07T07:07:29.986+00:00This is one of those issues that annoys me - it se...This is one of those issues that annoys me - it seems like some leaders can't chew gum and walk at the same time. Over the long run, yes we want to lower debt. But we we talk about fiscal policy at ZLB, we are in a very rare situation.<br /><br />And when we look at employment, growth, output gaps, etc, all of these need to inform us on how to act. We should also look at the effects of austerity around the world and how effective it has been at reducing debt to GDP (not so much - see the Sen article, excellent).<br /><br />There's a minor kerfuffle about economists and ideology - of course it involves Krugman. Russ Roberts says economists, esp. Krugman and even himself, view economics through ideological priors. Keynesians always want big big government!<br /><br />No mention ZLB, liquidity trap, etc. Just small government good, big govt. bad. I find this cheaply cynical. I'm going to be ideologue immune to empirical evidence b/c everyone is.<br /><br />Mom, everybody's doing it!<br /><br />Anyway, when we're near full employment, interest rates and inflation are up, we can move on the debt. Anonymoushttps://www.blogger.com/profile/07944928931697915829noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-25204855423240549012015-06-06T21:49:40.903+00:002015-06-06T21:49:40.903+00:00When economists talk about adjusting public sector...When economists talk about adjusting public sector debt burdens- whether up , down , or sideways - without mentioning the effect on private sector debt burdens and on the combination of the two , I know they cannot possibly have any idea about how the real economy functions. <br /><br />MarkoAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-32282459298368017932015-06-06T14:02:51.530+00:002015-06-06T14:02:51.530+00:00What result do we get if we set a discount rate of...What result do we get if we set a discount rate of zero? For example, suppose we feel that we ought not discount future utility at all (even though we do), and we are interested in setting a normative ideal for long-term debt.Jonathannoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-2944486920643045862015-06-06T13:56:13.478+00:002015-06-06T13:56:13.478+00:00Actually that seems to be a lot of tosh, and confu...Actually that seems to be a lot of tosh, and confused about positive and negative. But making assumptions about the discount rate *are* assumptions about values, and if one parades the conclusions one gets as value-free, this seems IMHO to be a serious mistake. Whatever the long-term real rates, one country may rationally prefer not to be in debt, while another prefers to stay there.anoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-84015588547077489392015-06-06T13:47:36.843+00:002015-06-06T13:47:36.843+00:00It's like driving a racing car. You don't ...It's like driving a racing car. You don't take the bend late and as fast as you can, but you already adjust the wheel before that and accept having to use the shoulder. This way, the risk of a crash or of the car spinning out of control is minimized, there is no need to push the brake too harshly and overall speed (welfare) is highest. Alexander Sebastian Schulzhttps://www.blogger.com/profile/15135338616598357444noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-10379414779751944802015-06-06T13:45:59.409+00:002015-06-06T13:45:59.409+00:00IMHO it's incorrect to suppose, for a given da...IMHO it's incorrect to suppose, for a given date to the present, that the discount rate is unique. It can even inverse based on whether the utility is positive or negative. For instance, the person who is willing to take his or her lumps now is often (usually?) the same person who is willing to delay gratification. That is, a person can prefer pain in the present vs the future but prefer pleasure in the future vs the present. On the level of nations, it is entirely possible that the nation which does not want to get into debt, wants to get out of debt as quickly as possible. While I appreciate the economist's desire to arrive at value-free conclusions, this does not actually happen when one makes assumptions where particular values are assumed - and assumptions about the discount rate are value-laden.anoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-4920044982939560412015-06-06T13:12:57.562+00:002015-06-06T13:12:57.562+00:00The only "fiscal space" is real resource...The only "fiscal space" is real resources. As Japan has proved for two decades now.<br />The concept of a currency issuing government saving is inapplicable.Randomhttps://www.blogger.com/profile/04445772572707818311noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-9479334558289561362015-06-06T13:11:56.133+00:002015-06-06T13:11:56.133+00:00http://bilbo.economicoutlook.net/blog/?p=31093
Bil...http://bilbo.economicoutlook.net/blog/?p=31093<br />Bill Mitchell's view.Randomhttps://www.blogger.com/profile/04445772572707818311noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-29822498966283643192015-06-06T11:47:59.552+00:002015-06-06T11:47:59.552+00:00Is "fiscal space" what we once used to c...Is "fiscal space" what we once used to call "savings" a long time ago?Demetriushttps://www.blogger.com/profile/17198549581667363991noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-37377923616200800542015-06-06T11:46:14.107+00:002015-06-06T11:46:14.107+00:00Is "fiscal space" what we once used to c...Is "fiscal space" what we once used to call "savings" a long time ago?Demetriushttps://www.blogger.com/profile/17198549581667363991noreply@blogger.com