Randall Wray presents in English the German version of his book “Understanding Modern Money”. The intro is in German, Randy’s presentation is in English.
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- Political Theatre and the Government Shutdown October 2, 2013
- Randy Wray: The Taper, the Debt Ceiling and the Prospects for Growth September 23, 2013
- Stephanie Kelton Talks with Warren Mosler September 4, 2013
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Now matter how much I think I understand about Modern Money Theory (MMT), I always gain additional insight by listening to the founders of MMT.
Now I know what Wray means when he says money is debt. What the government owes you when it gives you money is the cancellation of a certain amount of your tax liability (or fee or fine) if you return that money to the government. There is nothing else the government is on the hook for other than cancellation of your debts to the government.
Steven Greenberg: BINGO! Welcome aboard. Amazing, isn’t it?
The point was, I knew all those facts before, but I didn’t consider the promise to cancel your debt to the government as a debt of the government. The reason why I always learn something is that often the concepts have been stated but not explained in a way that I understand. The more people explain things in new ways, the more chances I will learn something that I did not understand before.
One of the reasons that we don’t know about whether high or low interest rates will increase or slow down economic activity, is because in the private sector, bank lending is not simply a function of interest rates. Banks can be loose or tight with low or high interest rates. (And of course there is the vis major of government fiscal policy.)
The ‘pushing on a string’ concept has always been shortsighted, because it focuses on the interest rates alone, and not on the looseness/tightness quality of bank lending.
Another aspect is the ‘a rolling loan gathers no loss’ as Bill Black points out. That is, bad debts, and the effects of credit quality, do not have a direct rigid feedback on economic activity: as long as finance rolls over bad debts, (or refuses to call in a debt, or foreclose) economic activity is not impacted or impaired.
Thus discretionary features are more powerful than interest rates on increasing or slowing economic activity.
In that previous post, I meant inflation, but economic activity also applies. Bank discretionary factors in lending are important in inflation, and can out weigh or offset interest rates.
One thing the German professor did not mention, about the surplus nations like China, Germany, Japan,… is that for them to be surplus, other nations sacrifice production, and thus jobs. Eventually, the unemployment becomes a political issue, and other countries push back ending the surpluses. Thus the barter like ‘equilibrium’ in international trade has employment/unemployment pressures supporting it. International trade tends toward balance, and is largely balanced, as unemployment pressures in deficit and balanced countries and other factors act against surplus nations.