It's the Economy, Stupid!

[demi-conservative]

To further clarify, QE to inject trillions into the market is the same thing as printing trillions of dollars, except that physical printing is not involved. Instead, digital ones and zeroes are added to accounts.

[Leonhard]

Thanks for the posts SeanD, I'll consider that.

[demi-conservative]

Folks continue to believe we're in a free market system I guess just out of ignorance this is going on. This is actually not too far from MMT that the leftist socialists are endorsing, maybe because they too are ignorant this is going on.

People have not adjusted to the new normal, which is that

A) Stock market growth is not primarily driven by companies doing well, but by money printing.
B) GDP growth is not primarily driven by economic sectors doing well, but by money borrowing.

The only difference compared to MMT is that borrowing is currently sufficient to address GDP growth.

[Teallaura]

I was being sarcastic.

I should have put "free market capitalist economy" in quotes. It's ANYTHING but free market capitalism. Folks continue to believe we're in a free market system I guess just out of ignorance this is going on. This is actually not too far from MMT that the leftist socialists are endorsing, maybe because they too are ignorant this is going on.

Yeah, but you were talking to a gal who was happy she already knew what quantitative easing was - and frantically scribbling notes about the rest!


<goes to look up MMT>

[Teallaura]

So. I looked up MMT... I think my brain is on fire now...

[seanD]

So. I looked up MMT... I think my brain is on fire now...

Basically, it's the same thing I described earlier, only instead of all that created money going to the banks and the financial system, it goes to a government institution which then distributes it out to the main economy -- to build infrastructure, create "green" jobs, technology investment, etc. The problem with this is inflation. The inflation has been tempered during the 4.5 trillion fiasco because it didn't flow out into the main economy, it inflated the bond and equity market and stayed there. So technically the inflation is in the markets, not the main economy (though even the CPI doesn't represent true inflation, but that's another story), but this obviously wouldn't be the case with MMT.

[Starlight]

You can clearly see the causation of all this. It has nothing, or very little to do with Obama or Trump.

Indeed. Modern politicians have, rightly or wrongly, decided to take a largely hands off approach to the economy and do little to affect its workings, leaving it all to reserve banks to deal with.

So voting based on how the economy is currently doing is silly, yet people don't seem to understand this, and seem to want to reward / blame politicians for how the economy is doing.

To further clarify, QE to inject trillions into the market is the same thing as printing trillions of dollars, except that physical printing is not involved. Instead, digital ones and zeroes are added to accounts.

I would note that it's important (probably) who that money is given to after it is printed. In the current QE systems, it's given to the banks.

Obama toyed for a while with the idea of giving it to the people, but finally concluded the Republican congress was never going to vote for it. That might have made a massive difference (depending on how you think it would have played out given your economic views). The banks had given people loans to buy houses that they couldn't afford to repay, so as the people defaulted (and were evicted) the banks were collapsing. QE saved the banks but left the people defaulting and being evicted. If the money had gone to the people, they could have used it to pay their loans and save their homes, and that would have in turn meant banks didn't default.

Money given to the people gets used differently (pays bills, buys food, buys goods etc) than money given to banks to be loaned out (buys houses, starts companies etc), so you get potentially quite different effects when you do standard QE and give money to banks than if you printed money and gave it to the general population. The Reserve bank here in NZ is toying with the idea of trying the give money to the population option, and I strongly support trying that.

[Starlight]

So. I looked up MMT... I think my brain is on fire now...

What seems to underlie MMT is a historical observation: You can print quite large amounts of money without anything bad happening.

People used to assume printing too much money caused hyperinflation, and were very afraid of doing so as a result. But actually, it doesn't appear to do so. (No one seems very sure what does cause hyperinflation, but it appears to have something to do with political instability.)

So MMT suggests governments should go nuts printing money and use that as their own primary source of money rather than taxes. In turn they can go nuts with their expenditures. It suggests they should only need to resort to taxes if inflation is getting too much. (I am personally skeptical of MMT, but I do think that reserve banks have kept inflation too low in the Western world for the past 40 years or so and that this has had negative consequences, so I am open to MMT insofar as I am fine with increased inflation to a reasonable extent)

[seanD]

Indeed. Modern politicians have, rightly or wrongly, decided to take a largely hands off approach to the economy and do little to affect its workings, leaving it all to reserve banks to deal with.

So voting based on how the economy is currently doing is silly, yet people don't seem to understand this, and seem to want to reward / blame politicians for how the economy is doing.


I would note that it's important (probably) who that money is given to after it is printed. In the current QE systems, it's given to the banks.

Obama toyed for a while with the idea of giving it to the people, but finally concluded the Republican congress was never going to vote for it. That might have made a massive difference (depending on how you think it would have played out given your economic views). The banks had given people loans to buy houses that they couldn't afford to repay, so as the people defaulted (and were evicted) the banks were collapsing. QE saved the banks but left the people defaulting and being evicted. If the money had gone to the people, they could have used it to pay their loans and save their homes, and that would have in turn meant banks didn't default.

Money given to the people gets used differently (pays bills, buys food, buys goods etc) than money given to banks to be loaned out (buys houses, starts companies etc), so you get potentially quite different effects when you do standard QE and give money to banks than if you printed money and gave it to the general population. The Reserve bank here in NZ is toying with the idea of trying the give money to the population option, and I strongly support trying that.

You're confusing the bail-out with QE. This is a common mistake. The federal reserve insinuates QE and doesn't answer to Congress in this regard. Though the Fed also did make loans which was a type of bail-out that even eclipsed the Congressional bail-out. This was discovered via a temporary audit of the Fed by Bernie Sanders in 2011 that gave us a temporary glimpse into the shady dealings of this institution, which is another long story.

[demi-conservative]

So voting based on how the economy is currently doing is silly, yet people don't seem to understand this, and seem to want to reward / blame politicians for how the economy is doing.

It's the democracy illusion. People want to believe that the people they vote for have big influence on things as important as the economy. They want the illusion of indirect control.

I would note that it's important (probably) who that money is given to after it is printed. In the current QE systems, it's given to the banks.

Obama toyed for a while with the idea of giving it to the people, but finally concluded the Republican congress was never going to vote for it. That might have made a massive difference (depending on how you think it would have played out given your economic views). The banks had given people loans to buy houses that they couldn't afford to repay, so as the people defaulted (and were evicted) the banks were collapsing. QE saved the banks but left the people defaulting and being evicted. If the money had gone to the people, they could have used it to pay their loans and save their homes, and that would have in turn meant banks didn't default.

It's important to note that Obama did what the banks wanted, and this way the bank makes more profit since they get the money and the houses.

Money given to the people gets used differently (pays bills, buys food, buys goods etc) than money given to banks to be loaned out (buys houses, starts companies etc), so you get potentially quite different effects when you do standard QE and give money to banks than if you printed money and gave it to the general population. The Reserve bank here in NZ is toying with the idea of trying the give money to the population option, and I strongly support trying that.

I agree that if trillions of dollars are going to be printed, it's better to give it to the people Yang-style than banks.

[demi-conservative]

So MMT suggests governments should go nuts printing money and use that as their own primary source of money rather than taxes. In turn they can go nuts with their expenditures. It suggests they should only need to resort to taxes if inflation is getting too much. (I am personally skeptical of MMT, but I do think that reserve banks have kept inflation too low in the Western world for the past 40 years or so and that this has had negative consequences, so I am open to MMT insofar as I am fine with increased inflation to a reasonable extent)

It's a truism that sovereign governments cannot default in their own currency, if we take 'government' to include both the currency-issuing and currency-taxing arms. That's simply a basic fact.

Problems only arise when it is assumed that that means governments can 'just print whatever it takes'. It's easy to increase money supply, but in reality much tougher to reduce it by increasing taxes.

[Teallaura]

Basically, it's the same thing I described earlier, only instead of all that created money going to the banks and the financial system, it goes to a government institution which then distributes it out to the main economy -- to build infrastructure, create "green" jobs, technology investment, etc. The problem with this is inflation. The inflation has been tempered during the 4.5 trillion fiasco because it didn't flow out into the main economy, it inflated the bond and equity market and stayed there. So technically the inflation is in the markets, not the main economy (though even the CPI doesn't represent true inflation, but that's another story), but this obviously wouldn't be the case with MMT.

That explains something I hadn't understood in a video I was watching on why the CPI is a scam (its title, not my conclusion). The gist was that had the methodology not been changed the economy would show a much higher inflation than reported. It makes much more sense if that inflation is in the financial markets (economy?) since the levels indicated aren't reflected in main economy (pretty sure people couldn't buy toothpaste anymore if it were).

[Sparko]

Thanks SeanD. very informative. Where did you learn all that? Do you work in the stock market or banks?

[seanD]

Thanks SeanD. very informative. Where did you learn all that? Do you work in the stock market or banks?

Self research. I had a friend who lost all her retirement during the 2008 crash, and I've been fascinated with the subject ever since.

[seanD]

That explains something I hadn't understood in a video I was watching on why the CPI is a scam (its title, not my conclusion). The gist was that had the methodology not been changed the economy would show a much higher inflation than reported. It makes much more sense if that inflation is in the financial markets (economy?) since the levels indicated aren't reflected in main economy (pretty sure people couldn't buy toothpaste anymore if it were).

The irony here is that the Fed raises rates back to "normal" during a recovery primarily to control or stop inflation (it also benefits folks outside the financial system because now they can save their money in a bank and earn higher interest benefits from their savings). Lowering rates and creating all that trillions of money will naturally cause massive inflation theoretically, which is why it's necessary to raise rates during recovery. But now the Fed is trapped. They can't normalize rates by raising them because the inflation is in the markets. Meaning that if they raise rates to curb inflation, well, then they burst the market bubble because that's where the inflation is.