Bill Mitchell on the failure of economics

4 May, 2018 at 18:17 | Posted in Economics | 7 Comments

 

Great lecture!

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7 Comments

  1. Great by Bill,as usual! Thank you Lars.

  2. Is this a video or slide show?

    Herb

  3. Bill Mitchell asserts that the “non-government” sector cannot create Net Financial Assets without transacting with the government sector. I submit the private financial sector creates assets backed by promises to each other, that are accepted as collateral for US Federal Reserve notes on demand. The ability of the private sector to create net assets is a great failure of imagination by Modern Monetary Theory, in my humble opinion.
    .
    MMT wants to assert government’s dominance over money, but I think that ship has long sailed. Public finance exists to support private interests … MMT is living in economic la la land …

    • An interesting point but it’s academic, when those private sector promises turn bad (as in 08) to whom do these people turn for real money? What makes your point interesting is why is this allowed to happen? All they are is a record of debts and obligations they owe each other, more often than not, totally unconnected with the real economy.

      Nice try but no cigar.

      • “to whom do these people turn for real money?”
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        The key seems to be to make yourself and your counterparties too bu=ig to fail or jail, and you’re golden. The risks are psychological and the Fed doesn’t panic like private agents do.
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        “why is this allowed to happen?”
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        Because private banks understand finance better than the public, and use finance to build as they wish.
        .
        “All they are is a record of debts and obligations they owe each other, more often than not, totally unconnected with the real economy.”
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        The debts are in the future. The future promises circulate as money today. When the promise comes due, finance allows defaults to be rolled, forgiven, or paid from insurance. The insurance can pay out today based on future promises circulating as money now. When those future promises come due, they too can be rolled, forgiven, or paid from insurance. Thus the endless cycle of putting off final settlement for another day continues indefinitely.
        .
        Two finance companies make a bet that won’t be decided for three months; then they both spend as if they won the bet. When the bet is decided, the loser’s insurance pays out. That insurance itself can be paid from another future bet that the insurance company acts as if it already won. If it ends up losing, insurance pays, and the cycle continues indefinitely …

    • When the government lends money to the private sector with private sector assets used as collateral, this is plainly a transaction with government. The private sector can’t do this by itself. So MMT is plainly right.

      • Consider private money markets, which can lens Eurodollars. Eurodollars are not controlled by the Fed or Treasury. See the Wikipedia article: “The Eurodollar market is by a wide margin the largest source of global finance. In 1997, nearly 90% of all international loans were made this way.”
        .
        Consider a private financial firm that creates an asset, then uses it as collateral to get Eurodollar funding. No government is involved. Net financial assets have been created and exchanged for Eurodollars. Eurodollars can be used to pay US taxes, because Eurodollars are indistinguishable from Federal Reserve dollars.
        .
        The other important point that MMT ignores is that the private sector creates assets first, then the Fed or private money markets supplies money on demand to match them. But the assets circulate as money in the world financial sector, booked as assets on bank balance sheets and circulating among banks, without having to go through any government agency.
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        “The private sector can’t do this by itself.”
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        Yes, it can. Private money markets supply dollars for manufactured assets all the time (except in a crisis when private money markets freeze up in panic; in that case, the Fed has proven it can supply liquidity on demand in unlimited amounts to make up for private money market disfunction).


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