US National Debt Does Not Matter?

[srinir]

1. Intuitively I can accept that in a close society, Government deficits really does not matter, it takes from one pocket and put it into another. As long as society as a whole can balance its book everything should come out OK - a zero sum. It is even positive if the country/society runs a surplus with others.

I am not a trained economist, just an avid reader frustrated with classical economics which is quite contradictory with the real world economics.

MMT says govt. deficit does not matter with the caveat it is constrained by inflation. As long as there is productivity is there to meet the growing demand without increasing inflation, govt. should run deficit.

You are also quoting balancing book loosely. Govt. does not have to balance books, they can create money with key stroke. Contrary to the belief surplus has not been good for the economy. Every time govt. ran surplus recession followed.

2. What if the society/country runs a deficit with the rest of the world? This is the situation with the US. Same outcome as #1?

Are you talking about trade imbalance with rest of the world. There is a relationship between budget deficit and trade imbalance, but is one is to one. In one old paper said trade imbalance effects are about 30% to the deficit, not sure about recent relationship.

3. Where are the limitations, i.e., as some engineers would say, in the limit what gives? If the Government prints 2x, 4x, 8x... eventually what happen? Is it self correcting or a run away feed back loop?

As i said limitation is the increase in inflation itself. One can also look at historical deficit in terms of GDP. In 80's economists were saying 5% was the limit, beyond that rates will shoot up. We blew though that with no effect so far.

 

[srinir]

https://www.themacrotourist.com/posts/2019/04/23/mmt1/

Ever wonder why the three rounds of quantitative easing by the Federal Reserve didn’t cause the CPI increases the hyper-inflationists warned about? Or why Europe’s continued extreme monetary policy has failed to lift their economy? Or my favourite - why Japan’s debt-to-GDP ratio of 250% hasn’t caused an incendiary inflationary currency collapse?

Although neo-classical economists have been at a loss to forecast these economic realities, these perplexing outcomes are easily explained using MMT.

But before we examine the trading applications of MMT, let’s back up and think about the theory.

...
I wrote a piece titled “Trump: The first MMT President” where I outlined all the reasons the President’s policies were much more MMT-like than any on the right would care to admit.

I even saw a Vice-President Pence interview the other day where they asked him why the administration was pushing for lower rates if the economy was as strong as they bragged. His reply was quintessential MMT. Pence said, “because there is no inflation.”

...
When Nixon went off the gold standard, economics changed. Yet all the textbooks are still based on this neo-classical economic thinking. Understanding that the old economic concepts no longer work and the current situation is much different, helps in accepting that MMT does a much better job at explaining today’s realities than any other framework.

 

[ironchef]

...
I wrote a piece titled “Trump: The first MMT President” where I outlined all the reasons the President’s policies were much more MMT-like than any on the right would care to admit.

I even saw a Vice-President Pence interview the other day where they asked him why the administration was pushing for lower rates if the economy was as strong as they bragged. His reply was quintessential MMT. Pence said, “because there is no inflation.”

Why don't they expand healthcare for the poor and expand welfare? It is essentially free?

 

[srinir]

Why don't they expand healthcare for the poor and expand welfare? It is essentially free?

Good question to ask them.

Other giving out tax cuts to juice the economy and packing courts with judges who opposes abortion they do not have any other agenda. Healthcare is far down their list, other than killing any Obama care.

 

[piezoe]

Why don't they expand healthcare for the poor and expand welfare? It is essentially free?

Regardless of whether the Republicans or Democrats understand MMT, a few may, most obviously don't, a possible answer to your question is that they are philosophically opposed. They may not believe healthcare is a right, as opposed to a privilege for those who can afford it.

One thing bears emphasis. An economy based on fiat money is not without constraints. What matters is the amount of money circulating in the economy available to buy goods and services relative to the availability of goods and services, i.e., productivity, and the demand for goods and services. In normal circumstances, Fiat money is backed by productivity. When deficits are too large for extended periods, some of the extra money left in the economy may be sidetracked, to prevent inflation. This can done by tying money up in Bonds. However bonds eventually mature, and then may be rolled over. How many cycles and how far this can go, no one knows, but the MMT economists would do well to pay some thought to this. There is of course other mechanisms for bringing the money supply into balance with productivity. One other such mechanism is taxation, and we all understand the conflicts inherent in this mechanism.. Another related mechanism is for a government to run repeated surpluses by holding taxation essentially constant and reducing expenditures, i.e., fiscal controls. If repeated too many times in succession, this will guarantee a recession.

 

[Overnight]

*sighs*

 

[piezoe]

*sighs*

This video is so horribly incorrect in today's world of fiat money as to be virtually worthless in communicating anything useful. It is true that the money supply is increased by credit issuance. That this process is reversible is conveniently ignored however. Money is not "created irrespective of demand for goods and service," although it could be. In realty, it's creation out of credit issuance is very much tied to demand for goods and services! The Fed does not buy bounds directly from the Treasury. It buys them on the secondary market. It is not necessary for the Treasury to issue bonds before it can spend in excess of revenues, e.g., it regularly and routinely spends before it borrows. The Treasury doesn't need to borrow at all as a matter of fact. Bonds serve other purposes. Credit is extended by banks regardless of their reserve balances. No loan manager checks the bank's reserve balance before making a loan. Inflation is not caused by credit issuance directly, it is caused by the amount of money available for purchase of goods and services being out of balance with productivity and demand. Finally it is productivity that backs modern fiat money.