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needed to keep it going and the same thing happens again steve keen has shown that everything looks ok providing the rate of bank lending is accelerating but as it can t do that forever the effect of the bank lending starts to have a net negative effect and then we can have a slump if the level of private sector debt becomes too high the immediate fix is for government to spend large amounts of cash usually called liquidity to keep the economy going mosler s law states that this should always be possible but any crash or slump is still very disruptive a better solution in the longer term is to rely on monetary policy ie the variation of interest rates and the ease of bank lending only to a very limited extent in the regulation of the economy share this share on x opens in new window x email a link to a friend opens in new window email share on linkedin opens in new window linkedin share on tumblr opens in new window tumblr print opens in new window print share on facebook opens in new window facebook share on reddit opens in new window reddit share on pinterest opens in new window pinterest like loading leave a comment posted in mmt general tagged borrowings and lendings chartalism economic system economy government debt mmt modern monetary theory ponzi scheme post keynesian economics warren mosler corbyn s calling us home posted on december 27 2015 1 comment i don t often re blog but i ll make an exception for this turning the tide jeremy corbyn might represent our views but if we want labour to return to power he isn t the right man this was the tweet that broke the camel s back after reading it i was faced with two options either write an article on why it wound me up or scream long and hard into a cushion i opted for the former so here goes the argument against the potential electoral success of jeremy corbyn as labour leader can often be summed up in three words remember michael foot so let us remember foot after michael foot s election as leader in november 1980 labour enjoyed significant poll leads of between 9 and 15 understandably the departure of roy jenkins et al in march 1981 knocked public confidence in the party and poll leads dropped to a four or five point average but labour kept a steady lead under view original post 688 more words share this share on x opens in new window x email a link to a friend opens in new window email share on linkedin opens in new window linkedin share on tumblr opens in new window tumblr print opens in new window print share on facebook opens in new window facebook share on reddit opens in new window reddit share on pinterest opens in new window pinterest like loading 1 comment posted in uncategorized look after the unemployment and the budget will look after itself keynes 1933 is he still right posted on december 25 2015 leave a comment this article was first published in liberal democratic voice keynes was undeniably a genius of his time but he wasn t infallible we should not just assume that he was always correct as with all prolific writers we can cherry pick quotations to suit our own political purposes if we want to argue for more government spending we can use this for the proposition that supply creates its own demand i shall substitute the proposition that expenditure creates its own income collected writings of john maynard keynes volume xxix pp 80 81 keynes meant that the mere supply of a commodity is not enough to ensure the sale of that commodity but money from all government spending inevitably ends up in someone s pocket this is a statement of the obvious maybe but he evidently felt it needed making anyway on the other hand if we are suspicious of what sounds like magic money tree economics as many scathingly describe any deviation from their understanding of sound money we can find this quotation by a continuing process of inflation governments can confiscate secretly and unobserved an important part of the wealth of their citizens economic consequences of the peace chapter vi pp 235 236 rather than play these games we might look at how economics has progressed since his time and interpret his comments in the light of the now available evidence this huffington post article makes a good a case in support of keynes s opinion that a healthy economy will help minimise the government s budget deficit one possible counter argument from those of a more right wing disposition would be that it is unclear which is cause and which is effect does a healthy economy with low levels of unemployment and underemployment naturally produce a small budget deficit or is it the other way around if we force the budget to balance by draconian measures will unemployment fall too a quick glance at the figures for greece is enough to eliminate that possibility it has a relatively modest budget deficit of 3 5 but an unemployment rate of over 25 with no tangible sign that any fall is imminent to give an answer to the question posed in the title we can say usually yes but we must acknowledge there are several sometimes conflicting factors involved it is possible to conceive of a healthy economy with low levels of unemployment at the same time as the government s budget deficit possibly being a little on what some may consider to be the high side to understand why we need to look at the sectoral balances to start with imagine that everyone who issued or used the pound sterling as a currency was separated into either the government or the non government sector the assets of the non government sector have to equal the liabilities or debts of the government sector if money is paid as tax to government the assets of the non government sector fall exactly as the government debts fall too we can then divide up the non government sector into domestic and international so in one year and using the terminology of internal deficit for the government s deficit internal deficit savings of domestic sector external deficit for keynes to be right on the question of unemployment and the internal deficit it should follow that everyone will save less when unemployment is low this is a reasonable assumption but there could be exceptions everyone is more likely to borrow too essentially the same as de saving when the economy is buoyant and there is confidence that money doesn t have to be stored for those rainy days ahead the effect on the external deficit is harder to predict if the uk reflated its economy when everyone else was in recession we could well see that even as unemployment fell the external deficit and so the internal deficit could increase due to a local upturn sucking in more imports exporters could also switch their production to local markets in that sense and if we interpret look after itself to mean fall keynes could possibly be wrong the important thing is that governments should understand these relatively simple relationships to make informed policy choices the internal and external deficits may not be such a problem as we might be led to believe if international investors see the uk as a safe place to park their surplus cash the number one priority for any government at least in peacetime should be to ensure the health of the economy both to offer jobs and business opportunities for all citizens and at the same time maintain the confidence of our external investors ironically if the uk lost that confidence no one would want to lend us any money the pound would fall imports and exports would have to balance we d all end up somewhat poorer and we couldn t then afford to save so much the internal deficit would have to fall too and maybe even turn into a surplus but we have to ask ourselves is this what we really want share this share on x opens in new window x email a link to a friend opens in new window email share on linkedin opens in new window linkedin share on tumblr opens in new window tumblr print opens in new window print share on facebook opens in new window facebook share on reddit opens in new window reddit share on pinterest opens in new window pinterest like loading leave a comment posted in mmt general tagged budget deficit government debt keynes liberal democratic voice liberal party mmt post keynesian post keynesian economics unemployment is a happy new year possible for 2016 posted on december 23 2015 10 comments in april 2014 i wrote stand by for the next uk crash eta 2016 i didn t use my crystal ball which has never proved very reliable in any case when it comes to forecasting football scores or racing results the reasoning was based on the rate of fall in the financial position of the uk private domestic sector it was obvious then that serious private sector debt problems would start to arise in mid to late 2015 if government policies carried on as they were two recent articles by owen jones in the guardian and nigel morris in the independent bear this out government policies have indeed been carried on as they were there is a very real danger of an economic crash as owen jones argues although he doesn t have quite the right explanation it s really not much to do with the need for increased industrial productivity the productivity of uk and european industry is higher than it has ever been yet the economic problems are worse than they have been since the 30 s clearly owen jones much as we might admire his political stance is barking up the wrong tree simply if the uk wants to run a 5 of gdp deficit in its current account balance of payments someone has to fund that by borrowing usually it is government which has assumed that role but increasingly the burden is being shifted onto the private domestic sector it may work in the short term but soon the private sector will be increasingly unable to raise the necessary loans especially if there is a fear of higher interest rates and a general credit crunch in the economy the words credit crunch started to become a cliche of all 2008 financial commentary just prior to the gfc we are starting to hear them again on a more regular basis it s not looking good ps edit the graphical basis of my concern a modified screen shot from neil wilson s blog 3poken share this share on x opens in new window x email a link to a friend opens in new window email share on linkedin opens in new window linkedin share on tumblr opens in new window tumblr print opens in new window print share on facebook opens in new window facebook share on reddit opens in new window reddit share on pinterest opens in new window pinterest like loading 10 comments posted in mmt general tagged austerity economics balance of trade budget deficit central bank chartalism current account deficit economic system european union fiat currencies government budget balance government debt john mcdonnell labour party economics mmt modern monetary theory national debt post keynesian economics resources and money y we need to balance the budget over the business cycle as keynes suggested right posted on december 19 2015 1 comment this article first appeared in liberal democrat voice firstly we do need to ask if keynes did suggest that there are arguments either way on this point keynes view unfolded and developed starting in the bleak 1920 s in britain there was no roaring twenties for the uk economy as the government deflated the economy to try to fit the pound back on to its pre war gold standard keynes then did argue that governments should run deficits if private spending declined and reduce those deficits when future growth was strong enough this has been interpreted by many that his intent was that the budget was to be more or less balanced over the business cycle if anyone is keen to research into his thinking they might like to start with his 1924 publication a tract on monetary reform a better approach might be to try to understand why keynes should made a break from tradition and start to advocate that budgets should at times be unbalanced if we consider an economy which is neither a net exporter nor a net importer and in which everyone spends what they earn within the economy government spending and taxation must balance this is true regardless of the level of taxation imposed providing it is finite and so regardless of the level of inflation within the economy it has to according to the principle of sectoral balances originally developed in the 60 s and 70 s by the late prof wynne godley at cambridge university if the participants of the economy don t spend all they earn ie when private spending declines we can have a tendency to recession keynesian economists would point out that prices and wages tend to be sticky and so don t respond quickly to changing circumstances as more classically minded economists suggest they should therefore keynes was quite right to suggest that the government should spend more or tax less to prevent recession from occurring the government needs to borrow money from the savers and spend it on their behalf later when the savers withdraw their money from the bank or empty their piggy banks and spend it the government needs to run a surplus in its budget to prevent the economy from overheating and inflation occurring so the budget does indeed end up balanced over the cycle it ends up being an approximately symmetrical pattern when expressed graphically this relatively simple model may have been adequate for the uk economy in the 1920s however in recent times the extent of saving and desaving hasn t been symmetrical over the business cycle when times are good people may borrow and spend more but equally they may put more aside for their retirement so if the spending saving borrowing pattern of the population isn t symmetric over the business cycle neither can we expect the government to run a balanced budget over the business cycle instead of imports and exports balancing our economy has something like an annual 5 of gdp deficit in its current account our trading partners seem happy to supply more real things to us than we supply to them they take our ious in the form of treasury bonds or gilts to make up the difference in effect they are like a big net saver within the economy as keynes pointed out if people are saving more and that includes our trading partners the government has to be spending more or taxing less the balanced budget over the cycle is really just a special case which does not apply to our own 21st century economy if we try to force the government budget into balance at the same time ignoring the trading position and the willingness or otherwise of the economy s participants to net save then we are courting economic disaster the budget will not balance no matter how hard we try and we will end up like a dog chasing its own tail as the economy spirals ever deeper into recession share this share on x opens in new window x email a link to a friend opens in new window email share on linkedin opens in new window linkedin share on tumblr opens in new window tumblr print opens in new window print share on 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