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would make much more sense for them to use the us dollar puerto rico citizens would become american citizens and pay taxes to the us federal govt and receive the benefits of spending by the federal government there would probably be more spending than taxation just as there is in other less affluent us states then they would be truly sharing a currency and not just using someone else s so one way we can define our own feelings of nationalism is by asking ourselves who we would like to share a currency and a government with at present we in the uk share a currency which we call the pound between the countries of england scotland wales and northern ireland other parts of the world like gibraltar and the channel islands use the pound but do not share the pound and so are not part of the united kingdom if scotland were to become independent it could not share the pound it could only use the pound i am not sure if those scottish nationalists who argue for a shared currency really appreciate the difference or the potential difficulty the big exception in the eurozone we ll look at that and the problems it has next 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 bbc central bank currency european union government mmt money post keynesian economics governments should spend more and tax less to reduce their deficits posted on april 29 2016 leave a comment there s no mistake in the title to understand economics as it works at the macroeconomic level means we cannot just assume that what works for us as individuals or households also works for currency issuing governments like the uk the usa and australia at first look it s almost as if we have gone down the rabbit hole and we really are in a parallel universe it is tempting to quote lewis carroll s queen in through the looking glass why sometimes i ve believed as many as six impossible things before breakfast but alice was quite right in saying one can t believe impossible things we just need to look at the problem from the right perspective to make sense of it all any currency issuing government such as the usa the uk or australia need never have a greek type debt problem providing it understands how its own economy works the government deficit can be expressed as govt deficit savings of everyone else private domestic savings international savings or govt deficit private domestic savings bop deficit trade in other words if everyone else in the world wants to save in us dollars uk pounds or australian dollars which they must if want to sell these countries more stuff than they buy from them then the governments or the private domestic sectors in these countries have to run a deficit if the governments try to reduce their deficits by cutting spending and raising taxes then all they will do is force their economies into recession or even depression if they do really want to reduce their deficits they would have to discourage everyone else saving in the uk that would include overseas trading partners who sell to the uk more than they buy from the uk and save the difference the way to do that would be to keep interest rates low and engineer some inflation just a few should be enough into the system by increasing government spending and reducing taxation so perhaps counter intuitively the way to reduce the government s deficit in the longer term is for it to spend more and tax less in the shorter term note i m not arguing that governments should make deficit reduction a primary object of economic policy the government s fiscal policy should always be aimed at steering a sensible middle course between having too much inflation on the one hand and too much unemployment and too many business failures on the other but inevitably there will always be those neoliberal types who focus on the government s deficit they always seem bewildered that it doesn t change in the way what they expect it to and this article is an attempt to explain why 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 austerity economics balance of trade central bank currency economy government deficit modern monetary theory national debt post keynesian economics a high pound a healthy economy low deficits pick any two from three posted on april 16 2016 1 comment we all might like to have 1 a high pound 2 close to full employment with a healthy growing economy 3 low government and trade deficits or even surpluses but are all three even possible simultaneously if we have to choose just two which one should we leave out for most people there is no simple answer but if we better understand the way our economy works we will at least know what the options are from all political perspectives including the second option of a healthy economy should be a no brainer for politicians right across the political spectrum businesses need a buoyant economy to make profits just as workers need a buoyant economy to find decent and well paid jobs but is it the quest for a balanced government budget seems as distant a goal as ever but the connection to that other largely forgotten deficit in trade is rarely made previous generations understood what we seem to have forgotten that if any particular country as a whole has a net deficit trading position with the rest of the world then either the government of that country or the inhabitants of that country has to fund it by borrowing in other words the internal deficits run by governments and the extent of the private sector debts which can accumulate in the economy are directly related to the external deficits caused by a trade imbalance we can see that countries such as germany switzerland holland and denmark which run large trading surpluses do not have any of the public or private sector debt problems which we see in the uk or usa which run large trading deficits unfortunately though the solution to world debt problems cannot be for everyone to run a trading surplus if we do wish to ensure the third option of low deficits is included in our choice we need to understand that both government and trade deficits have to be kept low transferring the burden of debt as seems to be the wish of george osborne necessary to sustain the current uk trading imbalance from government to the private sector is going to do less than nothing to solve the economic problems of the country if he wants to reduce his government s deficit without crashing the economy by imposing an unrealistic debt burden on everyone else he has to acknowledge that this can only be done by reducing the trade deficit too he has to start to tackle the problem from both ends by nudging down the value of the pound including the low deficit option means we have to then choose between having a high pound and a healthy economy we can see for ourselves what happens when a country like greece is stuck with a currency which is too high to suit its economic capabilities and yet it is forced to attempt to balance its books the economy crashes or we can choose a high pound a healthy economy and have a more relaxed attitude to the twin deficits there are many economists who present a good case for selling as much debt government gilts as is possible and recycling the proceeds back into the economy with increased deficit spending some debt can also be sold to the central bank in what has come to be known as people s quantitative easing providing inflation is kept under reasonable control there should be little or no problem we can also have a more relaxed attitude to the build up of private debt if we know what we are doing but we should appreciate the difference government debt unless it is in some foreign currency doesn t have to be repaid in the same way the accumulation of too much private debt though can lead to economic busts to follow the initial boom created by the increase in bank lending tory chancellors starting with tony barber and later nigel lawson were fond of shifting the debt burden from government to everyone else this way we had the barber boom then the lawson boom the recession of the early 90 s should have been termed the lawson bust later the supposedly more socialist gordon brown boasted of his economic prowess by delivering a government surplus around the turn of the millennium simply created by allowing too much private sector borrowing unfortunately most of this posting so far is entirely apolitical in nature the same economic constraints apply whatever the political complexion of the society or economy involved it is natural we might have different ideas and opinions over the ideal size of government it is fair enough to argue for a more socialist approach to the distribution of available wealth and income or a more conservative approach what is not fair enough though is for the political right or neoliberals who are unfortunately not confined to the tory party to wreck public services like our nhs and our economy for some nefarious purpose or in some misguided attempt to reduce the government s deficit by cutting government spending and raising taxation without taking into account everything else that changes when they do that all they ll do is crash the economy again judging by the economic storm that is brewing the powers that be haven t learned from past mistakes and it looks very likely we are seeing the start of yet another very severe financial crisis a country with a large trading surplus is unlikely to have its private domestic sector in overall net deficit although this is theoretically possible if government insists on running an even larger surplus but the net position can still hide localised high debt problems within the pds footnote some mmt supporters might argue that the tone of this article is more keynesian than mmt i accept that criticism but i originally wrote this with the promise from the editor of labourlist peter edwards that sensible articles on economics would be accepted he s not explained why but he s still managed to reject it so i do accept that i attempted to temper the tone slightly nevertheless i m posting this up here as the start in a series of articles which are aimed at those who might be immediately turned off by a more strident mmt view such as the govt can never run out of pounds etc but at the same time ensuring that the arguments are technically correct 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 mmt general tagged austerity economics central bank chartalism fiat currencies government debt mmt modern monetary theory national debt post keynesian economics positive money a fallacy built on a little known truth part 4 posted on march 12 2016 9 comments the proponents of a theory called positive money often get their knickers in something of a twist over the ways the banks as they see it create money as the well known economist minsky said anyone can create money the problem is getting it accepted if i or a bank or anyone else issue a loan in or i m creating assets for someone denominated in but i also have a liability in which i have to be able to guarantee by providing on demand or lose my credibility so am i or the bank or anyone else really creating in a way yes if i or a bank or anyone else issue a loan in ounces of gold i m creating assets for someone denominated in ounces of gold but i also have a liability in ounces of gold which i have to be able to guarantee by providing ounces of gold on demand or lose my credibility so am i or the bank or anyone else really creating ounces of gold in a way yes but we wouldn t have discovered the secret of alchemy any more than we d discovered a way to create dollars in the way positive money suggest is possible 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 9 comments posted in mmt general uncategorized tagged chartalism government debt modern monetary theory post keynesian economics is the chinese economy a giant ponzi scheme posted on january 17 2016 leave a comment there has been quite of lot of justified concern among economics pundits about the chinese economy with some like will hutton likening the problems there to a ponzi scheme a ponzi scheme operates rather like a chain letter where the earlier entrants into a savings scheme are paid directly from the contributions of later entrants it is a simple fraud it has to break down sooner or later whatever the shortcomings of chinese economic regulation may be we don t have the evidence to accuse the authorities there of allowing these schemes the china situation is better described as one of debt deflation money is created and then spent in the private sector when banks make loans this spending stimulates the market shares and asset prices prices rise growth spurts but the newly created money dwindles in the economy as it is spent and respent with the govt taking its tax cut on every transaction but the debts remain and accumulate slowing down the economy so more bank lending is 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...
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