MMT coming soon to an economy near you?

[Running_Man]

Let's say that 95% of the people who will build the bullet train are already employed at something else.

And, they happen to have more valuable job skills than the 5% who are not currently employed.

It seems to me that building the bullet train means taking that 95% away from the other stuff they are doing. That other stuff won't get done. I don't see "something for nothing" here.

In your example you are stating that their is an inflationary aspect to the workers needed. If 95% of all workers needed for a job are already employed then the project would not be undertaken as the industry would already be at full employment.

 

[samclem]

In your example you are stating that their is an inflationary aspect to the workers needed. If 95% of all workers needed for a job are already employed then the project would not be undertaken as the industry would already be at full employment.

So, the train wasn't really needed in the first place (i.e. the point is the jobs, not what is being done)? I think I see a potential issue here.


"Give them spoon, not shovels!"

 

[Running_Man]

So, the train wasn't really needed in the first place (i.e. the point is the jobs, not what is being done)? I think I see a potential issue here.


"Give them spoon, not shovels!"

No the idea whether the train is needed or not the controlling factor is the ability of the economy to absorb the spending on extra work. Obviously a bullet train has value when completed, but if it's completion were to cause a strain on resources by bidding up labor utilized on other jobs it would not be a job undertaken via MMT. Bullet train is just being used as it is possibly electric and an example of projects required under green deal that MMT is seen justified for. MMT projects are already well utilized by the economy - think of cities agreeing to spend government funds building tunnels via the Boring company as an example, without government funds they will not be built but MMT requires a determination about inflationary impact of the spending not the utility of the spending.

 

[Jeffman52]

Ever since we went off the Gold standard we have effectively been moving toward MMT. Money is nothing more than balance sheets where we track our fiscal currency.

I was having a debate with someone a few years ago and they said this which makes sense.

"Inflation is an issue and must be managed, but the point is to establish that it is functionally impossible for the government to not have the funds to service the debt regardless of how big the debt is. If we can accept the premise and then demonstrate that bond sales are a monetary operation used to control the fed funds target rate and not as a method of financing, we are left with only inflation and deflation to deal with. This moves the debate from "We're going to go broke if we can't borrow enough to finance the deficit" to "How do we manage inflation" which is much more fruitful discussion."

http://www.moslereconomics.com/wp-content/powerpoints/7DIF.pdf

This link pages 13 - 31 explains it better than I can.

 

[Running_Man]

Ever since we went off the Gold standard we have effectively been moving toward MMT. Money is nothing more than balance sheets where we track our fiscal currency.

I was having a debate with someone a few years ago and they said this which makes sense.

"Inflation is an issue and must be managed, but the point is to establish that it is functionally impossible for the government to not have the funds to service the debt regardless of how big the debt is. If we can accept the premise and then demonstrate that bond sales are a monetary operation used to control the fed funds target rate and not as a method of financing, we are left with only inflation and deflation to deal with. This moves the debate from "We're going to go broke if we can't borrow enough to finance the deficit" to "How do we manage inflation" which is much more fruitful discussion."

http://www.moslereconomics.com/wp-content/powerpoints/7DIF.pdf

This link pages 13 - 31 explains it better than I can.

This is true and why the stock market is doing well, with the funding of government debt being concerned with low interest rates more money is used for spending which increases the economy. Inflation as it exists is primarily residing in the value of the stock market in the United States where from 1980 to 2017 the value of the stock market to GDP has gone from 40% of GDP to 153%. Meanwhile world GDP to stock market valuation is 55% much closer to the 1980 rate in the US.

https://fred.stlouisfed.org/series/DDDM01USA156NWDB

 

[Independent]

In your example you are stating that their is an inflationary aspect to the workers needed. If 95% of all workers needed for a job are already employed then the project would not be undertaken as the industry would already be at full employment.

Okay.

We're already below 5% unemployment. Even when the economy is terrible, we have 10% unemployment. I don't see any situation where new public works jobs don't get most of their workers from people already employed doing something else that seems to be productive. By this standard, we never get something for nothing.

MMT requires a determination about inflationary impact of the spending not the utility of the spending.

It also requires a determination about the impact on the production of other economic goods. We may have all the money we want to create, but we don't have an unlimited supply of skilled workers.

 

[Spock]

... We may have all the money we want to create, but we don't have an unlimited supply of skilled workers.

There are 7.5B people on the planet with a median per capita income of <$3K/year and skyrocketing immigration. "Skilled" isn't necessary with the "spoons vs. shovels" work projects and besides they can be trained just like anybody else.

 

[samclem]

Inflation as it exists is primarily residing in the value of the stock market in the United States where from 1980 to 2017 the value of the stock market to GDP has gone from 40% of GDP to 153%. Meanwhile world GDP to stock market valuation is 55% much closer to the 1980 rate in the US.

1) The use of "market captialization-to-GDP" ratio (aka "Buffet ratio") is not especially useful in nation-to-nation comparisons. This is due to the (sometimes large) differences in the portion of industries in each country that are publicly traded vs state owned or closely held.

2) Similarly, in the US economy, over time an increasingly large share of industry is in publicly traded companies, so it is not surprising that market cap is growing relative to US GDP.



3) Also, as US publicly traded companies make a larger share of their earnings and profits from activity outside the US, the "Buffet ratio" will be affected for reasons not related to "inflation" of equity values.


Still, it is true that US equities are at higher CAPE levels than those of (almost?) any economy, and are also very high by US historical standards. That's a greater cause for concern than the Buffet ratio, IMO.

 

[jollystomper]

Hmm, seems like whichever side is in power decides deficits don’t matter. Witness the last big tax cut and recent demands to lower interest rates. Nothing new here.

+1000

 

[foxfirev5]

Hmm, seems like whichever side is in power decides deficits don’t matter. Witness the last big tax cut and recent demands to lower interest rates. Nothing new here.

Yes indeed. Talk about the elephant in the room. And yet I want to know how those of us on the ER forum can react. Conservative or aggressive in our investment approach all of us are vulnerable. Everything for cash to penny stocks is on the table. Even a fixed annuity or pension has risks. A COLA'd pension who knows?

 

[samclem]

Yes indeed. Talk about the elephant in the room. And yet I want to know how those of us on the ER forum can react.

Having a fixed-rate mortgage at today's rates, with an offsetting balance in TIPS, etc, would feel pretty smart if inflation went to 10-15%. Much above that and we are into remote farmland, MREs, toilet paper, etc.

 

[sengsational]

MMT sounds a lot like "it's different this time" to me. Anybody else?

 

[ArkTinkerer]

For me, MMT at least posits a theory as to why we value paper $$ or electronic tallies of such. Not that I like it but it is the first step beyond emotions/habits left over from days when dollars were certificates for gold/silver. What makes a dollar valuable? At the very base of the system is that you are required to own $$$ to pay your taxes. Doesn't that sound like a government boot on your neck?

 

[Independent]

There are 7.5B people on the planet with a median per capita income of <$3K/year and skyrocketing immigration. "Skilled" isn't necessary with the "spoons vs. shovels" work projects and besides they can be trained just like anybody else.

Running man proposed the bullet train under the condition that the "economy is not running at full employment". I took that to mean a situation where we have too many unemployed workers and the bullet train project would provide them work which was at least somewhat productive.

Somehow, that seems to have morphed it the idea that we should import unskilled workers from other countries to build the bullet train.

That seems kind of backwards. I think what happened is that he saw the goal of the project as jobs for unemployed Americans, you see the goal as a train.

 

[samclem]

For me, MMT at least posits a theory as to why we value paper $$ or electronic tallies of such. Not that I like it but it is the first step beyond emotions/habits left over from days when dollars were certificates for gold/silver. What makes a dollar valuable?

But, in this respect, how is the situation different with gold? The industrial value of gold would be about $75 per ounce IIRC. It is worth more only because people believe it has value. Sure, it is somewhat limited in the amount that can be produced (it is not unique in this regard), but if was strictly an industrial commodity, then the gold reserves currently in existence would meet >many< years of industrial demand--prices would not be "supported" effectively by scarcity.
Just like printed dollars, gold has value only because people believe it does. Both are tradition, left over from the distant past. That doesn't mean they won't endure. But we have a long history of many other paper currencies and it is clear they are prone to devaluation once the money supply is increased at a faster rate than the value of goods and services is increasing.

 

[MarieIG]

Not a fan.

Lots of fancy talk to justify a bunch of politicians spending a ridiculous amount of money and amping up the fiscal mess for the next generation.

No government is bullet-proof.

Spending without accountability never ends well.

 

[Markola]

Not a fan.



Lots of fancy talk to justify a bunch of politicians spending a ridiculous amount of money and amping up the fiscal mess for the next generation.



No government is bullet-proof.



Spending without accountability never ends well.

+1 and as does cutting taxes and exploding the deficit and debt based on the myth that tax cuts pay for themselves. Supply Side Economics, with its aptly-named Laffer Curve, is just the opposite fanciful ideological twin of MMT. Politicians now have two schools of voodoo economics from which to choose to further their careers while avoiding accountability from their voters and donors who do not wish to pay for the government and military services they demand.

 

[Independent]

as does cutting taxes and exploding the deficit and debt based on the myth that tax cuts pay for themselves. Supply Side Economics, with its aptly-named Laffer Curve, is just the opposite fanciful ideological twin of MMT. Politicians now have two schools of voodoo economics from which to choose to further their careers while avoiding accountability from their voters and donors who do not wish to pay for the government and military services they demand.

+1

 

[DougJohnson]

The US Dollar is backed by the "full faith and credit" of the United States. Essentially, the Dollar is backed by Treasury bonds. What is backing Treasury Bonds? the "full faith and credit" of the United States. What could possibly go wrong?

Not exactly. Both the US Dollar and Treasury bonds are backed by the taxing power of the Federal government. A dollar bill is the same as a treasury bond in that both show the government owes you money. The dollar bill does not pay interest and is redeemable on demand. The bond pays interest and is redeemable at some date in the future.

The dollar bill has guaranteed value because you can pay your taxes with it. The bond has guaranteed value because you can get dollar bills with it (eventually).

-- Doug

 

[ownyourfuture]

Not a fan.

Lots of fancy talk to justify a bunch of politicians spending a ridiculous amount of money and amping up the fiscal mess for the next generation.

No government is bullet-proof.

Spending without accountability never ends well.

Most logical post I've seen to this point.

 

[nvestysly]

I had noticed the phrase Modern Monetary Theory (MMT) but hadn't taken time to give it much thought until I saw an episode of Consuelo Mack's Wealthtrack today. In the episode, Paul McCulley, former economist at PIMCO, and now a professor at Georgetown University, discussed the pros and cons of Helicopter Money. McCulley indicates he is not necessarily a proponent of full-on MMT but he seems to say there is a place and time where components of MMT are useful.

At a minimum I need to learn more about the subject. In some ways it seems like the U.S. and many countries are already implementing MMT but there may be some nuances that I don't fully appreciate at this point.

https://wealthtrack.com/financial-t...scal-monetary-helicopter-money-are-essential/

 

[Theo]

If you live in a country that issues it's own currency, only issues debt in that currency and allows the currency to freely float in the currency exchange market, your country has implemented MMT.

 

[pb4uski]

I think that a big thing that people have trouble getting their heads around to is that government finances are not at all analogous to family or company finances.

For the family or company finances during the good times you spend and invest and during the bad times you conserve and tighten your belt.

Government finance is the exact opposite... during the good times one should conserve... the economy deosn't need government spending so much because families and companies are spending. And conserving during the good times allow government to spend during the bad times and at least partially offset that families and companies are in conservation mode.

While spending more than your means and debt can be dangerous for families and companies, that isn't necessarily the case for govenment... especially governments that are a reserve currency.

 

[RobbieB]

The stock market has operated this way for decades. They (market makers) are expected to buy when people are selling and sell when people are buying.

Maintain a stable market.

 

[Masquernom]

Here's some things to think about. Money can be poured into the US economy at a high level, but what does that money do? It ends up at banks for loans, it helps inflate the stock market maybe, but it doesn't really end up in the consumers hands. That's the sort of thing that's been going on with the QE and high level stimulus of the past several years. It's done it's job, kept the banks open, kept interest rates low, etc.. But it hasn't done much to increase inflation, except perhaps keeping interest rates low does help with some types of spending. Look at US wage growth. I don't think you'll see real inflation concerns until you see the wage growth pick up. That's where you put cash in the consumer's hands. As long as most big employers say every year "here's your standard 2.5% raise, good job" I can't really see inflation blowing up.
I think with the Corona Virus, and the government reaction to it, you'll see some temporary upticks. The stimulus payments go directly to consumers, unemployment increases go directly to consumers, low interest rates are still in effect. There are supply chain problems in many industries that will reduce supply, driving prices up. I'm assuming these are all temporary, and things will cool down again after these end/clear up.