Wednesday, July 25, 2012

Rodger Mitchell — Loans, deposits, fiscal prudence and financial nuttiness, all rolled into one

Next time a media writer, politician, old-line economist or debt-hawk says the federal debt is too high, ask him why he thinks the nation is safer when private bank deposits increase while Federal Reserve Bank deposits decrease. Ask why private banks should borrow more so the federal government’s bank can borrow less.
Then smile while he stumbles for an answer.
Read it at Monetary Sovereignty
Loans, deposits, fiscal prudence and financial nuttiness, all rolled into one
Rodger Malcolm Mitchell
(h/t JK in the comments)

Neil Wilson comments there: "It’s driving me mad trying to get this very point across. You see the same mistake again and again."

Rodger hits the nail on the head. Privately generated debt is superior to government liabilities?

People ask how government will pay for the national debt and fund future unfunded liabilities, but they never ask about how private debt that exceeds income potential will be paid down.

Governments never have to "pay off their debts" because they just roll over Treasuries as they mature at the going rate, and they fund the interest by issuing more government liabilities. The government is the currency issuer, and there is no backing constraint under a non-convertible floating rate regime. The only constraint is availability of real resources and nominal price level. There is no solvency constraint.

On the other hand, private debt is unsustainable because the private sector has to obtain revenue as a currency user. This introduces a solvency constraint as well as liquidity issues constituting cash flow constraint.

13 comments:

Major_Freedom said...

Tom, quick question:

Are you not posting far too many articles? I see many of them don't even have any comments in them. Wouldn't it make more sense to post fewer articles with more in depth discussions?

JK said...

Tom can't control which articles generate discussion. (Though, I bet there is a trend.)

I prefer that MNE posts a lot of things to read. Some of them that dont generate much discussion are nevertheless very interesting and informative.

AndyCFC said...

MF
Never assume the most comments mean that they are the best articles.

Tom Hickey said...

Major Freedom,

In addition to posts specifically on MMT or obviously related, I try to post articles that point to major social, political and economic trends that might otherwise be missed or people may not see the interrelatedness of. I generally don't post stuff that I think people interested in MMT will be checking on a regular basis, although I do call attention to some posts that I think are noteworthy, since not everyone here checked the MMT sites daily. I also don't post stuff I presume everyone will likely read in the news, other than to illustrate trends. I aim at the big picture. There are often a lot of hits at many posts where there are no comments. If it is not clear why I posted something, just ask me. Often I am surprised at posts that don't generate comments and also at some posts that do. It's a scatter effect.

dave said...

keep em coming. it sucks going to a site that has the same article up from yesterday. keeps things interesting, i am a junkie, gotta have it.

paul said...

@Major

First, I want to apologize for making a comment the other day suggesting you were a nut. It wasn't my intention to insult you, only to make a point that if you don't tone down your comments it will likely just drive folks away.

Second, since you opened the door by suggesting maybe Tom was posting too many articles, I for one read most of them (the ones that interest me most) and try to absorb as much as I can on things I have no real knowledge of, so no point in my commenting in those cases.

The information is useful to me though.

Finally, not really my business but I suspect most folks here probably don't want to chase arguments down rabbit holes in multiple directions so you may have a better chance of engaging if you kept your arguments more narrow.

Or maybe you just prefer engaging with Tom which is fine.

Just speaking for myself, no disrespect intended.

My area of interest is systems analysis, i find too much philosophying seems like navel gazing so I avoid it, it's not for everyone.

Matt Franko said...

Major,

Another thing is I suspect that Tom has really figured out how to "work the web" so to speak wrt keeping up with blogs and related subjects with google alerts,etc...

Tom,

Do you think you could tell us what your set up is sometime? Do you use google Reader or similar? RSS feeds? do you subscribe to the blogs you come across generally?, how do you keep up with comments, etc... do you have emails coming in?, etc..

This would be good to know... I do not use RSS feeds and tend to not want to use tools that generate emails as it clogs up my mail account that I use to keep up on "mission critical" events in my daily schedule....

I have been experimenting lately with google Reader and subscribe to blogs there and it seems to help...

rsp,

Tom Hickey said...

Matt. I use RSS on Google Reader and prioritized folders. I check comments on sites I am following frequently as well as the MMT folder. I also check my "action" folder and I am continually shifting its contents. I have 20+ other folders, some of which I look at infrequently, but I don't miss anything in the long run either. This covers many areas of interest.

Also use Google Alter Twitter and FaceBook, and some people feed me stuff via email, too.

I skim though a lot of stuff quickly to get a general impression and focus as needed. One of my mentors was trained in intelligence.

Matt Franko said...

I didn't know you could send rss to Google reader..... ill check it out thx

paul said...

Matt,

I use Google Reader with dozens of feeds - works great and it's simple.

I've used a few newsreader apps but GR is the least hassle.

widmerpool said...

Keep it coming.

Reading from all these sources would be chaos without Google Reader.

Then I use Reeder on the iPhone.

Tom Hickey said...

I've been spending more time and ranging more widely recently. I said recently that my intuitive impression is that the wheels are coming off. It's social, political and economic all rolled together. We are about to be squeezed in the vise of crackup and global warming if things continue in this vein. It's getting really crazy.

Major_Freedom said...

Next time a media writer, politician, old-line economist or debt-hawk says the federal debt is too high, ask him why he thinks the nation is safer when private bank deposits increase while Federal Reserve Bank deposits decrease. Ask why private banks should borrow more so the federal government’s bank can borrow less.

Then smile while he stumbles for an answer.

These questions imply false dichotomies.

People don't have to choose between higher private bank deposits through monetary inflation or higher Federal Reserve deposits through monetary inflation. They can choose no inflation, or lower inflation too.

They also don't have to choose between all that government debt remaining government debt, or being private debt instead. They can have less government debt and no change in private debt. High rates of debt purchase inflation is not mandatory.