Nick Rowe writes about the bond vigilantes, saying that, if they strike, things would be bad for the US. This represents the conventional wisdom, and would be true if the US was a currency user in the denomination of its debt. But it is not -- US Government debt is denominated in US dollars, and the US Govt can print all the dollars it needs. In fact, every act of US Govt spending is US$ creation, and every act of US Govt taxation is US$ un-creation.
Nick's post is filled with funny lines that follow the logic of conventional macro, but hear how they sound for yourself:
A large attack by the bond vigilantes would be a bad thing, because it would increase Aggregate Demand too muchReally? The US is struggling to exit from a recession caused by people not having enough money, and a bond vigilante attack is supposed to help this how?
The longer the US stays in recession, with a large budget deficit, the bigger the debt will grow.Japan's been treading water now for 30 years. At this point it's gone way beyond stable, past stagnant, and might be fairly characterized as petrified. But Nick thinks all this unchangingness is somehow a sign of changes just around the corner. Why?
This does not look to me to be a very stable system. And the longer the bond vigilantes wait before attacking, the less stable it looks.
Japan looks even less stable than the US.
To my mind, this reinforces the urgency for something like NGDP targeting. We don't want to wait for the bond vigilantes.NGDP targeting works by the Fed announcing a particular NGDP, but having no tools or mechanisms in place to actually move the economy towards the target. Sort of like 1) announce NGDP target, 2) ??? 3) Profit!
The US continued to struggle with an economy that is overly indebted. The fasted way to de-leverage the economy would simply be to pump more money into it. The only source of new net money is the US Govt, and it pumps money in through spending, and out via taxes. Our deficit is too small, and it needs to be bigger.
"The only source of new net money is the US Govt, and it pumps money in through spending, and out via taxes."
ReplyDeleteBtw, that is not right or at least misleading.
For the United States private sector, financial assets in the net sense can increase by exporting more and/or holding gains on assets held abroad.
Whether this is good or bad is a different question.
I never singled out the US private sector
ReplyDelete"The US continued to struggle with an economy that is overly indebted. The fasted way to de-leverage the economy would simply be to pump more money into it."
ReplyDeleteThat reference is to the private sector isn't it? The rest of the world is not "US Economy"
Nick is talking nonsense. There is no reason why NGDP targeting reduces the chance of bond vigilantes attacking. Assuming the private sector in savings mode, i.e. has a big appetite for government debt, which is currently the case, then an NGDP targeting system will have to accommodate that desire (i.e. spew out government debt) just as would an inflation targeting system.
ReplyDeleteRamanan: The reference was to the US Govt's struggles, and to the extent it needs to consider the ROTW's appetite for US$, it needs to consider more than the domestic economy.
ReplyDeleteStill, easier for USG to just print more or unprint less instead of trying some sort of complicated "action at a distance" via China.
Still, you are right/
RALPH: Nick doesn't think so. He still thinks you can get there via monetarism and changing the term structure of outstanding debt, while keeping the total quantity constant.
Nick, and Scott Sumner have really lost it. They are only worth reading any more for comic relief. They are touted as bright by many but how can you be bright when A) You call yourself a monetarist B) A monetarist is one who believes the money supply is THE important macro variable C) Banks are the source of most of the money we use in our economy today D) You freely admit that you really dont understand banking
ReplyDeleteSeems to me this like a someone saying they want to study how the body works but they will just ignore the nervous sysytem
RE: "The US is struggling to exit from a recession caused by people not having enough money."
ReplyDeleteIs that the correct judgment on it? Another way to say would be, "The US is struggling to exit from a recession caused by people having maxed out on the ability to borrow because the system could no longer send the valuation of the collateral any more skyward. Some lost appetite to take more debt, others stopped getting any more." The deficit US had was one of real jobs, covered by debt against 'collateral'. Now with the cover blown, covering the cover with direct Gov raining money...won't it,...render money itself meaningless...busting the modern economy? I can understand putting people in public works jobs, where they get paid for producing infrastructure others get to use, but this just 'pump money' - somehow, anyhow - that's not it. Economy is not Physics, and people not particles...mere qty of force (money) does not create the outcome in the case of the Economy, the source and the consideration covering the force determine it even more. MMT's basic World View has this problem IMO, no matter how exciting and stimulating the Math and the Models one can construct in it.