Macroeconomics, the economy, inflation etc. *likely to be very dull*
Comments
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A sovereign issuer need never default as it can simply print what is needed to honour its debts.surrey_commuter said:
As I think it is total BS I find it hard to read about it but for anybody who is interested this is a very accesible article that I think is reasonably balancedrick_chasey said:
Sure, but can we not pretend it was MMT when it plainly wasn't.surrey_commuter said:
Everybody has a plan until they get punched in the mouthrick_chasey said:Getting a bit annoyed at the "we tried MMT last year and it failed" argument, as, if you were a fully signed up member to MMT, you'd be whacking up taxes to eye watering levels or doing massive austerity to combat the eye-watering inflation, as that is the single indicator you use to decide if you're spending too much as a state or not.
https://www.investopedia.com/modern-monetary-theory-mmt-4588060
Anyway surely the central plank of MMT is that if you have a sovereign currency the Govt can't run out of money. In my world this is exactly what happened to Truss
Likewise, a sovereign issuer can never run out of money in the form of physical money or credits in the central bank's computer system. However, and this never gets as much publicity as I think it should, the sovereign issuer cannot control the value of the money it has in its own currency.
If the markets give up lending to you because they think you're a basket case then you can print money, but only until it is essentially worthless. I think Argentina did this, then started borrowing in USD, ultimately defaulted on USD debt and had a warship it had pledged as collateral seized as a result as well as the usual IMF treatment.
I have no real idea about MMT, except that it sounds too good to be true, and per my Father-in-Law, this means it is too good to be true. (And he was a very successful, if slightly prudent investor.)
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The premise is there is no such thing as 'too much debt', but in return, you use fiscal policy very aggressively in response to inflation.wallace_and_gromit said:
A sovereign issuer need never default as it can simply print what is needed to honour its debts.surrey_commuter said:
As I think it is total BS I find it hard to read about it but for anybody who is interested this is a very accesible article that I think is reasonably balancedrick_chasey said:
Sure, but can we not pretend it was MMT when it plainly wasn't.surrey_commuter said:
Everybody has a plan until they get punched in the mouthrick_chasey said:Getting a bit annoyed at the "we tried MMT last year and it failed" argument, as, if you were a fully signed up member to MMT, you'd be whacking up taxes to eye watering levels or doing massive austerity to combat the eye-watering inflation, as that is the single indicator you use to decide if you're spending too much as a state or not.
https://www.investopedia.com/modern-monetary-theory-mmt-4588060
Anyway surely the central plank of MMT is that if you have a sovereign currency the Govt can't run out of money. In my world this is exactly what happened to Truss
Likewise, a sovereign issuer can never run out of money in the form of physical money or credits in the central bank's computer system. However, and this never gets as much publicity as I think it should, the sovereign issuer cannot control the value of the money it has in its own currency.
If the markets give up lending to you because they think you're a basket case then you can print money, but only until it is essentially worthless. I think Argentina did this, then started borrowing in USD, ultimately defaulted on USD debt and had a warship it had pledged as collateral seized as a result as well as the usual IMF treatment.
I have no real idea about MMT, except that it sounds too good to be true, and per my Father-in-Law, this means it is too good to be true. (And he was a very successful, if slightly prudent investor.)
So when inflation is low, you spend and borrow a lot, and when inflation is high, you cut back on spending and borrowing a lot.
My argument is that describing Truss as an MMT advocate misses the critical point that she was choosing to spend a lot heading into an inflationary period, which is the opposite of the MMT mechanism.
Whether MMT is great or not is sort of irrelevant to my point which is detractors of MMT are incorrectly saying the UK experimented with it.
Ultimately I am an advocate for aggressive counter-cyclical spending, but SC doesn't believe that counter-cyclical spending is politically possible, so you end up doing the spending bit when times are bad, but you never get around to the not spending in good times bit, so you should just cut back wherever you can, politically.
(like in Germany until covid, FWIW).0 -
So back to Truss, what would that have looked like?rick_chasey said:
The premise is there is no such thing as 'too much debt', but in return, you use fiscal policy very aggressively in response to inflation.wallace_and_gromit said:
A sovereign issuer need never default as it can simply print what is needed to honour its debts.surrey_commuter said:
As I think it is total BS I find it hard to read about it but for anybody who is interested this is a very accesible article that I think is reasonably balancedrick_chasey said:
Sure, but can we not pretend it was MMT when it plainly wasn't.surrey_commuter said:
Everybody has a plan until they get punched in the mouthrick_chasey said:Getting a bit annoyed at the "we tried MMT last year and it failed" argument, as, if you were a fully signed up member to MMT, you'd be whacking up taxes to eye watering levels or doing massive austerity to combat the eye-watering inflation, as that is the single indicator you use to decide if you're spending too much as a state or not.
https://www.investopedia.com/modern-monetary-theory-mmt-4588060
Anyway surely the central plank of MMT is that if you have a sovereign currency the Govt can't run out of money. In my world this is exactly what happened to Truss
Likewise, a sovereign issuer can never run out of money in the form of physical money or credits in the central bank's computer system. However, and this never gets as much publicity as I think it should, the sovereign issuer cannot control the value of the money it has in its own currency.
If the markets give up lending to you because they think you're a basket case then you can print money, but only until it is essentially worthless. I think Argentina did this, then started borrowing in USD, ultimately defaulted on USD debt and had a warship it had pledged as collateral seized as a result as well as the usual IMF treatment.
I have no real idea about MMT, except that it sounds too good to be true, and per my Father-in-Law, this means it is too good to be true. (And he was a very successful, if slightly prudent investor.)
So when inflation is low, you spend and borrow a lot, and when inflation is high, you cut back on spending and borrowing a lot.
My argument is that describing Truss as an MMT advocate misses the critical point that she was choosing to spend a lot heading into an inflationary period, which is the opposite of the MMT mechanism.
Whether MMT is great or not is sort of irrelevant to my point which is detractors of MMT are incorrectly saying the UK experimented with it.
Ultimately I am an advocate for aggressive counter-cyclical spending, but SC doesn't believe that counter-cyclical spending is politically possible, so you end up doing the spending bit when times are bad, but you never get around to the not spending in good times bit, so you should just cut back wherever you can, politically.
(like in Germany until covid, FWIW).
a lot to me would be raise taxes immediately (ie not fiscal drag) by $50bn and borrowing by £50bn0 -
Well whatever her MMT economists felt was needed to hold off inflation over 2%.
Given everyone was predicting inflation even before she took charge, she would have done what Hunt eventually did, which was to announce a load of spending cuts and tax hikes, but probably 5x the size.0 -
FWIW I think part of the US economy's success is that, over the past few crisis, they've had the balls to introduce monster stimulus because the democrats have happened to be in charge during the downturns (Obama's American Recovery and Reinvestment Act of 2009 and Biden's Stimmy) but inbetween they've had Republicans who are desperate to cut federal spending on everything (apart from guns and bombs), so they have, by design or chance, run a genuinely counter-cyclical fiscal policy over the last 2 decades.0
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US success re economy not unrelated to the not having to worry as much about finding overseas investors as other sovereign issuers. USTs will be the last financial asset standing come the Apocalypse.rick_chasey said:FWIW I think part of the US economy's success is that, over the past few crisis, they've had the balls to introduce monster stimulus because the democrats have happened to be in charge during the downturns (Obama's American Recovery and Reinvestment Act of 2009 and Biden's Stimmy) but inbetween they've had Republicans who are desperate to cut federal spending on everything (apart from guns and bombs), so they have, by design or chance, run a genuinely counter-cyclical fiscal policy over the last 2 decades.
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Yes there's loads of other stuff that makes it so good, but I think they are *also* a good example of counter-cyclical spending.0
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My understanding, from reverse engineering the Euro's Stability and Growth Pact is that debt will remain stable as a % of GDP (60% is the target) if the average deficit throughout the economic cycle is equal to nominal economic growth i.e. real GDP growth plus inflation.rick_chasey said:
The premise is there is no such thing as 'too much debt', but in return, you use fiscal policy very aggressively in response to inflation.wallace_and_gromit said:
A sovereign issuer need never default as it can simply print what is needed to honour its debts.surrey_commuter said:
As I think it is total BS I find it hard to read about it but for anybody who is interested this is a very accesible article that I think is reasonably balancedrick_chasey said:
Sure, but can we not pretend it was MMT when it plainly wasn't.surrey_commuter said:
Everybody has a plan until they get punched in the mouthrick_chasey said:Getting a bit annoyed at the "we tried MMT last year and it failed" argument, as, if you were a fully signed up member to MMT, you'd be whacking up taxes to eye watering levels or doing massive austerity to combat the eye-watering inflation, as that is the single indicator you use to decide if you're spending too much as a state or not.
https://www.investopedia.com/modern-monetary-theory-mmt-4588060
Anyway surely the central plank of MMT is that if you have a sovereign currency the Govt can't run out of money. In my world this is exactly what happened to Truss
Likewise, a sovereign issuer can never run out of money in the form of physical money or credits in the central bank's computer system. However, and this never gets as much publicity as I think it should, the sovereign issuer cannot control the value of the money it has in its own currency.
If the markets give up lending to you because they think you're a basket case then you can print money, but only until it is essentially worthless. I think Argentina did this, then started borrowing in USD, ultimately defaulted on USD debt and had a warship it had pledged as collateral seized as a result as well as the usual IMF treatment.
I have no real idea about MMT, except that it sounds too good to be true, and per my Father-in-Law, this means it is too good to be true. (And he was a very successful, if slightly prudent investor.)
So when inflation is low, you spend and borrow a lot, and when inflation is high, you cut back on spending and borrowing a lot.
My argument is that describing Truss as an MMT advocate misses the critical point that she was choosing to spend a lot heading into an inflationary period, which is the opposite of the MMT mechanism.
Whether MMT is great or not is sort of irrelevant to my point which is detractors of MMT are incorrectly saying the UK experimented with it.
Ultimately I am an advocate for aggressive counter-cyclical spending, but SC doesn't believe that counter-cyclical spending is politically possible, so you end up doing the spending bit when times are bad, but you never get around to the not spending in good times bit, so you should just cut back wherever you can, politically.
(like in Germany until covid, FWIW).
So an average deficit of 4% pa is the target, assuming average inflation of 2% and average real GDP growth of 2%. IIRC the pact states 3%, presumably to leave a little leeway. (Aim for 3%, hit 3.5% and everyone's happy.)
The obvious corollary of this is that as deficits can rise to high single digit % in sharp downturns in even sensibly run countries, the deficit in the rest of the timeframe of an economic cycle has to be low single digit %, which per SC's observation, is politically challenging these days, as this would require cancellation of capital projects and / or public sector pay freezes.
There is the safety valve that countries can survive with Debt / GDP ratios much higher than 60% for sustained periods of time, so long as the incumbent leadership tells a coherent story about implementing fiscal restraint over a meaningful timeframe to reduce the Debt / GDP ratios (or the factors driving higher borrowing are clearly extraneous such as the Covid era). Which of course means even lower deficits at some point in the future.0 -
What could possibly go wrong?wallace_and_gromit said:
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So an average deficit of 4% pa is the target, assuming average inflation of 2% and average real GDP growth of 2%. IIRC the pact states 3%, presumably to leave a little leeway. (Aim for 3%, hit 3.5% and everyone's happy.)
...The above may be fact, or fiction, I may be serious, I may be jesting.
I am not sure. You have no chance.Veronese68 wrote:PB is the most sensible person on here.0 -
Quite. Presumably why the target Debt / GDP is a very conservative 60%. Per my comment about a safety value above, this gives leeway to cope with the fallout when "sh*t happens".pblakeney said:
What could possibly go wrong?wallace_and_gromit said:
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So an average deficit of 4% pa is the target, assuming average inflation of 2% and average real GDP growth of 2%. IIRC the pact states 3%, presumably to leave a little leeway. (Aim for 3%, hit 3.5% and everyone's happy.)
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But even allowing for the recent sharp rise in inflation, German inflation over the last 25 years has averaged 1.8%, so as the Bundesbank shaped the Pact, a 2% annual inflation assumption is no great surprise.0 -
Well as our debt/GDP ratio was 94.9% and inflation 10.1% at last recordings you could say that sh*t has already happened.wallace_and_gromit said:
Quite. Presumably why the target Debt / GDP is a very conservative 60%. Per my comment about a safety value above, this gives leeway to cope with the fallout when "sh*t happens".pblakeney said:
What could possibly go wrong?wallace_and_gromit said:
...
So an average deficit of 4% pa is the target, assuming average inflation of 2% and average real GDP growth of 2%. IIRC the pact states 3%, presumably to leave a little leeway. (Aim for 3%, hit 3.5% and everyone's happy.)
...
...The above may be fact, or fiction, I may be serious, I may be jesting.
I am not sure. You have no chance.Veronese68 wrote:PB is the most sensible person on here.0 -
Pre-Covid / Brexit, the Debt/GDP ratio was circa 80% and had been falling for a couple of years, so definitely in the "not bad" category.pblakeney said:
Well as our debt/GDP ratio was 94.9% and inflation 10.1% at last recordings you could say that sh*t has already happened.wallace_and_gromit said:
Quite. Presumably why the target Debt / GDP is a very conservative 60%. Per my comment about a safety value above, this gives leeway to cope with the fallout when "sh*t happens".pblakeney said:
What could possibly go wrong?wallace_and_gromit said:
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So an average deficit of 4% pa is the target, assuming average inflation of 2% and average real GDP growth of 2%. IIRC the pact states 3%, presumably to leave a little leeway. (Aim for 3%, hit 3.5% and everyone's happy.)
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Covid is definitely the type of sh*t a prudent country would be resilient to in financial terms.
Brexit not so, as a prudent country would never have voted for it!0 -
now up to a turbo charged 99.6%pblakeney said:
Well as our debt/GDP ratio was 94.9% and inflation 10.1% at last recordings you could say that sh*t has already happened.wallace_and_gromit said:
Quite. Presumably why the target Debt / GDP is a very conservative 60%. Per my comment about a safety value above, this gives leeway to cope with the fallout when "sh*t happens".pblakeney said:
What could possibly go wrong?wallace_and_gromit said:
...
So an average deficit of 4% pa is the target, assuming average inflation of 2% and average real GDP growth of 2%. IIRC the pact states 3%, presumably to leave a little leeway. (Aim for 3%, hit 3.5% and everyone's happy.)
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maybe we could all clap on our doorsteps when it breaches the 100%, though it is important that we see 100% as a signpost and not a destination.0 -
American economic miracle continues to impress0 -
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Interesting how closely the median follows the top 10%. I know you’ll get grumpy at someone questioning the graph but what is the ‘y’ axis actually showing? I’m assuming higher is better but I can’t workout what it is. It mentions hourly wages but obviously isn’t an actual hourly wage in dollars.rick_chasey said:
American economic miracle continues to impress0 -
It's interesting that both AOC and Bernie Sanders are already backing Biden for 2024. Maybe they've twigged that he's actually managing to deliver a good chunk of their progressive agenda by being able to play the weird US system pretty well.0
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Indexed where 100 is Jan 2020 real wages.Pross said:
Interesting how closely the median follows the top 10%. I know you’ll get grumpy at someone questioning the graph but what is the ‘y’ axis actually showing? I’m assuming higher is better but I can’t workout what it is. It mentions hourly wages but obviously isn’t an actual hourly wage in dollars.rick_chasey said:
American economic miracle continues to impress
Link to the data in the follow up tweet.1 -
Dan Neidle, who helped bring down Nadhim Zahawi, is getting tired of pointing out that reducing VAT to 0% on specific items doesn't help the people it's intended to, as the producers just raise their prices and take 80% of the reduction in increased profit. OTehr examples include tampons and e-books. He has the receipts.
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There are pretty economic supply and demand graphs for this. The study seems to ignore Covid ie demand for books increased.briantrumpet said:Dan Neidle, who helped bring down Nadhim Zahawi, is getting tired of pointing out that reducing VAT to 0% on specific items doesn't help the people it's intended to, as the producers just raise their prices and take 80% of the reduction in increased profit. OTehr examples include tampons and e-books. He has the receipts.
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American grad discovers quite how big the gap is over the pond:
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@rick_chasey
I have been submitting unsolicited articles to The Economist for decades and finally they print one and give me a Leader!!!!!2 -
Hahaha, yes I saw that. Well done.surrey_commuter said:@rick_chasey
I have been submitting unsolicited articles to The Economist for decades and finally they print one and give me a Leader!!!!!0 -
If Turkey sacks its strongman, democrats everywhere should take heart?surrey_commuter said:@rick_chasey
I have been submitting unsolicited articles to The Economist for decades and finally they print one and give me a Leader!!!!!0 -
https://www.economist.com/leaders/2023/05/04/governments-are-living-in-a-fiscal-fantasylandTheBigBean said:
If Turkey sacks its strongman, democrats everywhere should take heart?surrey_commuter said:@rick_chasey
I have been submitting unsolicited articles to The Economist for decades and finally they print one and give me a Leader!!!!!0 -
I lack moral fibre and would not risk being Kashoggi'edTheBigBean said:
If Turkey sacks its strongman, democrats everywhere should take heart?surrey_commuter said:@rick_chasey
I have been submitting unsolicited articles to The Economist for decades and finally they print one and give me a Leader!!!!!0 -
Monthly UK debt update
Debt went up by £25bn in April which is the 2nd highest on record (2020 higher)
Debt servicing cost was £10bn which was a turbo charged record for April and an impressive £3bn higher than last year.
The really exciting thing about these figures is that they are using RPI from Feb so we know the numbers are going to be shite for the next few months.
My fear is that the slack created by falling inflation will be filled by refinancing at 4% debt that is expiring from 2013 which would have been at a fraction of the cost.0 -
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I have not been following this argument so would you mind telling me the explanation for why there has not been an explosion in corporate profits?briantrumpet said:Is the IMF a bunch of lefties?
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