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Currency Wars – their Imperial aspect

A quick thought about the money printing and currency wars.

When the current and on-going bank debt crisis began in 2007 we were told that the answer was to print up money (call it QE or ‘borrowing’ if it makes you happy) and give it to the banks. This would, we were assured, relieve the purely short-term cash and collateral shortage the banks appeared to be suffering, and once it did that the banks would be able to return to lending to the the real economy and we would all be saved. They printed. They gave it to the banks and…nothing happened.Except that it all got worse.

The banks got the money. But they did not lend to the real economy. Much of the cash they received, they parked straight back in the central banks where they were paid interest on it – by us.  Some was used as cash flow to pay bills. The rest, a growing amount, was used for speculation. Either by lending it to speculators or by the banks making it available to their own internal Prop. trading desk where they could speculate with it themselves.

Which was lovely if you were a banker but it did also mean that when the bankers needed more money and more had to be printed, there was a problem with justifying it. At first the bankers and our rulers tried to brazen it out and claimed we just hadn’t printed enough the first time, or the second, and a bit of belt tightening and a dose of ‘we’re all in it together’ cap touching and forelock tugging, as we handed our betters some more cash, would do the trick this time. Only it didn’t.

Then something new entered the story. Instead of being forced into talking about the failure of what they had done, our leaders began to point to other countries who had been printing and claimed that while we were printing in order to help our banks lend and help the rest of us, ‘they’, those johnny-foreigners, were printing in order to devalue their currency against ours. And although no one actually said so, there was the handy, albeit unspoken implication that perhaps the reason our printing hadn’t worked was because some countries, mentioning no names – oh all right then, China and Japan! –  were undermining all our otherwise brilliant efforts with their dastardly and selfish currency manipulation!

We were printing to help our banks help us. They were currency manipulators.

We seemed to slide from a world of central banks taking ‘coordinated and heroic emergency actions’ to a world where the same printing, when done by foreigners, was now reported as a ‘race to the  bottom’ of ‘beggar they neighbor’ devaluations.

Tempers have frayed. G20 meeting have become even more farcical and resemble ever more uncannily the gatherings of powdered, wig-wearing elites, so far removed from the people they rule over that they simply can not imagine why the commoners don’t just work harder, earn less and consume more like the plan says. Let them eat cake has become let them borrow. Why won’t the ungrateful wretches understand that there are no free hand-outs – at least not for them. Money can only be handed to those who know how to use it profitably, not waste it on pointless things like health services and pensions. The common people must realize they have brought this upon themselves and must now accept their medicine and work longer for less so they can get back to shopping, consuming and above all borrowing.

But I digress.

It seems to me this familiar story is missing something. Nations are printing and despite the fears of hyper-inflation none has so far appeared. Why not? I am sure there are many factors but I would like to offer one I have been thinking about.  Inflation occurs when the supply of money grows out of proportion to the economic activity it serves. When there is too much money around for too few goods and services, then prices inflate.

Fine. But how do we calculate the volume of goods and services the money is servicing, in order to know when re-flating will become inflating. The standard way is to compare the money supply with GDP. But money, in our debt backed world is tied up in credit and the larger and thoroughly international, border-less world of credit backed ‘money’. That money does not stop at borders or fit within the statistics compiled within those borders. Most of the  ‘broad money’ is simply not captured by national GDP figures but still exists, in the shadown, off-shore world.

We print and from that printing comes a torrent of new credit and debt which takes our currency and ties it to economic activity beyond our borders and beyond our economy. I have begun to think our nations are printing with another goal in mind. The more nations print the more their currency oozes out into the global economy, The more deals denominated in your currency the more good and services it is tied to. Those things may not be in ‘your’ economy, but they are still things your currency services and as such they form the demand for your currency which in turn, is what gives it its ‘value’.

Nations that print do run the risk of inflation IF the volume of that currency becomes too great for the economic activity it services or to put it in another way, the amount of economic activity the currency has access to.

I wonder if nations, who by this point have painted themselves in to an exit-less corner of having to print to endlessly prop up their banks and achieve short term devaluations of  their currency, have realized that if you can’t spur growth in your home economy then a workable alternative (and a far faster one) is to insinuate your currency in to other people’s economic growth.

If so then the situation evolves again. Nations that have been printing can see that if they can expand the use of their currency –  by making it cheaper to borrow, selling more debt so more people hold IOUs in your currency, getting your currency in to other people’s hands so more people use it to fund their economic activity, –  then your printing and your currency is tied to ever more economic activity, much more than you have at home, and is, by this means, safeguarded from inflation. I wonder if we could consider the Yen Carry -Trade, part of the reason Japan could print all through the  lost decades without inflation? The Japanese economy didn’t have to grow as long as trade utlitizing the Yen did.

Are we entering a world where printing begins to create its own imperative to print more.  The more you print, the more your currency invades other people’s economic activities, the safer your printing is and the more license you have to print yet more.

This, it seems to me, ushers in another side to currency wars. This side is not simply about currency manipulation and devaluation but about Currency Imperialism. Print up cash the way you used to train up soldiers and send those paper and electronic warriors off to conquer foreign lands. The only problem is the one common to all forms of Imperial empire building. Not everyone can expand indefinitely. At some point empires rub against each other and compete for space and influence. If I am even partly correct then wars will be fought over whose currency is used for what, by whom and where. I would suggest two wars, at least, have already been fought, at least in part, over this when the Euro and dollar clashed over what currency oil should be sold in. And I think this might prove to be a useful way of deciphering why new wars will be fought.

I have written about Currency Wars before offering specific analyses looking at China, Iran, India and Japan among others.




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78 Responses to Currency Wars – their Imperial aspect

  1. bill40 January 21, 2013 at 3:52 pm #

    Oh it’s one of those irregular verbs.

    I am helping my banking sector.
    You is risking inflation.
    That yellow bastard is a currecy manipulator!

  2. The Dork of Cork. January 21, 2013 at 4:59 pm #

    I don’t really think they are printing.

    Only treasuries can print.

    Banks , even central banks create credit – which indeed drives up prices as the credit chases yield.

    If national treasuries printed I think we would very rapidly move back to rational trade patterns , rational internal trade etc etc with no labour /energy arbitrage games.

    I think the non national euro project is at the very center of this vortex as the $ price of oil began its huge rise in 1998.

    PS Golem
    Check out this thingy on the Irish economy blog.
    It really cracks me up.

    Everything orbits around the question of making a dead credit concrete system work….EVERYTHING.

    Physical life support systems ., real energy input / output economics is discarded.

    “10.45- 11.45 Session 2: Some Irish perspectives
    Paper 1: A distressed mortgage market: Could a fiscal stimulus help?
    Robert Kelly and Kieran McQuinn (both Central Bank of Ireland)”

    You must agree – it is funny in a sick sort of way.

    What would the Physiocrats make of it all………….

    They would ask the question I guess – where is the wealth spring in this dead concrete.

    Why must all Irish economic debate orbit around these sacred stones.

    What secret power do they have.

    • Patrick Donnelly March 28, 2013 at 6:35 am #

      The printing is to allow those closest to the recipients to make profit and also to replace real assets with paper ones. These are the less clever ones as the smarter ones saw this coming and fear that the RoW will find out where the money is going and do something involving tumbrils …

      Those naice gentlemen on Irisheconomy removed all my contributions a while ago. Was it something I said?

  3. Mike Hall January 21, 2013 at 7:08 pm #

    A few quick observations…

    I think it should be realised by now that the money multiplier theory is complete bollox, given that all this QE over the last few years has done exactly SFA in the real economy.

    Per MMT’s correct description of reality (again), QE just adds to banks’ reserves. Banks don’t lend on the basis of reserves, rather the principal criterion is whether a bank considers there are both creditworthy & willing borrowers. In a recession, the latter are thin on the ground. It should also be noted that in the last decade or so banks have in any case moved away from lending to businesses that actually do anything in the real economy and toward lending against fixed assets (like land, property etc.).

    So, with both households & businesses having no inclination (or ability, esp households) to borrow to spend or invest more, economies just bump along with little or no growth. Add in an insane sociopathic government sector applying austerity and even with growing populations we can get economic contraction – including the Germans, cf Q4 2012.

    Anyhow….QE etc.

    I think this is where the US$, as a reserve currency, becomes a bit exceptional. Because there is global demand & a very large existing stock of $US for non-domestic trading purposes, those US bank QE excess reserves can find there way into parts of other countries’ economies in a way non-reserve currencies cannot. Hence the rise in commodity prices as banks’ have engaged in their favourite activities – speculation & casino rigging.

    But for the most part, trades won’t shift to other currencies just because there’s a few more Yen or stg£ about in reserves. (If those excess reserves are actually significant, which is not that clear given the ongoing fragility in interbank lending & trust.)

    As regards gov debt/deficits…

    The Sectoral Balances analysis is an incredibly useful tool to quickly understand what is going on in a national economy.

    Simply put (for fiat, sovereign currencies), the government deficit merely reflects the desire (or need) of the non-government sector to accumulate financial assets (or pay down debts). Cumulative government debt is the cumulative +wealth+ (in financial assets) of the non-government sector (which includes both domestic & foreign holders) – to the penny/cent etc. These are accounting identities, not ‘opinion’.

    So, when one looks at say, Japan’s gov debt, around 200% of GDP, what does that tell us about the state of their macro economy? In itself, not very much at all. People who hold financial assets denominated in Yen like to have a bit more in savings relative to their spending (and/or a bit less debt). We know, by where those holders are domiciled, that it’s the Japanese people themselves, rather than foreign holders. That’s about it.

    Again, so what? This is just a scorecard in a fiat, free floating currency, issued by gov monopoly. A gov that also happens to offer, in ‘macro’ terms, a risk free, very low interest deposit facility to accommodate some of the savings desires of its citizens & others (in that currency).

    As sovereign issuer or fiat etc. etc. it can tell any joker who wants to play ‘usurious piss-taking bond vigilante wanker’, who would like their +deposit facility+ interest rate to be higher, to go F*ck themselves. Or go play in Euro-land where such leeches are welcomed & protected by constitutional laws.

    The same applies to UK, US & all sovereign etc currency issuers.

    But, as always, this is not the same as saying there is no constraint to gov ‘keyboard’ & spend. There is a constraint – inflation – which is reached at the point where demand for goods services & labour exceed the capacity to supply (itself a moving, dynamic variable with delay functions & time constants) – BUT NOT BEFORE.

    As regards gov surplus….

    That all the neo liberal ‘moralistic’ socio-pathic twats like to sound all ‘virtuous’ about in some twisted hair-shirt fundamentalist narrative…..

    It follows from the Sectoral Balances – accounting identity, not opinion – that a gov running a budget surplus can only do so by one or two mechanisms, or some combination….

    either by the non-government sector reducing – handing over – it’s own wealth in financial assets (savings)…..or, by going into greater debt (that has a repayment term longer than the budget period)

    If the government sector continues to run budget deficits, eventually the non-government sector will have no net financial assets at all, & could only continue to eat by taking on ever increasing debt from the banks…..

    Hmmm….I wonder if it is such a good idea to have all these political donations from banking & all the ‘revolving doors’ for banks’ & gov officials?

    Anyhow…..this is all from an MMT perspective… it’s all on their blogs…

    • Golem XIV January 21, 2013 at 7:55 pm #

      Mike do you think you could try having a discussion as opposed to simply arriving on the scene and dispensing your certainties and proclaiming what is fact and what is not.

      What with the free-marketeers and their certainties on one side and you with yours on the other with neither seemingly interested to engage in a discussion, it gets me down. There is a certain bullying quality to your comments which you share with some of the free marketeer commenters.

      I wonder why any of you come here at all?

      By all means disagree but do you think you could do it in the spirit of open minded discussion where you actually entertain an interest in what the other people say and think and why they think what they do?

      • Mike Hall January 22, 2013 at 1:24 am #

        The thing is Golem, the last few years of empirical facts have provided pretty much 100% validation for the MMT perspective on how the systems actually work, given the policy inputs & decisions that have been made.

        This is in stark contrast to the variously pure cr@p of the Austrian hyperinflationists etc.& the endless ad nauseam confused nonsense – frankly desparate efforts to cling on to the flawed mainstream rubbish – from the rest. (Except of course the other post-Keynesians that have remained independent from MMT whilst agreeing with the essential facts.)

        The facts are in. Time to wake up.

        The cause of both the initial crisis and the mess that has made economies far worse for ordinary citizens in the last 5 years was not just the actions of corrupt actors.

        Rather the entire mainstream edifice of monetary & macro economics has been shown to be largely complete sh1t. Roughly 40 or 50 year project to get to this nadir.

        Way to go!

        Do I sound a bit pissy? Well, yep, no shit, sometimes I am.

        What I wrote above is really quite basic stuff.

        However, I have no idea what you may or may not disagree with as you almost never engage with or ‘discuss’ anything I write about. And seemingly don’t go near the MMT blogs.

        Maybe you are right, scribbling here is pointless. (Maybe Joe R had a point too.)

        • Roger January 22, 2013 at 4:16 am #

          I have spent pretty much all of my free reading time revisiting Global Warming( Climate Change ) this past week and plan on spending the next few months getting more deeply into the physics and the modeling, these are two quite distinct things.
          What I do notice is that no one is ever completely wrong although there are plenty of people who clearly feel they are Completely right.
          All perceptions or understandings of the world are necessarily constructions of our own histories and given that we are all unique we all live in different worlds to differing degrees. Sadly the laurels go to those who say they are right and stick to their guns until every one else demurs. This adversarial approach to finding the best route forward does not, these days, appear the wisest way to proceed to me.

          I read a quote the other day, the reference is on my other computer but it basically said.

          ´´Those in power remain there until the price of removing them is worth paying´´

          I googled it to see if I could find it just now and this came up


          Generalisations or the golden rule are fine for religions or systems of belief, as we are looking to construct something that is working better than what is presently not working for us we need to ask ourselves what price is worth paying to change the guys at the controls ( I think it is mostly guys).
          What replaces what there is now will be just another construct and with so many variables 9 billion of them, them, being us lot. No one will know how it works or will be able to predict what it will do. Those in charge will of course pretend that they Are in control of course.

          Our contextual relationship to otherness.
          A wonderful piece demonstrating the importance of the context of Other.
          Therefore the agent is the bearer of the “similar conditions” and indeed their creator. That is, he “must” act according to a “model” which he would like to see diffused among all mankind, according to a type of civilisation for whose coming he is working-or for whose preservation he is “resisting” the forces that threaten its disintegration.
          Antonio Gramsci. As quoted in the article referring to Kants Universal Law.

        • Golem XIV January 22, 2013 at 10:48 am #

          OK Mike,

          First, you start in telling me the Money Multiplier theory is wrong. By which I think you mean to take exception to part of that theory which says banks can only lend on the basis of reserves they have.

          Which I agree is just not the way banks work. They lend first purely on the expectation of making a profit and are only constrained by laws requiring them to hold some mimimum amount of capital.

          My question is where did I ever advocate the Money Multiplier theory? Why would I? I don’t subscribe to it.

          What I did do was describe simply what was done in what order and what justifications we were given at the time.

          My point was to note what was done didn’t work and that the justifcations had to be adjusted. Part of the purpose pof the article was to point out how our leaders shift their justifciations instead of admitting they were wrong. You seemed to ignore this point and instead chose to lecture me on something I neveer mentioned and don’t advocate in the first place.

          Imagine you wrote something which I then ignored but lectured you on something you never said or believed?

          Next – You breezily decalre that trades won’t shift to other currencies. Well you might be right and I may be quite wrong. But how would we know? You offer no reasons, no insight into why you think this. No discussion. Just you telling us it won’t happen.

          I would have been quite happy if you had said you didn’t think it would happen and offered some reasons why you tought that. But you didn’t. You just laid it down as a fact without discussion.

          You then discuss Japan in the standard MMT way of saying government debt is just private accumulation of the same tokens. Which again I agree with.

          You then say what does Japan’s debt to GDP of 200% tell us about their economy and in answer say not much. And I think it is here I have worries about MMT. Not in the theory part which seems to me to make sense. But in the way it sets up a league table of worries – which are pressing and which aren’t. You wite about it being just a score card.

          Which I agree with – on one level that is what it is. But I am not so sure that is all it is.

          It seems to me MMT advocates tend to regard the amount of money in cirulation as not much of a worry. That is how I read what you wrote.

          Now perhaps this is where I go wrong – I’m sure you will tell me. But my worry about QE is not so much that it accumulates government debt but that it increases the amount of money in circulation. As does banks extending credit.

          Are you and MMT saying it does not matter how much money is in circulation? I can’t quite believe you are saying that but I feel I should ask.

          Or are you saying that you can keep increasing the supply of money either by governments printing or by private banks creating credit, for as long as there is demand for using it to buy stuff – until there is simply not enough stuff to go round? That is what I think you were saying when you wrote ‘where the damnd for goods and service exceeds the ability to supply’.

          IF that is what you mean thenn this is where I worry. Because if I have understood correctly then this seems to be saying – for as long as people want to buy houses other stuff and services, we could keep printing money to meet the demand. In other words we can all have as much stuff as we like until there is simply no more simply by printing more tokens so we all have lots of them in our pockets.

          Again I can’t quite believe this is what you and MMT beleive but it does seem to be what you wrote.

          Now I suppose in a closed fiat system within a nation what prints its own currency you could imagine this. BUT since nations, even those who print their own currency do not live in a bubble – surely other nations who print their own currency might balk at an us endlessly increasing the number of our tokens. Might they not begin to think each token might not be exchangeable for as many of theirs as was the case before we started to print?

          And this is my conern with how I have read some MMT stuff. My belief is that for money to be perceived to have a value people have to feel that there is a reasonbable and steady-ish relation between the amount of any currency and then economic activity it serves. And this concern is only multiplied when we live in a system of several fiat currencies whose values are relative to each other.

          I am more than happy to be corrected.

          For your information I do read a bit of MMT. Perhaps I am just a slow learner.

          • Mike Hall January 22, 2013 at 5:34 pm #

            Ok, great, thanks for engaging. But let me say this first. I do my best to express & reflect an MMT consistent commentary, but I would not consider myself even in the 3rd team of expert sources, never mind an original source.

            The subtlety here (just speaking in general terms) is by all means challenge what I say, but if you seek to attribute that challenge to MMT itself, well, then you shouldn’t. Rather, go to one of the source blogs and look for clarification, not least to be sure I actually explained MMT properly.

            So, on to a few points…

            You write:

            “…But my worry about QE is not so much that it accumulates government debt but that it increases the amount of money in circulation. As does banks extending credit….”

            This is where the ‘money multiplier’ comes in. The ‘money multiplier’ is part of the (false) basis by which the mainstream asserts that QE increases money in circulation. And it is of course thru’ the bank credit channel. The notion is that if banks have more reserves they push more loans out. They don’t. As exemplified by the last few years of QE in the US (& elsewhere).

            So, if you don’t subscribe to the money multiplier theory (upon which the Quantity Theory of Money draws), what’s your basis for being ‘worried’ that QE does anything in the real economy?

            References here (Bill Mitchell)



            At the very least, you appear to harbouring some very ‘mainstream-like’ ideas? If it walks like a duck…

            And my point about ‘the facts are in’, is that we can see what QE has done in various countries over the last few years & the result is ‘not much’ (aside from the back channel of some commodity speculation).

            You write

            “…Are you and MMT saying it does not matter how much money is in circulation? I can’t quite believe you are saying that but I feel I should ask….”

            After all this time Golem (and you say you have read some MMT blogs), I’m astonished you can make this statement. How many times must I or an MMT source make the statement that it’s not the absolute amount of money in circulation (by gov spending or bank credit) that matters, but what the money is doing relative to the supply capacity condition, savings desires etc. of the non-gov sector. MMT has been categorical on this point as have I (I hope) – inflation +is+ a constraint.

            So the question “what’s the ‘right’ amount of money in circulation?” has much the same answer as “what’s the right amount of gov deficit?”

            (With the usual fiat, sovereign etc. currency issuer caveats – that currently apply to US, UK, Japan etc, but not individual Euro states)

            That answer should be…”who the f*ck cares? what is the economy actually doing? how much inflation is there & (importantly) what +type+ is it? is the economy near full capacity? how much unemployment (or Job Guarantee) participation do we have? etc. etc.

            So long as the gov is prepared to exercise its right to both add & remove money. as required to adjust these +real economy+ things toward optimum, who cares what’s left on the score card? The score card can have a many or as few digits as the economy needs to provide prosperity & the public purpose for its citizens.

            And on a related point, you mention the +type+ of spending by which money enters circulation. Of course that matters. Speculative purchases of existing assets, creating bubbles are always something that should be dealt with.

            Besides the obvious points that MMT proponents, like Bill Black, Warren Mosler & others have made regarding banning around ‘95%’ of what banks & finance now do, the much more precise inflation targeting built in to MMT operating principles is there to deal with inflations wherever they appear. (Speculative bubbles by definition inflate!) Achieved thru’ targeted sectoral tax and/or spending policy, or even gov regulation. As determined, following clearly & publicly understood principles, in the detail by the democratic process of the day. (Yes, I know that’s presently dysfunctional – but MMT would help greatly to pry out the current tossers from hiding behind a mountain of pseudo economics bullsh1t & false ‘fiat’ money constraints.)

            I think this ‘perceived value of money’ & ‘store of value’ thing that people expect of money is where the paranoia & rot really set in (generally speaking again). Brings to mind your (not Lem) namesake from Lord of The Rings.

            Ahhhh….my pressscccioussss…..

            And there’s probably some none too comfortable psychology here about childhoods deprived of love & care etc.

            Why do we expect/want/desire/ some property of immortal power from this thing ‘money’ ?

            Nothing else in life is permanent or guaranteed – as Keynes said, in the long run, we’re all dead. Point one – get over it!

            Want permanence in some form of saleable asset? Buy gold, land or neodymium nuggets if you must.

            But let’s not destroy the entire ability of an economy to feed, clothe, shelter & provide for human dignity, for +all of us+, just so a handful of greedy twats – only the top few percent, by definition (do I need to say why?) – can behave like (LoR) Golems.

            Think about it. Commodity backed currencies have no intrinsic value anyway. Nothing does! They all require some sort of system – with associated side effects & consequences – in order to maintain what value society thinks they should have. This is where it all starts….

            Does any of that have anything to do with the means of exchange, credit & short term store that a society needs to optimise its well being? No! So why force the two together?

            Indeed, I have seen more than enough in my lifetime already to know, yes, +know+ that if we continue this dumb charade of thinking we can do this, much beyond the next decade or so, ourselves & the next generation or three +will+ be departing early, probably none too pleasantly, from this planet, in the +billions+.

            If some God or other wanted to design a spiritual ‘test’ for this species to learn the truth of ‘greed’, well, I couldn’t have designed it better myself. 🙂

            As Patricia (below) alludes with her kind words (to both of us, & thanks!), it is the Post Keynesian school from which MMT is derived that has developed the correct description of the system. Arguably they real torch bearers of Keynes’ starting point – as the father of +macro+ economics. (There’s much afoot in middle earth that pretends to be ‘Keynes’, that is nought but treachery & deceit!)

            MMT, most especially with the Job Guarantee, has taken the P-K school to a whole new level in my view.

            Not easy, not intuitive, given the ocean of cr@p we’ve all grown up with, but once grasped and understood, the real world really does start to come into coherent focus. As does what we need to do about it..

            Golem, whether you go for the full monty of MMT or not (can’t fathom why not with your stated views on society?) or just the P-K basics, if you are going to take the blog on further, past the banks’ mess, you need this correct understanding of how the system (of fiat etc) works, and the macro that flows from it.

            Sorry if that’s pushy, but maybe you can find a smidgeon of value in the story of my own intense 2 year (no job) journey of study into this. And, well, there’s not much time left, eh, before the world descends into god knows what?

      • Patricia January 22, 2013 at 9:22 am #

        In defence of Mike I do find his comments very interesting. And not offensively authoritative at all. After reading the blogs he suggested many moons ago I have found that MMT does represent the economic world we live in while the other schools of thought are mere hypotheses and are designed to confuse. So please keep up the good work both of you.

  4. David January 21, 2013 at 7:54 pm #

    Q E is not inflating the price of ordinary goods because ordinary people do not have access to this money, the finance world is inflating the price of stocks, bonds, and farms like crazy

    • Golem XIV January 21, 2013 at 8:03 pm #

      Hello David,

      I agree that what inflation there is is caused by the banks and financial sector rather than ordinary people.

      But I don’t think this means that QE and the money being put into the banks is not causing price increases in more ordinary goods. The sudden ramping up of food prices a couple of times over the last few years surely shows the impact the financial sector can have speculating on opridary goods?

    • Andy Williams January 22, 2013 at 8:24 pm #

      I tend towards the same thoughts. The QE money was never going to end up in the general economy (and thus cause runaway inflation) because it was not for that purpose. It was purely to bolster the banks.

      The rubbish about ‘the banks won’t lend’ is purely for the peasants consumption – the banks were never supposed to lend to the public.

  5. David January 21, 2013 at 8:24 pm #

    I overstated my case. The speculators access to cheap money impacts all of us. Just not as obviously perhaps as in the price of more speculative instruments.

  6. Diogenis January 21, 2013 at 10:02 pm #

    Hi to all,

    Since my englich is not so good..is there anyone out there who can explain to me in simple words what the outcome of these currency wars will mean for us,the “avergae joe´s” on the streets in europe and the USA?Will all this lead sooner or later to this thing called “ketchup bottle effect” with hyper inflation?Or deflation?Or both?

    I know it is a very,very complex issue but maybe some one who knows about this issue can help.Thanks in advance.


    • Hawkeye January 22, 2013 at 9:38 am #


      Well whatever the outcome, inflation / hyper inflation / deflation, many of the main outcomes on ordinary people will be the same.

      Currency Wars tend to accompany global depressions.

      This means severe cost of living increases for the average person, especially the cost of essentials such as food and fuel. Coupled with declines in future spending ability as savings are destroyed too (which probably includes pensions and other social welfare programs).

      • Diogenis January 22, 2013 at 11:31 am #

        Thank you.This is what I expect too.

        I wonder if we will ever hear some ModernMonetary theorist explain to us in a logical way how all these money magic will not destroy our economies.

        As if history has not examples how all these printing/devalue-experiments ended.

  7. OpenThePodBayDoorHAL January 21, 2013 at 10:31 pm #

    I think this is an *excellent* explanation. There has been a “surprised” quality to the CBs print-fest, everybody from BenB to the gold bugs to the HFs surprised that we haven’t had overt inflation or even system crash. They can’t explain it with their models and they keep pushing on their respective strings, CBs printing, HFs too short, gold bugs waiting for their glory day. “The beatings will continue until morale improves” kind of logic.
    But how do you play a game where the rules change, the size of teams changes, even the number of balls on the field changes? What was the “right” strategy for a sane person in Berlin in 1939 or Phnom Penh in Year Zero? Join the madness, jump in with the crowd, but keep an eye on the exit? If it’s all about “flow”, then what possible traditional anchor of “value” can continue to exist in such a world? Crop-producing farmland with a defensible perimeter?

    • Golem XIV January 21, 2013 at 11:02 pm #

      Hello OpenThePod,

      Thank you. I certinaly think my idea has some merit and does point to some possible helpful analysis. But I would also say that, iritating though I find his tone, I would pay attention to Mike’s MMT analysis as well.

      Though he may feel they are mutually exclusive with mine being the excluded one (That’s if I have read his comment properly) I don’t think they are. I think it is worth noting both.

  8. bill40 January 22, 2013 at 2:54 am #

    Repost as I put it on the wrong thread duh!

    mikehall, I got myself banned from several blogs (including CIF) for being a tad abrasive. As you can see I am hardly above profanity and I often fail to understand that irony and humour can be lost in the written word. Keep the faith MMT is winning the argument.

    @ Golem, what we are seeing. and what I believe we are witnessing, is the neo liberal myth that those at the top need stimulus and those at the bottom need starving into submission. It only takes the shortest glance at economics tp prove this.

    What people are in denial about is the cost of mass unemployment. There is simply no scale of cuts possible to to fund this. Not only that such a scale of cuts would just make the problem worse as yet more jobs and demand were taken from the economy. The social dislocation would lead to the complete break down of civilised society.

    Now you can go the Ambrose Evans-Pritchard route and do it slowly, he described the UK cuts as about right, and get the same result slower. The whole concept simply doesn’t work as Greece so tragically proves.

    QE is not inflationary, as predicted by MMT, if the evidence of Japan is anything to go by. Since they are currently firefighting deflation and recession it does not help ordinary people at all. It confounds utterly the more strident cries of the neo liberals.

    The final analysis is simple. They need debt, we need money

    • Golem XIV January 22, 2013 at 11:12 am #

      Hello bill40,

      I could not agree more that the standard economic theory is rubbish. I have, like many others, been saying this quite clearly since I began writing on this stuff back in early ’08.

      I certainly do not believe in stimulus at the top and most certainly not austerity at the bottom. I regard this as an almost purely ideological oportunism by those who prefer the wealthy to stay wealthy and the poor to stay poor.

      My own opinion is there does need to be stimulus and I see no reason for the government not to increase the money supply in order to invest in things that might create viable econimic activity. I am happy for a certain amount of this to be publically funded infrastructure projects such as hospital and school building etc.

      I fail to see what such investment has to go through private banks. Why should they take the money and charge interest? The only reason seems to me an ideological one which says the private banks would know better who to allocate investment. I think this is not true for large scale public projects. I see no evidence the banks are better at it. I do think the banks are better at allocating smaller and more wisely dispersed funding. Simply because the decisions become more widely dispersed instead of concentrated ina few people.

      As for austerity at the bottom. That, it seems to me is clearly madness and cruelty. To deny people the chance to make a living because you want to reduce debts you need not have incured in the first place seems to me folly of epic proportions.

      As you say Greece andSpain surely make the case quite clearly.

      The government goes on about public debt. I do not share their view of how the economy works so I do not share their worries about public debt. BUT…I do think there have to be limits on how far we inflate the supply of money relative to economic activity. Thus I do not think we can go on endlessly increasing the amount of money in circulation. At some point, if we continue to increase the money supply without an coresponding increase in real economic activity (I say real to distinguish between making somthing and merely creating a derivative contract) I think people who hold other currencies with whom we wish to trade may get to the point where they are no longer confident of the value of our currency and may chose not to hold it.

      On top of which I do not agree with increasing the government supply of money in order to replace the evaporating value of private bank contracts which it seems to me is what we have been doing and still are. The governments create money and the banks rely on this to replace the income they are no longer getting from private contracts.

      On one level we are just shifting tokens around. I agree. But I do balk at the moral stench of relieveing those who made bad loans of the consquences of those decisions. I do not care that MMT says we can do this without incuring government debt. I understand it is not a matter of debt. That is not my objection. My objection is a moral one and a pratical one. By bailing out the banks and their bond holders (never mind that MMT says we can do it without worrying about debt) we are perpetuating and entrenching a system whereby those who are already rich and powerful will never cease to be such because we will always bail them out.

      For this reason I am against baling them out no matter under what economic theory.

      • Mike Hall January 22, 2013 at 5:58 pm #

        Golem, why do you say MMT advocates ‘bailing out the banks & bondholders’ ? Where’s this from?

        • Golem XIV January 22, 2013 at 6:09 pm #

          Hang on I haven’t said that have I? I said MMT says we can do it without incuring debt.

          I was careful no to say it was something MMT advocated. But you and I had an exchange a wnile back when I was saying taht I thought Japan was heading for disaster and you replied saying – and I am parapheraisng here – that you thought they had done rather well to satve off deflation. At least that is my recollection of it.

          To which I replied surely your not saying bailing out their banks was a price worth paying. After that I can’t recall specifics but you left me with the impression you thought th epl]olicy was OK.

          If I have not remembered corretcly then I apologize. But it is because I couldn’t recall that I did not mention it it in what I wrote above nor said that MMT as a theory was in favour of it.

          Hope that is clearer. I will try to come back on you other comment but I have to make the children dinner now.

          • Mike Hall January 22, 2013 at 8:26 pm #

            Oh I see. No I don’t have a full recollection of the exchange about Japan either.

            There’s really nothing at all in MMT about bailing banks one way or the other. So I think there’s a misunderstanding somewhere.

            It’s only real ‘prescriptive’ element is theJob Guarantee. There’s nothing else per se.

            MMT advocates tho’ are pretty scating about what we’ve allowed banking & finance to get away with.

            MMT does see a key role, arguably +the+ role for banks, in risk management at the ‘micro’ level for new credit money creation. But is agnostic on whether that is in private or public ownership.

      • bill40 January 23, 2013 at 2:02 am #

        Hi Golem,

        As Mike says MMT takes no particular stand on bank bailouts other than honouring state guarantees and protecting the payments system. My own opinion is that the banks had to be bailed out but to use a Latin phrase in English, “if you’re going to do this damn silly thing, don’t do it in this damn silly way”. never did pay much attention during Latin lessons.

        I would have nationalised every last one of them, called the forensic accountants in, held in jail (pending trial) the accused and generally created hell on earth for these people. I would have confiscated all assets, including property andpensions under the criminal proceeds act.

        that Bob Diamond is still at large sticks in my craw.

        • Poultice January 23, 2013 at 3:02 pm #

          “I would have nationalised every last one of them, called the forensic accountants in, held in jail (pending trial) the accused and generally created hell on earth for these people. I would have confiscated all assets, including property and pensions under the criminal proceeds act.”

          Now we are talking, except I would leave out the forensic accounts and move straight to me and a selected group with AK47s.

          ps. Make that HK416s, easier on the shoulders.

  9. GordonDonald January 22, 2013 at 11:25 am #

    I’m not sure I go along with the argument that the block to economic recovery and growth is the failure of banks to pass on the huge amounts of bailout money as loans for private investment in the “real economy.” Isn’t this attempting to apply Say’s Law (dismissed by Marxian and Keynesian economists), that supply creates its own demand?
    Even before the financial crisis of 2007/2008 tipped the advanced capitalist economies into the Great Recession, they were showing evidence of stagnation, of over-accumulation of capital by corporations faced with poor returns from investing in the productive economy. This would explain the financialisation of capital over the last few decades: the move to investing in ‘fictitious capital’ of the finance sector for greater (often speculative) returns.
    Faced with overcapacity, lack of demand and a great deal of uncertainty over returns on investment in the near future, wouldn’t it make more sense for private investors to hoard cash and wait for the next bubble to come along?
    Demand, of course, is being further reduced by the imposition of ‘austerity’ policies in many of the states affected. Since this not only plunges us in to greater unemployment, social unrest, deeper recession and larger deficits, austerity further reduces the opportunity for capital accumulation. On the face of it this would appear to be irrational and counter-productive, even suicidal, for capitalism. As David Harvey points out, this only makes sense within an ideologically-driven political agenda to consolidate wealth for a powerful elite, and to finally destroy what is left of the ‘welfare state’.


    • Golem XIV January 22, 2013 at 12:09 pm #

      Morning Gordon,

      I agree that trying to create demand where there is none is foolish. You cannot make people want what they do not want.

      And I also agree completely that in the bubble years there was a clear decline in the returns being made by lending in to the real economy. In part that might have been because we were making stuff people did not want, or our stuff was not as good as other people’s versions of the same stuff, OR and this is where I think the real pressure was, we were making stuff which was more expensive than our competitors version becaue their wage bill was lower than ours. Dyson is a good example and is why he moved prodcution to Asia.

      Thus corporations off-shored jobs and any investment in those coporations similarly went off-shore. This is the story today with investment in GM. Little of the money lent to GM will stay in the US or Europe. Most of it is earmarked to go to Asia.

      Put this all together and it is your point that asking the banks to invest in the real eocnomy is a non-starter. They will not. As they have not. They will put that money to work in specualtive ways or abroad, or both.

      This says two things to me. First it is foolish to be giving the money to the banks in the first place. If we want it invested productively for jobs here, we cannot rely on the banks to do it.

      Second even if we get the govenment to do it, they have no magic wand to make their investment in a business which connot compete on price somehow work. That is silly.

      This leads me to two conclusions. First govenments can and should spend stimulus money on things that will underpin future economic viability. By that I do not mean just roads, rails and airports. I mean the things which free-marketeers so often dismiss as mere drains on finance – schools, hospitals, higher education, training, viable welfare and R&D.

      These things are economically ‘proftiable’ (just on a slightly longer time scale than quarter end) as well as being morally desirable. What chance does any group of people have if they do not educate their children? What chance does any work-force have if they are not given the chance to learn the skills they need? If we cannot keep healthy how will we be an economic power-house? If we are not competative in mature marrkets then what long term choice, other than reducing our wages to those of China’s poorest, do we have except to invent the new and the better? We have brains and we have a firm R&D infrastrcuture. Why are we starving it?

      The free-market does not, I do not think, worry about such things because they take the view that if a people become unviable then the indsutry and the capital behind it just move to another group of people.

      I believe it is one of, if not the, greatest lies of gloablism; that in such a global system capital has any concern at all to invest in people or nations. It makes no sense for them to concern themselves with sustaining a people or a nation. Or to invest in its future. They will always be selfishly better off chosing to leave such concerns to others while defecting to pastures greener.

      Another part of this same lie is the idea that govenments cannot invest in winners, only the free market does that. Think of the internet. Few things have revolutionalized the world more than that. Did the free market invent it? NO! The internet was created by the military and Universities. The basic and founding invention was packet-switching. It was invented/discovered by a US academic at UCLA and a UK government researhcer employed by the Post Office in Teddington.

      The free market was NOWHERE. The Free market invested in the internet after it was invented and after they could see there was a growing demand,

      There is a vital role for government spending and research and for private capital to invest in what they can see is going to work.

      Which brings me to my other core belief which is that free market gloablization is the great enemy. I believe our governments are lost and paralyszed because globalization’s logic makes nearly impossible all the pious promises politicians of the left would like to make. They know this, which is why they are so loathed to make those promises any more.

      Which brings me finally to my last point. I believe we will not emerge from this crisis, not ever solve or replace the broken economic system and the even more broken political system until we are willing to repudiate and role back the globalization of the last 30 years.

      Some will say we cannot, and to even suggest we could is to reveal oneself as a King Canute. Maybe. If so I think you should all resign your children to servitude.

      I personally think we can repudiate gloablization and I personally reject entirely the arguments which portray protectionism as the great satan. Protectionism, like anything else can be used unwisely and corruptly. It can also work. Just take a look at the rise of China and India. Who can deny that their success is founded on low wages and protectionism. I would say protectionsim more than anything else. My evidence for this assertion is to compare those nations with equally low wages but who were force to have ‘open’ economies with those who had low wages but who erected protective barriers.

      There, I have no come out. I have not written greatly about these things till now because I felt people had no desire to be beaten over the head with my personal poltical agenda. I have felt I had something to contribute in simply trying to make a little sense of the fog of lies and half truths we are surrounded by.

      • backwardsevolution January 23, 2013 at 9:21 am #

        Golem – very good thoughts! You said, “If we are not competative in mature marrkets then what long term choice, other than reducing our wages to those of China’s poorest, do we have except to invent the new and the better?”

        Robots are coming for manufacturing. China is not even safe. We may find we have a few billion people too many before too long. Foxconn has said it wants to replace ONE MILLION Chinese workers in the not too distant future. One million jobs! Here they come: “1 MILLION ROBOTS TO REPLACE 1 MILLION HUMAN JOBS AT FOXCONN? FIRST ROBOTS HAVE ARRIVED.”


        I too think globalization has been disastrous for the average person. There is no allegiance or loyalty to country by these corporations. They have a choke hold on the world. Ross Perot said it best when, standing between President Bush and Bill Clinton, he said this re the push for a North American Free Trade Agreement in 1992 (2 minute video):


        Notice Bill Clinton trying to hold back his laughter; he knew Perot was right. One reason they favoured China over Mexico (and some did go there) was because China didn’t have religion to get in the way of a strong work ethic.

      • 24K January 23, 2013 at 12:41 pm #

        On one of your films there was a shot of a chopper flying over a border. Although the footage is now old it looked straight out of some horrible future.

        That future is not the future though, it’s right now, as it was back then.

        I watched Cloud Atlas a few days ago. Their are lots of people trying to make people aware of such things but how can everybody become one global awarness programme that reinforces that which has come before?

        Bang us over the head dude. Your personal agenda is not one of greed.

  10. Diogenis January 22, 2013 at 12:17 pm #


    You said:
    “this only makes sense within an ideologically-driven political agenda to consolidate wealth for a powerful elite, and to finally destroy what is left of the ‘welfare state’.

    Well,just some years ago everybody would have told you that you believe in a conspirancy-theory because every sane person would never believe that the elites are that dumb or so insane to believe that they can do this what they are doing.

    But when you come to greece you will see that the cuts to the “welfare state” are so aggressive,so idiotic,so counterproductive that you have to describe them as what they are:A declaration of war against the majority of the society.

    There is not the slightest economical logic behind them for any sane person.

    But as long as the most people in the biggest countries (USA,UK,germany,france,japan) continue to sit at home and reject to demonstrate on the streets the system media in these countries will sell every resistance in southern europe not as a democratic duty but as THE proof for the “hairy,lazy,anarchistic south european who does not like to work for 3 euros/hour as they deserve”.

    Without resistance of the people in the “big nations” the elites will continue.Because they don´t have any reason to stop.

    Personally I am not able to understand how it is possible that for example 47 million americans live from food stamps but we don´t see any bigger resistance in this country.
    This is far beyond me.

  11. Diogenis January 22, 2013 at 3:30 pm #


    “Perhaps if people here realised that when we look what is happening in Greece we are seeing an extreme version of what is being planned for us then there would be more action?”

    One more reason for the people of the USA not to take it anymore.

    And I don´t know exactly about the situation in the USA but I read about 47 million citizins on “food stamps” and 6-7 millions households who have lost their homes?Sound to me like the people over there already live a nightmare which is right now unthinkable to any eurozone country.No matter what they tell the americans on fox news.

    The US-citizins have every reason to flood the streets in the millions.Ofcourse this would start peacefull and ofcourse the usual agent provocateurs would be sent to discredit the protestors.But in my opinion you should not wait any longer.

    • Andy Williams January 22, 2013 at 8:39 pm #

      It is about management. 47M on food stamps and 6-7M loosing their homes has obviously not reached the culminating point that will tip the country rapidly into chaos.

      But should it ever reach that culminating point then in a matter of weeks American society will disintegrate. Like a dam bursting.

      • Diogenis January 22, 2013 at 9:51 pm #


        “But should it ever reach that culminating point then in a matter of weeks American society will disintegrate. Like a dam bursting.”

        No,it will not!Personally I believe that every father wants a future for his children.Sorry for my pathos.And these people are the majority.Why do you believe that the majority wants disintegration or that they will just sit and watch while everything is going up in flames around them?Maybe the culminating point is already reached but the majority of the people still hope that things will get better from alone.Ofcourse this will not happen.Chaos and disorder only wait at the end of the tunnel if we allow it to end like this.

        The elites want this.They always wanted this when their profit-system went to the end phase and collapsed.They want then chaos and war because they believe that they can use these to get on top afterwards again.

        I strongly believe that it is up to us to start something new and that this is very possible.The wars of the last century are still in fresh memory(thanks also to hollywood for this),I don´t believe that the elites will ever be able to get through with the same methods like 100 years before.Nationalism,fear,religious fanatism..instruments in the hands of the few but this time is different.It is not only that I want to believe this but more that I know it.

        There is nothing from what I see,from what I hear or from what I read which can bring me to the conclusion that the elites can do the same shit “as always”.They made one mistake during the last decades..and this mistake was to allow a broad education to the masses during the last five decades..Ofcourse they needed to do so because this was necessary for the “modern economy” and their own profit but by doing so they also dig they own grave.

        Sorry for my bad english.

        • steviefinn January 22, 2013 at 11:12 pm #

          Please stop apologising for your bad English Diogenes, you make yourself well understood, & it is very good to have your words from the front line.

          It is very fortunate nobody has any need for me to communicate in Greek 🙂

          • Diogenis January 22, 2013 at 11:45 pm #

            Okay,stevie..I always think my english is so bad that nobody can understand what I mean.Glad to hear that this is not the case.

            Greetings and good night.

          • Jim M. January 23, 2013 at 6:57 pm #

            Seconded. Keep it coming, Diogenes. Greece is indeed the front line.


  12. Debra January 22, 2013 at 4:24 pm #

    Mea culpa, I have not read all the comments, and maybe will not…
    Bouncing off of what you say about “printing”, though, Golem, it strikes me that the Reformation was very much about printing, and a certain.. faith in it, shall I say ? An almost magic faith in what is written down ?
    In the 20th century, in France, Jacques Lacan, indebted to Saussurian linguistics, postulated an artificial relationship between our symbolic systems (grosso modo, social structures erected on our language) and the natural world around us. Lacan believed that the artificial nature of this relationship was the source of our feeling of human alienation in the world.
    That relationship rests on the assignation of value, and the necessity of measuring, or objectifying value. (That’s where money comes in.)
    “Printing”… money, remains printing. Materializing and objectifying value in a fixed form.
    Our poets have had much to say about the value of the “printed” or “written” word.
    (Come to think of it, the “printing” press is one of our most revolutionary machines/inventions, in this civilization.)
    The written word (and by extension, the printed word ?) are reputed immortal.
    If you look at the fate of printing all over the planet at this time, I think that you will see that the money problem is a small part of a much larger picture that englobes it, even if money is getting lots of attention because we have turned it into an idol, in the Old Testament sense.
    Far from being the motor that is driving, printing money accompanies the explosion of printing going on in a multitude of spheres, in another push for democratization in the civilization. In a dialectical tension between immaterial credit, maybe ? virtual, rendered possible by the “progress” of the machines, and “printed” money ? (Remember that even if money is no longer physically ? printed, the simple fact of talking about printing it has consequences.)
    The.. Word (logos) has a very long life… right now I am thinking that it is not immortal, but it sure as hell is a lot more immortal than our fleshly envelopes are…
    To return to the end of the 19th century, our most visionary philosophers were definitely noticing that civilization has its drawbacks. Progress has its disadvantages.
    I believe that our technological… progress has seriously jeopardized the foundations of our symbolic systems at this time, and is working against money.

    • Golem XIV January 22, 2013 at 9:10 pm #

      I can’t remember which of the early, ancient Greek philosophers it was who said of the written word that it was going to destroy culture. For him culture was spoken and memory was its guardian. He felt the written word would denature that intimate person to person, speaker to listener culture.

      I have to say, even as someone who loves teh written word and rteh extended culture it allows – I have a deep feeling there is a wisdom in his warning.

      Thank you for your comments. They are always though provoking.

      And don’t worry about not readin. It is mostly just me and Mike having a childish tantrum in the sand pit.

      • backwardsevolution January 23, 2013 at 9:32 am #

        Golem – “I have a deep feeling there is a wisdom in his warning.” Yes, because “History is written by the victors,” and the victors then spin the written word into their version of the facts. There is a lot of truth in oral history.

  13. Golem XIV January 22, 2013 at 9:04 pm #

    I can’t reply under your reply. Limit of the software. So I’ll reply down here and I will have to do it in parts as I am busy.

    I take your point about checking with the authors. Fair enough.

    You then ask me ‘if I don’t subscribe to the money multplier theory why do I think QE increases the money supply?’

    I agree with you when you say it is not the amount of money it is what it is doing. If it does nothing but sit on a balance sheet then it is not doing anything much in the economy.

    My reason for connecting QE with money supply is not because of any adherance to reserves being the basis of lending. I connect them for two reasons. Over the last few years banks have been short of assets that the governments are willing to count as regulatory capital and which other banks are happy to accept as collateral for repo and lending.

    Because they have been short of both regulatory capital and repo worhty assets, shortages of both have contrained bank lending and trading. Part, a large part, of the bank’s lobbying for QE based bail outs is so they have assets for regulartory purposes and for interbank repo and lending.

    Without the former they are constrained in what they can lend NOT because they lack deposits but constrained by laws on capital holding for regulartory puropses. Without the latter they are contrained in repo and interbank lending which severely impacts their day to day funding, short term funding and their ability to lend or speculate from their own Prop desks.

    These are the ways I think QE money going in to banks does have an impact on bank lending and funding.

    On to your point about QE money going in to the banks and the increase in money in general not doing much as far as you can see.

    I’m afraid I disagree with your assesment. As far as I can see the money has flowed in to the real economy and has done rather a lot. Perhaps not in Ireland and not in the UK. But it has certainly made life hell in emerging economies and larger ones like Brazil.

    The banks have used a lot of money speculating on commodities and are now begining to use it to ramp up another housing bubble in the US. The surge in food prices in 2008 was in large part due to money put into those markets by the banks. So I cannot see how you can say so easily it did f’all.

    OK I know I haven’t addressed most of your points but it’s a start.

    • Mike Hall January 23, 2013 at 2:22 am #


      I wouldn’t deny any of those effects of QE. The point is that QE does not have the stimulatory effect in the real economy that authorities suggest it does. Nor does it have the kind of inflation effects, except the temporary and indirect ones you mention, that the ‘hyperventilators’ & Quantity of Money ideologues bang on about.

      By the way, I don’t buy this currency war thing between Euro & $. I don’t believe that was the purpose of the Euro. I think you’ve already covered the real reason for the Euro when you talked about the power to create money of state vs banks. The Euro virtually permanently removes that power from states and hands it to banks. It also seems to me that the banking elites of US & EU have all been playing the same game in co-operation, not competition.

      There has been some opportunism from some ME oil producers to challenge or diversify from $ hegemony & use the Euro, but I don’t think that’s anything to do with the Euro architects. Not surprisingly, such opportunism hasn’t gone too well.

      I’ve been writing some thoughts about this oil/$ relation – may post up in a day or two.

  14. desmond dillon January 22, 2013 at 10:05 pm #

    hi Golem and all I wanted to add that prices are going up. See essential food and energy. And note the change in the way inflation is calculated. RPI to CPI whenever its to government advantage and never when its not. Also they have been trying to re-calibrate the CPI. All this must be to obfuscate the real rise in prices…the poorest as always are being hit the hardest.

  15. Mike Hall January 23, 2013 at 2:30 am #

    Off topic, but wanted to draw wider attention to this story from 1973 where some UK building workers striking for better working conditions were framed and gaoled on fabricated ‘conspiracy’ charges.

    They are still seeking justice & for the full truth to be revealed.


  16. The Dork of Cork. January 23, 2013 at 12:17 pm #

    In this article Bill touches on the core of MMT from my perspective…………

    Perhaps corporations which hold claims on wealth need to be looked at slightly differently ………

    Why do they hold so much surplus claims as if they were a bank or something ?

    Lack of demand ?

    “The notion that the “lost taxes” are in some way preventing the government from spending is just an application of mainstream economics. In terms of Modern Monetary Theory (MMT) such terminology is grossly misleading.

    The tax revenue lost just represents “numbers on a bit of paper” and the only issue that is important is the amount of purchasing power that is embodied in the tax cuts (or the reversal of them) and how it is distributed.”

    Levying higher taxes certainly lowers the purchasing power of those who are paying the taxes and progressives argue that the burden of this lost purchasing power should be spread across income recipients.

    “Saying that the rich should pay might make progressives feel better but it doesn’t face up to the real problem – a need for fundamental re-education of the public about the role of the budget deficit and the status of currency-issuing governments. That is where the progressive effort should be focused.”

    In the euro area the above sov government dynamics do not apply….
    Billy talks about a free floating currency sov currency system.

    I am of a more conservative bent then above but I believe Billy is correct in a world without final settlement…………(he would argue differently of course given the currencies are free floating and all but we do know CBs manipulate their value using complex derivative means)

    Anyway – Imagine you hold 99 % of all the claims on wealth in this world……….how can you spend it if there is no economy to spend it in ?
    This is the great paradox for sov wealth holders.
    The world is becoming too unstable to spend your tokens.
    Hold on to your extreme ratio of wealth and your wealth declines
    Dilute your claims on wealth and your wealth declines………

    It is kind of funny in a sick sort of way.
    Its a question of how far these guys will push it.

    “The problem is that the growing gap between the real wages and productivity also violated the traditional relationship between real wages and consumption. So, if the output per unit of labour input (labour productivity) is rising strongly yet the capacity to purchase (the real wage) is lagging badly behind – how does economic growth which relies on growth in spending sustain itself?

    The two questions are clearly related. Marx identified the “realisation problem”, which he considered to be intrinsic to capitalism. In the past, maintaining a constant wage share helped offset this problem.

    Dork – it my belief that the Euro was designed to destroy all labour value , given its intrinsic monetary structure.
    I.e. euro governments cannot maintain this labour share even if they wanted to.
    It therefore must MUST push up the costs of capital ($ price of oil to unheard of & sustained levels)

    Bill – “It is not clear to me that the focus on tax equity (whatever that means) is sufficient to promote the political changes necessary to make the fundamental steps that are required.”

    Dork – Its understanding of labour theory of value and its efforts to preserve labours share of income that I find interesting.

    After 1980 in Ireland the workforce became more and more productive relative to wages.

    Ireland exported this surplus value to the core like other euro pigs……………it then received this surplus back in the form of external bank credit which was of course malinvested.

    Its not so much that these countries trade with other countries for goods and services (they always do)
    Irish internal savings is no longer intrinsic to Ireland and the British isles – its value is mixed up within the euro construct,
    I.e Ireland is no longer a defined political / economic hinterland like for example – Iceland remains to some extent (for the moment)

    From a Euroland & now sadly real world perspective ireland no longer exists as a political / economic entity

    • Mike Hall January 23, 2013 at 4:48 pm #

      I think the Euro incorporates just about every single false or flawed concept of neo liberal/neo classical economics so far devised.

      And five years into the GFC the clowns still have no clue why it does not, & cannot work – unless something like Hudson’s full blown neo fuedal debt slave distopia is imposed.

      Maybe it’s intended to be a test case, to see how far populations can be cr@pped on?

      The Euro mess is only just getting going.

  17. Diogenis January 23, 2013 at 5:15 pm #

    If you allow me I would like to post an interview of a man called Robert Kurz.He was a german philosopher and social critisism journalist.He wrote the “black book of capitalism” which opened my eyes.I would everyone recommend to read this book.Sadly this man died last july.

    Interview on The Black Book of Capitalism” – Robert Kurz

    An interview with Robert Kurz conducted by Dieter Heidemann (Professor of the Department of Geography at the University of Sao Paulo) and Cláudio Duarte on February 15, 2005.

    DH (Dieter Heidemann): The original title of your latest book was “The Satanic Mills”; why did you change it?

    RK (Robert Kurz): Actually, among the various titles I considered, my favorite was The Satanic Mills, which evokes the 18th century English romantic poet, William Blake. It was a proverbial expression of people’s first experiences with the capitalist system of manufacture. But, legally speaking, the title had already been used for a novel. Besides which, the editor preferred the title, “The Black Book of Capitalism”. He expected it would have a greater impact and would get more attention due to its contrast with “The Black Book of Communism”, published by a group of French authors, which was translated into various languages. That book is a tiresome list of the crimes of the State Socialist regimes, a work of pure propaganda without any critical-historical substance, directed against an enemy that no longer exists. Of course, if I wanted to just make a list of the crimes of western capitalism, I don’t think that even 100 thick volumes would suffice.

    DH: The book is a history of the imposition of modernity and liberalism. What is the guiding thread of your analysis?

    RK: I wanted to write a radical-critical history of modernization since the 18th century that would be an integrated presentation of aspects that are not only usually presented in an apologetic manner, but are also usually treated separately.

    The book is:

    1) a history of the three great industrial revolutions (introduction of the manufacturing system with the steam engine at the beginning of the 19th century, Fordist “self-mobilization” with the assembly line and the rationalization of the corporate economy during the first half of the 20th century, and the microelectronic revolution on the eve of the 21st century);

    2) a history of the science of political economy with its constant vacillations between the poles of market and State;

    3) a history of the bourgeois legitimating ideology intent on the naturalization and biologization of the social (the capitalist economy and its social consequences are treated by this ideology as a matter of “natural law” that is beyond all criticism);

    4) a history of the disciplining of the “human material” and of the internalization of the norms of capitalist behavior resulting in today’s “self-regulating man”;

    5) a history of the socialist labor movement and of State Socialism, not as a contrasting model, but as an “immanent aspect” of bourgeois modernization;

    6) a history of the great crises that characterize the essence of this system.

    I always use original quotations from contemporary observers. After three centuries, it is clear that capitalism was never anything but a system of blatant insults to human life and behavior; for the great majority of men in the past and the present it never brought an increase of well-being, but always only new advances in mass poverty and desperation.

    DH: We find the theoretical reference points of your social analysis in the debates published in the journal, Krisis: what significance does the critique of value have for your radical critique of the modernization process and the fetishism of commodity production?

    RK: The Black Book of Capitalism is also an attempt to concretize the critique leveled by the “Krisis Group” against the conventional understanding of Marxist theory by referring to the testimony of historical and contemporary data. The “Marxism of the labor movement” mistakenly understood the elementary forms of capitalist socialization (abstract labor, value/commodity-form, money, market, State, nation, democracy) as positive, almost ontological social preconditions for existence. On this apparently neutral basis, it played its part in the “class struggle”. The “class struggle” was therefore only an internal form of competition within the framework of capitalist categories and their iron shell. It was a struggle over distribution, for more “rights”, whose partial and always temporary success bound men ever more closely to the dominant system, even in terms of their own subject-form. Today, the “class struggle” is on the wane throughout the world and is in danger, despite all the ongoing social catastrophes, of becoming an extinct model, because in the crisis of the third industrial revolution, the common system of references, the seemingly neutral foundations of modern commodity production, is shaken to its roots. The “critique of value” means taking this fact into consideration and, for the first time, radically questioning the forms of social relations of market and State, which have become so natural. From this perspective capitalism is not a problem of “undistributed surplus value” and of individuals’ monetary wealth, but of an insane end-in-itself: the “valorization of value”, the absurd cybernetic circular return of money to itself. Capitalists and executives are just functionaries of this “automatic subject” (Marx). The social relation objectified in universal competitive and monetary forms in anonymous markets is possible only by way of a pre-existing system of labor markets, in which men must sell themselves in order to become the raw material for the capitalist “world machine”. The fundamental crisis of labor markets will therefore sooner or later reveal itself as a crisis of capitalism itself.

    DH: How, then, do you develop the critique of labor, considered as a characteristic of the modern world?

    RK: Marx vacillated between a positive ontologization and a radical critique of labor. The labor movement, as its name indicates (Labor Party, the workers’ point of view, etc.) mistakenly understood labor as a springboard for emancipation and as a counter-model to capitalism. The abstraction of labor, however, is not the opposite, but the living state of aggregated capital itself; labor is not an anthropological and supra-historical precondition for existence but the specifically capitalist form of activity of modernity, an abstract consumption of human energy within the functional arena of the capitalist economy. This abstraction already contains indifference with regard to the content, the meaning and the ends of the needs of life. Labor as abstract determination is the active side of the irrational capitalist end-in-itself.

    The Black Book does not derive the concept of abstract labor in a logical-definitive way from the value-form (Marx already did this in Capital), since it has quite another form of presentation: the system of abstract labor is analyzed in its concrete-historical development, including, of course, the last 100 years of capitalism that Marx did not live to see. At the conclusion of this development it is evident that only in the third industrial revolution does the apparent naturalness of the labor abstraction become practically and theoretically obsolete. The technology of computers and automation either renders various human activities superfluous within the functional arena of capitalism or else robots carry out these activities. On the other hand, work is disappearing even faster in those industries, national economies or regions of the world that, due to the weakness of their respective capitals, cannot utilize microelectronics and are therefore overwhelmed by their competition.

    DH: Speaking of national economies, what forms are assumed in the course of the rise and fall of the nation-state?

    RK: The so-called nation, which is just as historical as labor, was an invention of the 18th century. It is nothing but the cultural and imaginary outer shell of the capitalist State and of the irrational form of legitimation of a “military-political continuation of competition by other means”. The Black Book is an effort to understand both the historical integration of workers and socialism in national customs, as well as to understand the crisis of the national context within the current globalization of capital. The concept of “national liberation” is now revealed as a contradiction in terms. Appealing to the nation is not an alternative to globalization, and is reactionary besides. The left needs transnational forms of action and organization so as to once again meet capitalist development on equal terms. A post-capitalist future can only be imagined within the context of post-national forms of reproduction.

    DH: Together with the State, democracy and citizenship also played a role in the imposition of the modernization process. How do you relate liberalism, social democracy and State socialism to the system of commodity production?

    RK: As long as capitalism was not fully developed, the system of bourgeois rights was not perfected either. The universality and equality of the legal form were not yet fully established; particularly in the political arena (suffrage, rights of assembly, freedom of association, etc.), a great part of the population was totally or partially excluded from the enjoyment of bourgeois rights. This is why the concern for change was directed above all towards the political sphere. Under the name of democracy, the demand for “political equality and freedom” was declared to be the historical goal. The Black Book analyzes this orientation as an historical illusion. The integration of the masses into the modern citizenry was at the same time a process of domestication that forced consciousness and action into the molds of capitalist society. This is why the various dictatorships of modernization were by no means counterpoints to democracy, but manifestations of a passing historical phase of democracy itself. The hope that democratic systems of decision-making could regulate the existing economic system has long been cruelly discredited. Thus, before the members of the society of commodity production can even begin their democratic debate, they are already defined a priori as economic competitors. The valorization of money, the market and competition create irrational alternatives that can only become the objects of democratic procedures a posteriori. Democracy’s charm has today become quite definitely insipid. For critique, the globalization of capital and the economic totalitarianism of the market lead not only to democratic politics, but also to a politics that is in itself absurd.

    DH: How does The Black Book utilize this critique of globalization and the collapse of casino capitalism when you speak of “unemployed money”?

    RK: Today, in many countries and regions of the world, the system of commodity production, and with it the monetary economy, is actually collapsing. In the western heartland and in parts of the periphery, the crisis of labor does not appear only as a crisis of capital because here the “substance of labor”, that is, the real economy, was replaced by an uncoupling of the financial markets. Capitalization by means of the stock exchanges of speculative “casino capitalism” raised hopes for fictitious profits to be made well into the 21st century. Hopes that will never be realized. The Black Book analyzes this development by comparing it with the scale of the speculative bubbles of the first and second industrial revolutions. Just like the previous ones, this one, too, must burst. It is, furthermore, much more clear that the scale of “fictitious capital” is today much greater than it was in the past. In the third industrial revolution capital is making its own “substance of labor” superfluous in a much more profound manner. When this bubble bursts, the explosion will shake world capitalist society to its roots.

    DH: How do you assess the prospect for a process of social emancipation which goes beyond labor, the class struggle, the traditional labor movement and a mere “culture of rejection”?

    RK: The irrational functional mechanism of capital can only transform the gigantic productive forces of microelectronics into mass unemployment, a stress on efficiency and, finally, the collapse of the financial system. The emancipatory perspective, on the other hand, can only consist in the transformation of these productive forces into more leisure and a good life for everyone. This will, however, require the rise of a social movement that will no longer define itself by reference to the capitalistically constructed form of competing interests. It must be a “movement of appropriation” that will directly appropriate resources and bypass the detour of the market, the State, money and politics. This will only be possible by breaking with the subject-form and form of consciousness characteristic of these institutions and forms. To achieve this goal, a “culture of rejection” could be a step in the right direction, as could the development of “forms of mutual aid” that transcend the market and the State, as could revolts against the blatant insults of economic totalitarianism (even the “I love you” computer virus). What will be decisive will be whether the future social movements embrace the radical critique of capitalist categories, or if, instead, they choose to undertake the self-management of poverty. Theory cannot, by itself, outline a concrete program and offer this program to the world as if it were a new laundry detergent. The perspective can only be made more concrete by the joint action of theory and emancipatory social movements.

    DH: The book’s literary form corresponds to the violent reality of the modernization process. Its language, which waxes indignant in response to the details of its narrative, and its sarcastic scorn and irony, recall Adorno, do they not?

    RK: Some critics have called The Black Book a “pamphlet of insults directed against the market economy”. I accept this critical assessment with pleasure. Only from the distance of the bourgeois academy do theory and historical analysis appear as the neutral observation of neutral objects. A social critique, however, presupposes an existential commitment of the entire man, and therefore involves emotion as well. The dominant order is not just a system of functional mechanisms but also a detestable insult and an accumulation of infamies. All real critics, from Marx to Adorno, carried out their precise analyses with irony and in the spirit of the rejection of “modernization”, whose stupidity and violence constitute an insult to all human reason.

    DH: How has the book been received in Germany?

    RK: The Black Book was the object of much more attention and had larger print runs than The Collapse of Modernization (published in the early 1990s). Along with the Krisis Group’s Manifesto Against Labor, it presented questions for a new debate on the left and reached a large number of readers. Obviously, the reviews in the media, with few exceptions, are extremely negative, since the book violates the taboo of an apparently definitive social consensus: “the market economy and democracy”. The spokespersons of the old left also had an allergic reaction to the book, even more acute than their reactions to the previous publications of the Krisis journal, since they are watching their ship go down.

    Robert Kurz
    February 15, 2005

    Portuguese translation at: http://obeco.planetaclix.pt/

    Translated from the Spanish translation by Contracorriente at:


    • Dana January 23, 2013 at 9:05 pm #

      Very interesting interview. Many thanks for posting it.

      I know nothing about Robert Kurz, but my sense, if only from this short interview, is that he takes on, unabashedly, the core of the problems with ‘corporate capitalism’ and the weaknesses of socialism. No beating around the bush.

      Link to a web page of the interview posted above.

      Link to Wikipedia page on ‘The Black Book of Capitalism’.

      Unfortunately Kurz’s book hasn’t been published in English. However, there is a pamphlet by Kurz, available online, apparently part of a series, Krisis: Contributions to the Critique of Commodity Society

      Description: Essays from the German Krisis periodical, which transgresses the academic establishment and leftist traditionalism. A reformulated critique of capitalism is discussed and developed that moves the faded-out Marxian strand of the critique of commodities, value, labour and money to the centre of attention. Five essays are translated here: Terror of Labour by Trenkle; The Degradation of Culture, Realists and Fundamentalists, Hysterical Populism and Totalitarian Economy and Paranoia of Terror from Kurz.

      There is no wiki page on Kurz’s life in English, but French speakers can refer to this page.

      Many thanks, again, Diogenis, for the introduction to Kurz. Appears to be lots to discover, there.

    • pilibi January 24, 2013 at 12:19 am #


      i think contributors here are looking for solutions within a capitalist framework.

      They’re not questioning capitalism’s right to exist.

      His belief that “after three centuries, it is clear that capitalism was never anything but a system of blatant insults to human life and behavior; for the great majority of men in the past and the present it never brought an increase of well-being, but always only new advances in mass poverty and desperation.”

      They’re looking for benign forms of Capitalism – the very idea is an oxymoron.

      • Diogenis January 24, 2013 at 12:41 am #

        I was also always looking for a solution within the system.I am no communist.But as the years pass by I have a question:Is maybe this whole system and the concept of “capitalism” wrong?

        If I am not allowed to pose the question David is free to delete my posts.I did not want to disturb a certain discussion.

        And ofcourse the last thing I want is to “insult” someone by posting capitalist-critisism.

      • Mike Hall January 24, 2013 at 2:29 pm #


        I think you are absolutely right to suggest that contributors here are (mostly) looking for solutions within a capitalist framework (of some sort).

        I certainly am, and I’ll tell you why. Pure pragmatism. We only have perhaps a few decades – at most, maybe only one or two – to radically change the direction of human society. That is to say, something transformational in the way most of us think.

        Even if we could agree on something that ditched all the institutions of capitalism, the agreement of a plan of implementation would likely take another few decades on top. And all this in the teeth of the most powerful elites the world has ever seen who would likely choose a nuclear conflict rather than cede their privileged positions?

        That isn’t to say that work like Kurtz’ is not of value – it is, if only to better know the beast we have. But let’s realise we need to find a way forward that is optimally both transforming & practical. And the simpler the better.

        I retain some optimism that this is possible because we have tools at our disposal now that previous generations could not have dreamt of. We’re using one now.

        Moreover, the present system has a major weakness. It depends entirely on a complete tissue of lies & omissions for the acquiescence of the majority. The system does not actually work or produce the results that it is purported to do – by a long way.

        Just to actually get a meaningful ‘democracy’ & an associated economy functioning the way most people think they either already do, or should do, would be a major achievement. Transformational in itself.

        In the end, the only solution, of whatever kind, ‘capitalist’ or other, will have one defining characteristic – co-operation. In the future – if we have one – the very utterance of the word ‘competition’, most especially applied in some aggregate context, will be sufficient to have the speaker universally shunned & censured.

        The absolutely most basic metric in whether co-operation is realised is that of the universal provision of essential needs for human life.

        What we have in a family or tribal context (generally co-operative), we must carry over to a regional & global context.

        Whatever system we choose won’t work without this anyway imo.

        • pilibi January 25, 2013 at 8:46 am #

          Capitalism cannot be reformed or transformed into something that values human dignity/life. It’s an economic system based on exploitation of people and resources for profit.
          It will always be hostile to any kind co-operation or any anything that tries to limit it’s expansion.
          It’s endless cycles of boom and bust with all their attendant human costs are unsustainable.

          Democracy and Capitalism can never occupy the same space.

          Capitalism has to be destroyed or it will destroy us.

          To transform human relations capitalism must be replaced as the essential first step, anything less is fanciful.

          The powerful global ‘elites’ are only powerful because we allow them – we are many, they are few.

  18. Hawkeye January 23, 2013 at 6:01 pm #

    PBS have brought out another documentary on financial shenanigans, called “The untouchables”:

    “Are the CEOs of mega-banks too big to jail? Though fraudulent practices at banks contributed to America’s financial meltdown, to date no Wall Street titan has been convicted of a crime connected to the crisis. FRONTLINE investigates why Wall Street’s leaders have escaped prosecution.”

    Slight problem is that I’m having trouble viewing this online:


    Any suggestions for a work-around?

    • backwardsevolution January 23, 2013 at 9:42 pm #

      Hawkeye – thanks for posting that Frontline piece. It was excellent and frustrating at the same time. I do not believe Lanny Breurer, Assistant Attorney General. Here’s why:

      Lanny Breuer, Steven Fagell and Eric Holder – all of them came from the law firm of Covington & Burling in Washington, D.C. Coincidence? How do you think they got their positions in the first place? These guys have defended white collar criminals. They are their friends. They’re not about to turn around and bite them.

      Lanny Breuer:

      “Prior to becoming Assistant Attorney General, Breuer was a
      partner in the Washington law firm of Covington & Burling LLP and the
      co-chairman of its white-collar defense and investigations practice group.
      Breuer was best known for his work representing the subjects of congressional
      investigations. He represented the University of California in an investigation
      of Los Alamos National Laboratory, Moody’s Investor Service in the wake of
      Enron’s collapse, Halliburton/KBR in a hearing conducted by the House Committee
      on Oversight and Government Reform, Roger Clemens,[1] Yahoo!, and the Special
      Litigation Committee of the Board of Directors of Hewlett Packard.”


      Lanny Breuer’s right-hand man, Steven Fagell:

      “Covington & Burling LLP is pleased to announce that Steven Fagell, most recently the Deputy Chief of Staff and Counselor to the Assistant Attorney General of the Criminal Division at the U.S. Department of Justice, has rejoined the firm as a partner. Mr. Fagell will practice in the firm’s litigation group, with a particular
      focus on white collar defense, internal investigations, and securities litigation
      and enforcement. He will be resident in Covington’s Washington office.”


      Eric Holder, U.S. Attorney General:

      “From 2001 until he became Attorney General, Holder worked
      as an attorney at Covington & Burling in Washington, D.C., representing
      clients such as Merck and the National Football League.”


      • backwardsevolution January 23, 2013 at 9:49 pm #

        Hawkeye – ZeroHedge has got the series in four parts. Hope it works for you.


        • backwardsevolution January 23, 2013 at 9:58 pm #

          Someone else who helps people with their fraudulent mortgages in the U.S. posted this:

          “Covington & Burling is the law firm for MERS, the fake electronic registration system that facilitated the fraud. Covington & Burling attorneys wrote the letter justifying MERS business model that was trotted out to the banking community. This letter was banking’s “Get out of Jail Free” card.”

          MERS allowed banks to get around registering documents in Land Title offices.

        • Hawkeye January 24, 2013 at 10:30 am #

          Hi BE

          Thanks for the other references and background materials.

          I’m still having trouble viewing the video, even on the ZH links. It says that the “video is unavailable”. I have had this before when trying to view stuff on PBS. I suspect that this is because I am outside of the US.

          May have to wait for the DVD to get released. That’s how I got to see “The Warning”.

  19. Patricia January 23, 2013 at 11:42 pm #

    Just a quick thought. Perhaps if we all refrained from using the words “you” and “yours” then the issue being discussed could be assessed less emotionally.

    Now what do the MMT people think of this idea? Here in NZ our Government is apparently borrowing NZ$300m overseas per week. Heaven only knows from whom. Our dollar is so high our exporters are barely surviving. It is our agricultural exports which keep us afloat. A sort of dutch disease.
    As we are a sovereign country we could print $300m+ pw, start paying off those overseas loans which are in NZ$. the interest burden would be lessened and, hopefully – because I am not sure this would occur – our dollar would drop and we could start developing and expanding those manufacturing businesses that export. The government could increase taxation to reduce the money supply if that was needed. Now the lowering of our $ would increase the cost of our imports but that wouldn’t be a bad thing because we could start manufacturing for ourselves. People would have jobs again. As an aside when I was young there were so few people unemployed it was said the PM knew them all by name! When our poor little Kiwi dollar is one of the most traded – gambled – in the world then surely something has to be done. But the words “currency war” are such emotive words. I would prefer to say the above is a way to save our children and their children from, possibly, a very bad future. Surely an economy has to be managed for the benefit of its people and that is why we vote. That is what democracy is all about. The people.

    • Mike Hall January 24, 2013 at 2:49 pm #

      The question of the existing gov debt should be dealt with separately & under it’s own criteria, from the issue of spending (& taxation). NZ gov does not need to borrow from anyone in order to ‘deficit’ spend.

      MMT would suggest implementing a Job Guarantee (with the specific conditions) which will serve to stimulate the economy back to (near) full ‘normal’ employment.

      The $NZ will exchange wherever it may according to NZ’s mutual trading relationships. NZ should not try to manipulate it (nor should others).

      What can be said about this is that NZ will then be maximising the economic potential of its population, according to its own resources and abilities.

      • Patricia January 24, 2013 at 10:44 pm #

        While it is a waste of money paying interest to someone when you don’t need to, the fact is the the Govt DOES borrow – every week. The currency traders gamble on our dollar and that is one of the reasons it is so high. If we can’t fix our currency then there must be other ways. Lowering the interest rate doesn’t do it. That only means that people can and do borrow money to invest – in houses the prices of which are also in cloud cuckoo land. While I like the idea of a job guarantee scheme that, in my view, is not a solution in itself. We would end up building bridges to nowhere unless there is comprehensive plan to deal with a high dollar and a HUGE private debt albeit a relatively low public debt. That private debt means we can buy all matter of rubbish manufactured overseas while more and more people become unemployed – all their own fault according to the Government.
        Has any MMT theorist applied the theory to an actual country to show how and what could be achieved? It would be so interesting to see what could be done.

  20. Diogenis January 23, 2013 at 11:46 pm #

    A guy in another forum has written this:

    “Bruce C. −
    I was really hoping that 2013 was going to be a disaster for mankind but now I think we’re in for an accelerated state of reflation where everything is going to get crazier, more extreme, more absurd, more perverse, more counter-intuitive, more corrupt and more of everything else that would drive the impatient mad.

    So this article is mocking to me. Of course I would like to (finally!) see a financial collapse but I dread that it ain’t gonna happen, at least not any time soon.

    “This game can only go on as long as interest rates keep falling.”

    If only that were true, but it’s not necessarily. All of the Treasury bonds owned by the Fed are at effectively zero interest because all interest payments from the Treasury to the Fed are returned to the Treasury. That actually means that total net interest expenses for the Treasury are currently decreasing with time as the Fed buys about $85 billion worth of Treasuries each month (which is about 90% of all new issuances). As long as the Fed is willing to do this the current deficit spending by the US can continue for a lot longer than most analysts think possible (I mean for decades).

    I don’t know if Japan’s central bank (the BOJ) reimburses the Japanese Treasury of its income from government bonds but if it does then there won’t be any need to sell JGBs to outsiders who may demand higher interest rates. For the same reason explained above the Japanese government could literally enjoy decreasing debt servicing costs despite rising price inflation. Again, that can’t last forever but I wouldn’t hold my breath.

    A derivatives implosion also seems to good to be true. But how can that happen if Contract law is no longer enforced? One of the great new jurisprudent discoveries by the financial elites is (I’m paraphrasing) ‘if the enforcement of any contract will upset any elite then it won’t be enforced!’ So forget about a derivatives implosion”.

    What do you guys think about his arguments?

  21. backwardsevolution January 24, 2013 at 8:03 am #

    “The Global Economic Disease in 8 Points and the Cure in 4 Points” by Charles Hugh Smith.


  22. backwardsevolution January 24, 2013 at 8:57 am #

    Mike Hall – re the MMT video you posted:


    At 00:57 – “If everyone saved at the same time, no one would have jobs.” People used to save, and there were still jobs. Perhaps the difference is there wasn’t inflation then, just sustainable growth.

    At 01:02 – “The U.S. economy is 70% consumer-driven.” It didn’t used to be this way. No one got rich, but everyone enjoyed a pretty decent lifestyle. 60% of the exports out of China are from U.S.-owned corporations. Perhaps they should close down the colony and bring the manufacturing jobs back home.

    At 01:43 – “You mean those corporations who are sitting on trillions of dollars in cash…” Mish Shedlock had this to say:

    “On May, 11, 2012, In Cash Cow Liquidity Comparison: Where’s the Cash and Where’s the Debt? A Look at the Top 50 Companies, I noted “net cash on hand at the top 50 companies is negative to the tune of $1.479 trillion. If one considers short-term investments to be cash equivalents, then net cash is negative $1.251 trillion. Only if long-term investments are included does the number go positive.”

    At the time of that report, cash was approximately $4.554 trillion and debt was $4.503 trillion.

    Simply put there is no net cash on the sidelines. Companies are raising cash, but they are also raising debt.”


    • Mike Hall January 24, 2013 at 3:07 pm #

      All a bit meaningless out of context. Or was that the purpose?

      Do you think you could have shortened your extracts there, be, I’m really struggling to read more than 10 words together? Surely we don’t need so many to fully comprehend a macro economic or monetary system question? (Sarcasm)

      I wouldn’t trust anything Mish Shedlock had to say.

      • backwardsevolution January 24, 2013 at 4:51 pm #

        Mike Hall – no, I was being quite serious. We didn’t used to have inflation. I remember my father getting the same pay cheque for years – YEARS – and somehow, without being deprived, the family was able to save some.

        It was in the 1970’s when inflation took off, when the prices of things went crazy (houses, products). I’m not saying the gold standard was good or that we should want it back, but it does seem that right after it was gone (when there was NO constraint or holding back the flood of credit) that things started to heat up. Then “trickle down” came in with Reagan and Thatcher, but it didn’t trickle.

        My point about 70% consumerism is maybe, as countries, we ought to rethink this instead of just throwing our hands up in the air and continuing on with the same program. 70% of any economy dependent on consumerism is way, way too high. It’s like Japan was when the Great Depression hit (they were dependent on the price of silk).

        What’s the point of putting a bandage on something (let’s just print more money in order to get out of this mess) when some serious changes need to take place. That would be like a doctor giving a patient going through the DT’s some more alcohol. “Another 40 ouncer ought to do it, that’ll see him through,” but then nothing changes.

        Force needs to take place, and force from the people. They need to take back their countries. What force is going to take place on the elite/TPTB if we just keep on keeping on. Why, they’d love that. Everything is smoothed over for them, and the merry-go-round is cranked up again. Whahoo! Unless that’s what you want.

        Some constraint (and there is even constraint in a good marriage, otherwise it doesn’t work) needs to be in place. You don’t have a country without it; you have a free-for-all, except the people don’t seem to benefit from all of the fun.

        No, I do not agree with Mish Shedlock (his opinions) 80% of the time, but his article re corporate cash is dealing with facts. Sometimes he does get things right.

        Mish Shedlock is a staunch Libertarian, yet, funnily enough, he does not believe in fractional reserve banking, preferring to call it counterfeiting. I agree with him there.

        • Mike Hall January 24, 2013 at 9:09 pm #


          The price of houses in UK didn’t ‘go crazy’ until the 1980s – quite a discrepancy from a 1971 driven narrative. (I know this, I was there.)

          Ann Petifor offers a good commentary on the period in this recent paper:


          I think you need to ask the question too, as regards a +modest+ level of inflation, is inflation in what, how much & did it matter? And in the case of things like oil (1970s & now), what could we do about it?

          The only inflation that has been a major problem in my lifetime has been the very specific one of ridiculous land/property prices. There is no doubt that the banks are heavily implicated in this, effectively shovelling in credit largely for existing assets, not productive activity. The key, as said before, is what the credit is used for. This has to be a matter of bank/financial regulation.

          Apart from this clear issue of asset ‘bubble’ finance, not hard to regulate for, if the ‘will’ is present, I think you need to decide whether you want to obsess over (modest) inflation or be a bit more concerned about the huge mess in the real economy?

          Specifically the massive economic costs – dwarfing any other costs in this whole crisis (yes, including all the bank losses!!) – of all the lost output of real goods & services. As per (BoE) Andy Haldane’s paper, considering these costs in the context of a Tobin tax, we’re talking around 10% of US & EU total GDP +per year+. Times 5 years, probably another 10 to go, if the same sh1t continues…..you do the sums.

          Then we can talk about the devastating-for-generations social costs….

          So, seriously, ‘be’, what problem is it exactly you think we need to prioritise??

          MMT is +not+ ‘just print some money’. It is about bringing about a society where no one gets ‘dumped’ in the trash with some ‘shirker’, ‘scrounger’ or ‘untermenschen’ label because their labour is surplus to an elites’ requirements this week/month/year/decade.

          It explains that for fiat (etc) currencies THERE IS NO ‘MONEY’ CONSTRAINT’ in doing this – NONE.

          It does this in such a way that people can decide, by whatever means – democracy, chucking dice, whatever – how much is in the private sector & how much in the public sector. BUT, that whatever proportion of ‘private’ is chosen, if they cannot deliver, the public ensures no one gets ‘dumped’.

          MMT advocates also say unequivocally that the banks etc. must be properly regulated to ensure credit/money is properly provided at the micro level & asset hedging or other speculative credit strictly limited. If Bill Black thinks we can do this – good enough for me.

          To me, this provides a stable +inclusive+ framework from which to make the decisions, investments etc. required to achieve ecological sustainability. And importantly, whatever we choose can be done to the maximum use of our available resources – human & material. Time is short, we need to get on with it.

  23. Mike Hall January 24, 2013 at 2:53 pm #

    Quite a useful piece on QE from Radhika Desai at the Guardian


    A quote:

    “So we shouldn’t assume that QE will power a recovery. It probably won’t. As Keynes pointed out, under certain conditions (such as those today: rock-bottom interest rates, poor demand outlook, heavily leveraged firms and households) credit easing would amount to little more than “pushing on a string”. So why are Bernanke and Carney seeking to tie recovery even tighter to monetary policy with their innovations in QE precisely when its failure to power recovery is clearer than ever?

    It’s because without some action on their part, public discussion is bound to turn towards the alternative: a vigorously expansionary fiscal policy, with massively increased state investment in the economy. This option lies just below the surface of public discourse: the neoliberal triumph of recent decades was never able to entirely eradicate it from public discourse and memory. But as long as the public can be kept believing that monetary policy will achieve some semblance of growth, later if not sooner, that the economy’s managers are busy refining monetary policy tools to accomplish that, fiscal policy can be that much more effectively kept out of the picture.

    In effect the public in both these countries is being told that they cannot get recovery unless the banks give it to them. And keeping recovery hostage to the financial system is tied up with something very fundamental. Announcing the failure of monetary policy is to displace that holy of holies – the private sector – from its current centrality in our understanding of the economy and admitting that government action and expenditure, probably on a large and unprecedented scale, is necessary for recovery.”

  24. backwardsevolution January 25, 2013 at 9:16 am #

    This is worth a read: “The Case Against the Fed and Fractional Reserve Lending”.

    “To those who claim credit extended by fractional reserve lending is not fraudulent because it’s backed by assets, I ask: “What assets?” […]

    Close analysis shows the “backed by assets” claim only holds true as long as asset prices are rising. When asset prices are falling as they are now, the true state of the non-existent backing is plain to see.

    Credit extended via FRL is backed by nothing more than thin air and promises. Those promises are currently worth pennies on the dollar, and the entire global banking system is insolvent as a result. […]

    Proponents of FRL claim no one is harmed by it. In practice, everyone is harmed by it. Here is how it starts. Those with first access to money accumulate assets and those with later access to money bid up those assets. Consider housing. GSE creation of credit out of thin air is a perfect example of what happens. By the time credit was available to those of lower economic status, the bubble was already formed and ripe for a collapse. Even the non-participants were harmed. How so? Via rising property taxes and rising prices of goods and services without the benefit of rising wages.

    Ironically, even those with first access to money (the banks and wealthy) ultimately did not fare well because they were greedy. When the bubble popped (as all debt bubbles eventually do) the only winners were the few who made timely bets on the demise of the bubble.

    FRL is the enabler for credit bubbles. Given enough time, credit bubbles are guaranteed to implode in deflationary fashion. History is replete with examples. The South Seas bubble, the John Law Mississippi bubble, and tulip mania are prime examples.”


  25. backwardsevolution January 25, 2013 at 9:21 am #

    The above article continues, but I urge you to read all of it:

    “Typically, the central bank starts out by preventing the short term interest rate from rising to its equilibrium level. This leads to central bank credit creation. In turn, this encourages investments which are profitable only so long as the central bank prevents the interest rate structure from rising to its free-market equilibrium level. All of this manifests itself in the form of higher prices – higher prices of goods/services and/or the higher prices of assets. At some point, the central bank can no longer tolerate what it has wrought, and raises the level of the short-term interest rate above its free-market equilibrium. This precipitates a decline in asset prices, an economic recession and, later, a decline in goods/services prices (or
    a slowing in their rate of increase). It was recognized by Austrian economists during the sharp run-up in U.S. stock prices in the late 1990s and the subsequent housing boom that the Greenspan-led Fed was especially egregious in keeping the federal funds rate far below its equilibrium level too long. We are now experiencing the economic and financial market fallout from Greenspan’s interference with the free market.

    In free markets, risk-takers get rewarded if they are correct in the risks they take, but are punished if they are incorrect. Here, too, Greenspan intervened in the free markets. When it turned out some risk-takers had erred, Greenspan cushioned their losses by slashing the federal funds rate and creating central bank (counterfeit) credit. This central bank intervention in free markets encouraged risk-takers to take on even more risk inasmuch as their upside rewards would seem to be unlimited but their downside punishment would be limited.”


  26. Nangpa February 5, 2013 at 3:38 am #

    This is a late contribution on your ‘currency imperialism’ theme, which seems not to have been covered in detail by other respondents.

    I’ve seen it pointed out (e.g. in


    ) that Col. Gaddafi was overthrown just as he was making headway with a pan-African plan to sell oil in currencies other than $US.

    The reference also suggests that similar concerns about Saddam Hussain wishing to sell oil in Euros could have been a factor in the decision to remove him.

    Similarly the US blockade of Iranian trade and financial activity


    may be directly related to its plan to sell oil to China and others without using the $US – as well as being about the nuclear issue.

    To quote from that second reference:

    “To sidestep Washington, India has worked out an agreement to pay for half of its allotment of Iranian oil in rupees, a soft currency. Iran would then have to use those rupees on food and goods from India, a windfall for its exporters. Defying the American president yet again, the Indians are even offering a tax break to Indian firms that trade with Iran. That country is, in turn, offering to pay for some Indian goods with gold.”

    These appear to be examples of exactly what you suggest – strong imperialist action from the dominant trader taken to keep a particular currency in use, with creative action from an ‘upstart’ (in this case India) to insert theirs into the trade.

    I wonder if anyone can identify other, perhaps less-obvious, examples of this kind of commodity-related ‘currency utilization protection’.

  27. David Morey February 10, 2013 at 8:39 pm #

    Some of you might want to have a look at Lord Turner’s latest speech:


  28. ballymichael February 13, 2013 at 1:23 pm #

    Interesting to read the exchange between GolemXIV and the MMt proponents.

    I saw a phrase recently (on guardian CiF, I think) that Iliked. “A recession is God’s way to make us learn economics”.

    Well, it certainly had that effect on me, if one ignores the metaphysical concept of “God”.

    MMT? I haven’t completely grasped it. My gut feeling is, it doesn’t take enough account of irrational, “madness of crowds” factors, regarding money. That Japan, for example, can still find buyers for its bonds, is a fact. But “past performance is no guide to future performance”, as they say. I really cannot see how a long-term negative real return on japanese sovereign bonds is going to be an acceptable investment. Life Assurers, for example, have minimum guaranteed return to meet. It would be suicidal to stay in japanese bonds.

    As for why they still find buyers? My guess is, a Japan’s a strongly cohesive society, and that society is reflected in a strongly corporatist economy. But when the big corporate buyers finally tip away from them, it’s going to be a very ugly stampede.

    And I don’t think MMT will model that stampede at all well.

  29. personal reputation management May 3, 2013 at 6:41 am #

    What’s up, I log on to your blog daily. Your humoristic style is awesome, keep it up!

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