Our financial system is crumbling this week.

[Hungary Jack]

This Mosler fellow must play a lot Monopoly, because he sure likes the funny money.

[longhornbaseball]

I like the funny money, too. Please send me all of your funny money, HJ. It will all be worthless soon, right?

Mosler understands fiat currency and banking better than anyone else I've read. It's good that you're exploring the site.

[Hungary Jack]

I like the funny money, too. Please send me all of your funny money, HJ. It will all be worthless soon, right?

Mosler understands fiat currency and banking better than anyone else I've read. It's good that you're exploring the site.

I will certainly spend time there to understand his arguments. But it hurts my brain to hear a guy argue that debt and deficits don't matter because you can simply print more money. It sounds like a recipe for the Weimar Republic.

[longhornbaseball]

I will certainly spend time there to understand his arguments. But it hurts my brain to hear a guy argue that debt and deficits don't matter because you can simply print more money. It sounds like a recipe for the Weimar Republic.

HJ, you clearly haven't read enough yet. He does NOT say deficits don't matter; quite the opposite.

[Arthur Dent]

In point of fact, we are "printing money" (actually crediting bank reserve accounts), and in large quantities, yet there is no Weimar style inflation. Those warnings have been spectacularly wrong. So long as the economy has enormous unused capacity, it is very difficult for increased liquidity to trigger inflation, much less hyperinflation. Heck, the "printing money" doesn't even really increase liquidity with interest rates at zero. That said, I find the MMT stuff to be a rather cranky doctrine for a number of reasons, but I don't particularly feel like arguing the point.

[longhornbaseball]

In point of fact, we are "printing money" (actually crediting bank reserve accounts), and in large quantities, yet there is no Weimar style inflation. Those warnings have been spectacularly wrong. So long as the economy has enormous unused capacity, it is very difficult for increased liquidity to trigger inflation, much less hyperinflation. Heck, the "printing money" doesn't even really increase liquidity with interest rates at zero. That said, I find the MMT stuff to be a rather cranky doctrine for a number of reasons, but I don't particularly feel like arguing the point.

The government has "printed money" for over 80% of its existence. "Printing money" simply means spending more than you tax, i.e. running a deficit, or increasing the net financial assets of the private sector. Only the Federal government can do this. The increase in bank reserves is not a result of the government "printing money" (which is widely misunderstood by pretty much everyone), but due to the Fed increasing its balance sheet. This doesn't add any net new assets to the economy, it just changes the composition of assets in the economy. When the Fed engages in quantitative easing, it trades reserve balances that sit on a bank's balance sheet for treasuries that used to sit on the bank's balance sheet. It doesn't materially affect lending capacity in any way, because banks are not dependent on reserves in order to lend.

So when Bill Gross or all the other talking heads talk about the Fed "printing money" they don't really know what they are talking about.

[Arthur Dent]

The increase in bank reserves is not a result of the government "printing money" (which is widely misunderstood by pretty much everyone), but due to the Fed increasing its balance sheet. This doesn't add any net new assets to the economy, it just changes the composition of assets in the economy.

I'm not sure what distinction you're trying to make here. I put printing money in quotes for a reason. When printing money is discussed, this is typically what is meant -- the Fed crediting bank reserve accounts when it buys bonds. The fact that the Fed has an unlimited capacity to do this bothers a lot of people for many (mostly ill-conceived) reasons including the fact that it violates a concept of money as a sort of physical thing. Creating more of it must surely lead to disaster. It would be much better to think of money as a social relationship. Printing money, in the sense of Fed actions, is a totally routine function. I know that MMTers prefer to think in terms of a unified Fed and Treasury and net government asset issuance (which is fine as far as it goes), but that's beside the point.

It doesn't materially affect lending capacity in any way, because banks are not dependent on reserves in order to lend.

A does not imply B here.

[longhornbaseball]

I'm not sure what distinction you're trying to make here. I put printing money in quotes for a reason. When printing money is discussed, this is typically what is meant -- the Fed crediting bank reserve accounts when it buys bonds. The fact that the Fed has an unlimited capacity to do this bothers a lot of people for many (mostly ill-conceived) reasons including the fact that it violates a concept of money as a sort of physical thing. Creating more of it must surely lead to disaster. It would be much better to think of money as a social relationship. Printing money, in the sense of Fed actions, is a totally routine function. I know that MMTers prefer to think in terms of a unified Fed and Treasury and net government asset issuance (which is fine as far as it goes), but that's beside the point.

The point I'm trying to make is that swapping assets for reserves is not printing money. You can make a case that treasury securities are money. When the government runs a deficit it is printing money. That is, it is increasing the net financial assets of the private sector. This is not a new phenomenon. And I know you know that.

[greenback44]

It sounds like a recipe for the Weimar Republic.

When the government's debts are in gold, the French army is occupying the entire midwest, Blackwater literally takes over DC for a few days, and Jerry Brown literally declares California a soviet socialist republic, then we'll have the key ingredients to Weimar.

[sighyoung]

I hope we fall that low.